There's a coincidence
Actually, the "earnings" were commissions.
Here's the poop
81% of revenues from SNMM- 1 customer
Reverse merger
Nevada corporation
(watch shares appear like magic)
Masters of hype
Limited operating history
Own a bunch of websites and little else
Ignoring negative of VLDC
RED FLAGS ABOUND
back to 8-9 by Friday
----
September 13, 1999
M & A WEST INC (MAWI)
Annual Report (SEC form 10KSB)
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION.
Overview
The Company develops, invests in, and operates Internet and technology related companies. The Company's strategy includes the internal development and operation of majority owned subsidiaries within the "M & A West" family, as well as investment in other Internet companies, either directly by M & A West or through other venture capital arrangements. The Company's strategy also envisions and promotes opportunities for synergistic business relationships among the Internet companies within its portfolio. The Company intends to continue its focus as a Seed Round Internet Startup investor.
As of May 31, 1999, the Company has a 51% ownership interest in Digital Bridge, Inc. and a 21% ownership interest in VirtualLender.com, Inc. ("VirtualLender"). Digital Bridge offers e- commerce web design and development, web-site hosting and Internet marketing consulting for its web development and design clients as well as graphics and consulting services for small to medium sized businesses. Digital Bridge, Inc. now has several clients of its own and is exploring the possibility of becoming a separate public company.
VirtualLender originated from M & A West's mortgage company, M & A West Financial. VirtualLender is a mortgage banker/direct lender focusing on originating sub-prime loans and mortgages over the Internet.
The Company has adopted a strategy of seeking opportunities to realize significant gains through the selective sale of investments or having separate subsidiaries or affiliates sell minority interests to outside investors. The Company believes that this strategy provides the ability to significantly increase shareholder value as well as provide capital to support the growth in the Company's subsidiaries and investments. Additionally, in fiscal year 1999, the Company will continue to develop and refine the products and services of its businesses, with the goal of significantly increasing revenue as new products are commercially introduced, and will continue to pursue a strong pace of investing in new Internet opportunities.
Results of Operations
On May 12, 1999, M & A West, Inc., a Nevada corporation, completed a share exchange transaction with Buffalo Capital IV, Ltd., a publicly traded shell company, in a transaction whereby M & A West became a wholly-owned subsidiary of Buffalo Capital IV. Immediately after the transaction, Buffalo Capital IV, Ltd. changed its name to M & A West, Inc. All references to "the Company" in this section refer to M & A West, Inc., the Nevada corporation, prior to May 12, 1999, and to the consolidated entity from May 12, 1999.
The following table sets forth, for the years indicated, certain items from the Company's Consolidated Statements of Operations expressed as a percentage of net revenues.
Fiscal Year ended May 31,
1999 1998
Net revenues 1,087,019 97,033
Cost of revenues 0 0
Research and
development expenses 0 0
In-process research
and development
Selling, general and
administrative expenses 1,498,123 50,431
Operating loss
Operating Profit 328,896 46,602
Other income, net (43,489) 15,345
Income tax (expense) (128,690) (27,200)
Net income 156,717 34,747
Fiscal 1999 Compared to Fiscal 1998
Net revenues for the Company increased $989,986 or approximately 1,120%, to $1,087,019 in 1999, from $97,033 in 1998. The increase reflects an increase of $505,054 in the Company's commission income and $1,224,932 from the Company's trading gains. The Company believes that its portfolio of companies will continue to develop and introduce their products commercially, will actively pursue increased revenues from new and existing customers, and will look to expand into new market opportunities. Therefore, the Company expects to report future revenue growth.
Cost of revenues is not applicable.
Selling expenses increased $930,734, or approximately 4,141%, to $953,765 in 1999, from $23,031 in 1998. The increase reflects increases of $254,720 in advertising and $416,673 in consultant fees. Employee business expenses and payroll increased $259,341 or approximately 1,914% in 1999 from $13,547 in 1998.
General and administrative expenses increased $516,959, or approximately 1,887%, to $544,358 in 1999, from $27,400 in 1998.
Interest income increased $354 in 1999, from $0 in 1998.
Equity in losses of affiliates resulted from the Company's ownership in certain investments that are accounted for under the equity method. Under the equity method of accounting, the Company's proportionate share of each affiliate's operating losses and amortization of the Company's net excess investment over its equity in each affiliate's net assets is included in equity in losses of affiliates. Equity in losses of affiliates for fiscal 1999 include the results from the Company's minority ownership interest in Virtuallender.com, Inc. The Company expects its portfolio companies to continue to invest in development of their products and services, and to recognize operating losses, which will result in future charges recorded by the Company to reflect its proportionate share of such losses.
The Company's effective tax rates for fiscal 1999 and 1998 were 45% and 44%, respectively. The Company's effective tax rate differs materially from the federal statutory rate primarily due to valuation allowances provided on certain deferred tax assets, the provision for state income taxes, and non-deductible goodwill amortization and in- process research and development charges.
Liquidity and Capital Resources
Working capital at May 31, 1999 increased to $2,487,347 compared to $308,039 at May 31, 1998, predominately as a result of increased revenues from services rendered. The Company's principal uses of capital during fiscal 1998 were $1,498,000 for funding of operations, primarily those of start-up activities in the Company's investment and development segment, $500,000 for investments in affiliates and acquisitions, and $20,000 for purchases of property and equipment. Fiscal 1998 was the Company's start-up year and, as a result, it had little activity in these areas.
The Company intends to continue to fund existing and future Internet and interactive media investment and development efforts, and to actively seek new investment opportunities. The Company believes that existing working capital and the availability of additional securities which could be sold or posted as collateral for additional loans, will be sufficient to fund its operations, investments and capital expenditures for the foreseeable future. Should further capital be needed to fund future investment and acquisition activity, the Company may seek to raise capital through additional public or private offerings of the Company's or its subsidiaries' stock, or through debt financings.
Year 2000 Compliance.
Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such "Year 2000" requirements. The Company is in the process of evaluating and correcting the Year 2000 compliance of its proprietary products and services and third party equipment and software that it uses, as well as its non- information technology systems, such as building security, voice mail and other systems. The Company's Year 2000 compliance efforts will consist of the following phases: (i) identification of all software products, information technology systems and non-information technology systems; (ii) assessment of repair or replacement requirements; (iii) repair or replacement; (iv) testing; (v) implementation; and (vi) creation of contingency plans in the event of Year 2000 failures. The Company has substantially completed phase (i) and has begun phases (ii) and (iii) of its Year 2000 efforts. The Company expects to complete its Year 2000 compliance efforts by the end of December, 1999.
To date, the Company has not incurred any material expenditures in connection with identifying or evaluating Year 2000 compliance issues, other than the purchase of new computer equipment and software represented by their respective manufacturers as Year 2000 compliant. Preliminary estimates regarding expected costs for completing the Company's Year 2000 remediation efforts and for correcting Year 2000 issues are $250,000, but there can be no assurance that the costs will not exceed such amounts. The Company's expectations regarding Year 2000 remediation efforts will evolve as it continues to analyze and correct its systems. The Company has not yet developed a formal Year 2000-specific contingency plan. The Company expects that a formal Year 2000 contingency plan will evolve as it completes its Year 2000 compliance efforts. Failure by the Company to resolve Year 2000 issues with respect to its proprietary products and services could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, failure of third-party equipment or software to operate properly with regard to the year 2000 and thereafter could require the Company to incur significant unanticipated expenses to remedy any problems.
Factors That May Affect Future Results.
The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. Forward-looking statements in this document and those made from time to time by the Company through its senior management are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements concerning the expected future revenues or earnings or concerning projected plans, performance, product development, product release or product shipment, as well as other estimates related to future operations are necessarily only estimates of future results and there can be no assurance that actual results will not materially differ from expectations. The Company undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances occurring after the date such statements were made or to reflect the occurrence of unanticipated events. Factors that could cause actual results to differ materially from results anticipated in forward-looking statements include, but are not limited to the following:
Future Capital Needs - During its last fiscal year, the Company generated operating profits which were partially funded by gains on sales of its interests in other companies. To the extent the Company may become involved in future investments, however, the Company may need to access outside sources of financing. There can be no assurance that any such financing will be available. If such financing is available, furthermore, it may involve issuing securities senior to the Common Stock or equity financings which are dilutive to holders of the Common Stock.
Dependence on a Single Customer - During fiscal year 1999 a significant portion of the Company's revenues were derived from a limited number of customers, including Starnet Communications International, Inc. ("Starnet"), which accounted for 81% of total revenues. However, the Company is actively shifting its focus from investor relations services to seed round investment, and, therefore, the Company believes that its dependence on Starnet as a source of revenue will decline significantly.
Dependence on Continued Growth of the Internet and Internet Infrastructure - The Company's future success is highly dependent upon continued growth in the use of the Internet generally and, in particular, as a medium for advertising, marketing, services and commerce. Commercial use of the Internet is at an early stage of development, and market acceptance of the Internet as a medium for advertising, information services and commerce is subject to a high level of uncertainty. The relative effectiveness of the Internet as an advertising medium as compared to traditional advertising media, for example, has not been determined. Further, there can be no assurance that the required infrastructure to support future Internet user and traffic growth or complementary products or services necessary to make the Internet a viable commercial marketplace will be developed, or, if they are developed, that the Internet will become a viable commercial marketplace for products and services such as those offered by the Company. If commercial use of the Internet fails to continue to expand, the Company's business, results of operations and financial condition would be adversely affected.
Dependence on Key Personnel - The Company's performance is substantially dependent on the performance of its executive officers and other key employees and its ability to attract, train, retain and motivate high quality personnel, especially highly qualified technical and managerial personnel. The loss of the services of any of its executive officers or key employees could have a material adverse effect on its business, results of operations or financial condition. Competition for talented personnel is intense, and there can be no assurance that the Company will be able to continue to attract, train, retain or motivate other highly qualified technical and managerial personnel in the future.
Government Regulation and Legal Uncertainties The Company is not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally. However, governmental regulators may, in the future, seek to impose regulations on Internet activities. There are currently few laws or regulations directly applicable to access to or commerce on the Internet. Due to increasing popularity and use of the Internet, however, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing, characteristics and quality of products and services. The adoption of any additional laws or regulations may also decrease the growth of the Internet, which could in turn decrease the demand for the Company's products and services or could increase the Company's cost of doing business. Moreover, the applicability to the Internet of a range of existing laws in domestic and international jurisdictions governing issues such as commerce, taxation, property ownership, defamation and personal privacy is uncertain and will likely evolve over the course of many years. Any such new legislation or regulation or application or interpretation of existing laws, including tax laws, could have an adverse effect on the Company's business, results of operations and financial condition.
Rapid Change in Technology and Distribution Channels - Because the use of the Internet as a commercial medium is relatively recent and continues to evolve, the market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards, frequent new product and service introductions, shifting distribution channels, and changing customer demands. Accordingly, the Company's future success will depend on its ability to adapt to this rapidly evolving marketplace. There can be no assurance that the Company will be able to adequately adapt its products and services or to acquire new products and services that can compete successfully or that the Company will be able to establish and maintain effective distribution channels. Failure to maintain competitive product and service offerings and distribution channels would have an adverse affect on the Company's business, results of operations and financial condition. In addition, responding to these rapid technological changes could require substantial expenditures by the Company, and there can be no assurance that such expenditures will yield a positive investment return.
Intense Competition - The market for Internet products and services is highly competitive and lacks significant barriers to entry. The Company expects competition to intensify in the future. Numerous well-established companies and smaller entrepreneurial companies are focusing significant resources on developing and marketing products and services that will compete with the Company's products and services. There can be no assurance that the Company will be able to compete successfully or that competitive pressures, including possible downward pressure on the prices it charges for its products and services, will not adversely affect its business, results of operations and financial condition.
Risks Inherent to the Company's Acquisition Strategy - The Company has in the past, and intends in the future, to expand through the acquisition of businesses, technologies, products and services, such as the recent acquisitions of interests in VirtualLender and Digital Bridge. Acquisitions may result in the potentially dilutive issuance of equity securities, the incurrence of additional debt, the write-off of in- process research and development or software acquisition and development costs, and the amortization of goodwill and other intangible assets. Any such adjustment could result in an increase in the amount of goodwill recorded, which would result in higher amortization expenses and, therefore, adversely affect the Company's operating results. Further, acquisitions involve a number of special problems, including difficulty integrating technologies, operations and personnel and diversion of management attention in connection with both negotiating the acquisitions and integrating the assets. There can be no assurance that the Company will be successful in addressing such problems. In addition, growth associated with numerous acquisitions places significant strain on the Company's managerial and operational resources. The Company's future operating results will depend to a significant degree on its ability to successfully manage growth and integrate acquisitions. Furthermore, many of the Company's investments are in early-stage companies, with limited operating histories and limited or no revenues; there can be no assurance that the Company will be successful in developing such companies.
Uncertainties Associated with Selling Assets - A significant element of the Company's business plan involves selling, in public or private offerings, portions of the companies it has acquired and developed. The Company's ability to engage in any such transactions, the timing of such transactions and the amount of proceeds from such transactions are dependent on market and other conditions largely beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to engage in such transactions in the future or that when the Company is able to engage in such transactions they will be at favorable prices. If the Company were unable to liquidate portions of its portfolio companies at favorable prices, the Company's business, financial condition and results of operations would be adversely affected.
Fluctuating Value of Certain Stock Assets - A portion of the Company's assets includes the equity securities of both publicly traded and non-publicly traded companies. Such assets include a large number of shares of common stock of VirtualLender.com, Inc., a publicly traded company. Fluctuations in the market price and valuations of the Company's holdings in such other companies, which are partially dependent on market and other conditions that are beyond the Company's control, may result in fluctuations of the market price of the Company's Common Stock. The market price of the Company's VirtualLender.com, Inc. stock may also be adversely affected by changes in interest rates and the real estate market.
Management of Growth - The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. Further, as the number of the Company's users, advertisers and other business partners grows, the Company is required to manage multiple relationships with various customers, strategic partners and other third parties. These requirements will be exacerbated in the event of further growth of the Company or in the number of its strategic relationships or sponsorship arrangements. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's operations or that the Company's management will be able to achieve the rapid execution necessary to successfully offer its services and implement its business plan. The Company's future operating results will also depend on its ability to expand its sales and marketing organization and expand its support organization commensurate with the growth of its business and the Internet. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition will be adversely affected.
Risks Associated with Brand Development - The Company believes that establishing and maintaining its brand names is a crucial aspect of its effort to continue to expand and attract Internet business and that the importance of brand recognition will increase in the future due to the growing number of Internet companies. Promotion and enhancement of the Company's brand names will depend largely on the Company's ability to provide consistently high-quality products and services, which cannot be assured. If consumers do not perceive the Company's existing products and services to be of high quality, or if the Company introduces new products and services or enters into new business ventures that are not favorably received by consumers, the value of the Company's brand names could be diminished.
Dependence on Third-Party Relationships - The Company is currently, and expects to be in the future, dependent on a number of third-party relationships. These relationships include arrangements relating to the creation of traffic on the Company-affiliated Web sites and resulting generation of advertising and commerce-related revenue. The termination of, or the failure of such Company-affiliated Web sites to renew such relationships on reasonable terms, could have an adverse effect on the Company's business, results of operations and financial condition. The Company also is generally dependent on other third-party relationships with advertisers, sponsors and partners. Most of these arrangements do not require future minimum commitments to use the Company's services, are often not exclusive and are often short-term or may be terminated at the convenience of the other party. There can be no assurance that these third parties will not reassess their commitment to the Company at any time in the future, or that they will not develop their own competitive services or products. Further, there can be no assurance that the services of these companies will achieve market acceptance or commercial success and therefore there can be no assurance that the Company's existing relationships will result in sustained or successful business partnerships or significant revenues for the Company.
Fluctuations in Quarterly Results - In the past, the Company's operating results have fluctuated on a quarterly basis, and the Company expects to continue to experience significant fluctuations in future quarterly operating results. Such fluctuations have been, and may in the future be, caused by numerous factors, many of which are outside the Company's control, including demand for the Company's products and services, incurrence of costs associated with acquisitions, divestitures and investments, the timing of divestitures, market acceptance of new products and services, specific economic conditions in the Internet and direct marketing industries, and general economic conditions. The emerging nature of commercial use of the Internet makes predictions concerning future revenues difficult. The Company believes that period-to-period comparisons of its results of operations will not necessarily be meaningful and should not be relied upon as indicative of future performance.
Computer Operations - The Company's operations are dependent in part upon its ability to protect its computer operating systems against physical damage from fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events. The Company's data centers are equipped with generator back up equipment, multiple fiber lines and other liquid and fire protection systems for protection in case of disaster. Despite the implementation of physical and network security measures by the Company, its servers are also vulnerable to computer viruses, break-ins and similar disruptive problems. The occurrence of any of these events could result in interruptions, delays or cessations in service to users of the Company's products and services which could have a material adverse effect on the Company's business, results of operations and financial condition.
Dependence on Proprietary Rights; Risk of Infringement - The Company's success depends in part on its proprietary technology and its ability to protect such technology under applicable patent, trademark, copyright and trade secret laws. Accordingly, the Company seeks to protect the intellectual property rights underlying its products and services by filing applications and registrations, as appropriate, and through its agreements with employees, suppliers, customers and partners. However, there can be no assurance that measures adopted by the Company to protect its proprietary technology will prevent infringement or misappropriation of such technology. Further, legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in the context of the Internet industry currently are not resolved. The Company licenses certain components of its products and services from third parties. The failure by the Company to maintain such licenses, or to find replacement components in a timely and cost effective manner, could have a material adverse effect on the Company's business, results of operation and financial condition. From time to time the Company has been, and expects to continue to be, subject to claims in the ordinary course of its business, including claims of alleged infringement of intellectual property rights of third parties by the Company. Any such claim could subject the Company to significant liability for damages and could result in invalidation of the Company's proprietary rights and, even if not meritorious, could be time-consuming and expensive to defend, and could result in the diversion of management time and attention, any of which could have an adverse effect on the Company's business, results of operations or financial condition.
As of May 31, 1999, the Company has not been named in any lawsuit that may materially affect its financial condition.
ITEM 7. FINANCIAL STATEMENTS.
(a) Consolidated financial statements at May 31, 1999 and for the years ended May 31, 1999 and 1998 are attached.
M & A WEST, INC.
Index to Financial Statements Report of Independent Public Accountants 6 Consolidated Balance Sheet 7 Consolidated Statements of Operations 8 Consolidated Statements of Cash Flows 10 Notes to Financial Statements 12
To the Board of Directors M & A West, Inc.
We have audited the accompanying consolidated balance sheet of M & A West, Inc. as of May 31, 1999, and the related consolidated statements of operations and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of M & A West, Inc. as of May 31, 1999, and the consolidated results of its operations, and cash flows for each of the two years then ended in conformity with generally accepted accounting principles.
Denver, Colorado August 10, 1999 M & A West, Inc.
CONSOLIDATED BALANCE SHEET
May 31, 1999
ASSETS
CURRENT ASSETS:
Cash and equivalents 1,141,813 Accounts receivable - clients 10,000 Marketable securities held for trading 573,976 Investments - at equity 426,558 Investments - at cost 327,000 Employee advances 8,000
TOTAL CURRENT ASSETS: 2,487,347
OTHER ASSETS:
Deferred income tax asset 12,110 Property and equipment, net of depreciation 20,584
TOTAL ASSETS 2,520,041
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 114,127 Income taxes payable 168,000 Payroll taxes accrued and payable 25,912
TOTAL CURRENT LIABILITIES 308,039
STOCKHOLDERS' EQUITY
Common stock, no par value; 100,000,000 shares authorized; 11,000,000 shares issued and outstanding 2,020,538 Retained earnings 191,464 Total equity 2,212,002
TOTAL LIABILITIES AND EQUITY 2,520,041
The accompanying notes are an integral part of these financial statements. M & A West, Inc.
STATEMENTS OF OPERATIONS
For the years ended May 31, 1999 and 1998
1999 1998
REVENUE
Commission income 602,087 97,033
Trading gains and losses 1,224,932 -
TOTAL REVENUE 1,827,019 97,033
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Advertising 258,579 3,859
Employee business expenses 119,003 10,286
Consultants 422,298 5,625
Payroll 153,885 3,261
Other selling, general and
administrative expenses 544,358 27,400
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1,498,123 50,431
Income from operations 328,896 46,602
OTHER INCOME (EXPENSE)
Interest income 364 -
Unrealized investment gains
and losses on trading securities,
net (6,483) 15,345
Equity in loss of unconsolidated
subsidiary (37,370) -
TOTAL OTHER INCOME (EXPENSE)
(43,489) 15,345
NET INCOME BEFORE INCOME TAX
285,407 61,947
Income tax expense |
