FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22723
WOLF INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
NEVADA 98-0171619
(State of incorporation) (IRS Employer ID No.)
SUITE 404 - 110 CAMBIE STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6B 2M8
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (604) 688-6306
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of November 15, 1998, the Registrant had 10,334,598 shares of Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one); Yes No X
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
Part I Financial Information
Item 1 Financial Statements.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
9 Months ended 9 Months ended
Sept 30, 1998 Sept 30, 1997
-------------- --------------
Assets
Current
Cash and short term deposit $ - $ 9,413
Accounts receivable 75,364 85,472
Inventory 73,527 63,128
Prepaid expenses 6,616 6,991
----------- -----------
155,507 165,004
Capital Assets 256,716 267,671
Excess of cost over net identifiable
assets acquired 213,725 233,450
Intangible Asset 1,344,000 -
----------- -----------
$ 1,969,948 $ 666,125
=========== ===========
Liabilities
Current
Bank indebtedness 71,952 -
Demand bank loan 52,264 $ 76,020
Accounts payable and accrued liabilities 798,576 111,067
Due to shareholders 14,846 -
Income tax payable - 2,478
Current portion of long term debt - 25,517
----------- -----------
937,638 215,082
Long term debt 175,083 177,510
----------- -----------
1,112,721 392,592
----------- -----------
Stockholders' Equity
Common shares 1,850,843 322,918
Unrealized foreign exchange gain (loss) 31,107 -
Deficit (1,024,723) (49,385)
----------- -----------
857,227 273,533
----------- -----------
$ 1,969,948 $ 666,125
=========== ===========
<PAGE>
INTERIM CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
(UNAUDITED)
9 Months ended 9 Months ended
Sept 30, 1998 Sept 30, 1997
-------------- --------------
Revenue
Product sales - $ 326,058
Cost of goods sold - 164,449
----------- -----------
Gross margin - 161,609
----------- -----------
Expenses
Amortization - 45,520
Administration 433,151 99,738
Executive compensation 25,054 35,562
Interest on long-term debt - 9,472
Rent 31,578 35,358
Research and development 408,385 -
----------- -----------
898,168 225,650
----------- -----------
Loss from operations (898,168) (64,041)
Loss from discontinued operations (Note 1) (34,695) -
Recovery of income taxes - 9,800
----------- -----------
Net earnings (loss) (932,863) (54,241)
Retained earnings (deficit),
beginning of period (91,860) 4,856
----------- -----------
Retained earnings (deficit), end of period (1,024,723) $ (49,385)
=========== ===========
Note 1: The Company has reflected the loss incurred by its subsidiary,
714674 Alberta Ltd. (Calgary Chemical), as a "Loss from discontinued
operations" in anticipation of finalizing the sale of the subsidiary. The
sale to Gorda Technology Holdings Limited "Gorda" (see Item 5 - "Other
Information - Disposition of Assets") was approved at the meeting of
shareholders on July 24, 1998. Subsequently, Gorda failed to provide the
Company with satisfactory documentation as to indemnification of bank debt
and other items, and as a result the Company does not consider the sale as
closed. As a result of this problem the Company was unable to obtain
financial statement information of the subsidiary for the period ended
September 30, 1998. As a result, the Company has included only the
financial information of the subsidiary to June 30, 1998, and based upon
previous quarters, has added a provision for a third quarter loss of $20,800
to the June 30 loss of the subsidiary.
<PAGE>
Item 2 - Management's Discussion and Analysis or Plan of Operation.
(a) Liquidity
The Company is experiencing illiquidity as demonstrated by having a working
capital deficiency of $782,131 as at September 30, 1998. Pursuant to below
described Licensing Agreement and pending completion of the sale of the
Company's subsidiary, the Company will be relying upon debt or equity
financing for the development of its new business direction. However as
the result of the sale of the subsidiary the Company will eliminate its
existing debt and reduce its accounts payable.
(b) Capital Resources
The Company's capital assets have remained stable during the six-month
period ended June 30, 1998. However pending completion of the sale of the
Company's subsidiary, the Company will recognize a substantial decrease in
capital assets as substantially all of the capital assets are held in the
subsidiary and will be sold.
(c) Results of Operations
For the nine months ended September 30, 1998, the Company incurred a net
loss of $932,863. This includes a loss from discontinued operations of
$34,695 in anticipation of the sale of the Company's subsidiary, 714674
Alberta Ltd. ("Calgary Chemical").
As noted below under "Other Information: License Agreement", the Company
has acquired a world-wide licence to manufacture and market a patented
device for the color matching of dentures to a patient's existing tooth
color. To September 30, 1998, the Company incurred $408,385 of costs for
research and development of the device, which included costs to manufacture
an initial supply of devices for demonstration and testing purposes; costs
of various consultants and laboratories in testing the devices; costs to
develop plans and strategies for the ongoing manufacture and marketing of
the devices; and costs related to assistance and attendance at various
dental conferences in North America, to demonstrate the units, and receive
comments from the dental profession.
Administration expenses for the nine-month period amounted to $433,151,
compared to $99,738 in the same period of 1997. This substantial increase
is primarily due to the new direction taken by the Company, including
substantially increased legal costs relating to the planned disposal of its
subsidiary, and finalizing of the licensing agreement with Andrew
Engineering; wage and consulting costs for support staff and assistance;
travel and advertising; and costs related to new management as a result of
the move of the Company's head office to Vancouver, British Columbia.
Part II - Other Information
Item 1 - Legal Proceedings: There are no proceedings to report.
<PAGE>
Item 2. - Changes in Securities: During the quarter, the Company issued
4,800,000 shares of restricted stock in accordance with the License
Agreement with Andrew Engineering (see "Other Information - License
Agreement"). The Company relied upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, in that the shares
were issued with restrictive legends to Andrew Engineering, Inc., who is an
affiliate of the Company with full access to all material information
regarding the Company and the issuance of the shares.
Item 3. - Default Upon Senior Securities: There are no defaults to report.
Item 4. - Submission of Matters to a Vote of Security Holders: None during
the quarter.
Item 5. - Other Information.
Disposition of Assets
On April 20, 1998, the Company executed a Purchase Agreement with Gorda
Technology Holdings Limited, a Turks and Caicos Islands corporation (Gorda)
whereby the Company agreed to sell its wholly owned subsidiary 714674
Alberta Ltd., an Alberta corporation doing business as Calgary Chemical to
Gorda. The consideration for the sale was: a payment of fifteen percent of
Calgary Chemical after tax profit (as determined by generally accepted
accounting principles) for the fiscal year ended December 31, 1998 payable
on or before March 31, 1999 and completion of an audit of the financial
statements of Calgary Chemical for such period; Gorda's indemnification of
the Company from Calgary Chemical's bank debt; a release of the employment
contract of Blair Coady and the surrender of Mr. Coda's stock options to
acquire 700,000 shares of the Company's common stock. The agreement was
approved at the annual meeting of the Company's shareholders which was held
on July 24, 1998 in Vancouver, British Columbia.
Subsequently, the Company did not receive satisfactory documentation and
indemnification from Gorda, and as a result now believes that the sale
agreement is null and void. The Company is reviewing other offers to
purchase Calgary Chemical. Gorda has taken the position that the sale did
take place, and has prevented the Company from obtaining updated financial
information to September 30 for Calgary Chemical. The Company is
discussing further action with legal counsel.
Other Information: License Agreement
On April 8, 1998 the Company also entered into a License Agreement with
Andrew Engineering, Inc., a British Columbia corporation, Andrew Rawicz,
Ph.D., and Ivan Melnyk, Ph.D., whereby the Company acquired a world-wide
license to manufacture and market a patented device for the color matching
of dentures to a dental patient's existing tooth color. Doctors Rawicz and
Melnyk hold the patent pending for the color analyzer and Andrews
Engineering developed and or acquired the techniques and other proprietary
information related to the device. The License Agreement requires the
Company and Andrew Engineering to develop a business plan for
<PAGE>
manufacturing and marketing of the device including obtaining financing of
$1,500,000.00 US over the next six months.
The License Agreement also requires the issuance of 4.8 million shares of
restricted stock to Andrew Engineering, Inc., with registration rights on
600,000 of these shares. The License Agreement also required that Patrick
McGowan be appointed to the Company's Board of Directors and that Mr.
McGowan be appointed President and Chief Executive Officer. At a meeting
of the Company's Board of Directors held on April 16, 1998, Mr. McGowan and
Mr. A. Schwabe were appointed to the Company's Board of Directors and
appointed interim President, CEO and Secretary, Treasurer respectively
pending the approval of the shareholders of the above described Gorda
Technology transaction wherein Mr. Coady would resign from all positions.
The Agreement also provides for the Company to pay a Royalty in the amount
of ten percent (10%) of gross profit on sales if the Company manufactures
the product itself or a Royalty of seven percent (7%) of gross revenue if
manufacturing is done by an independent third party.
During the quarter, the Company issued the 4.8 million shares to Andrew
Engineering, Inc., as required under the agreement.
Item 6: Exhibits and Reports on Form 8-K: none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WOLF INDUSTRIES INC.
Dated: November 30, 1998
/s/PATRICK MCGOWAN
Patrick McGowan, President
/s/ALLEN SCHWABE
Allen Schwabe, Secretary, Treasurer
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