U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
WOLF INDUSTRIES INC.
(Name of Small Business Issuer in its Charter)
Nevada E.I.N. 98-0171619
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4020, 7 Street, SE
Calgary, Alberta, Canada T2G 2Y8
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (403) 543-0970
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class Name of each exchange on which
each class is registered
Common Stock OTC Electronic Bulletin Board
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 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
----- -----
Check here if there is no disclosure of delinquent filers in response
to Item 405 of Regulation SB is not contained in this form, and no
disclosure will be contained, to the best of the registrant's knowledge, in
definitive proxy of information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's operational revenues for its most recent fiscal year ending
December 31, 1997, are $444,192. The aggregate market value based on the
voting stock held by non-affiliates as of March 30, 1997, is $5,983,440
(based on shares and on an average of bid and asked prices of $.56).
<PAGE>
Except for the historical information contained herein, the matters set
forth in this Form 10-KSB are forward looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. These forward looking statements are subject to risk and
uncertainties that may cause actual results to differ materially. These
forward looking statements speak only as of the date hereof and the Company
disclaims any intent or obligation to update these forward looking
statements.
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
--------------------
Wolf Industries Inc. (the "Company") was incorporated on January 24, 1996,
pursuant to the laws of the State of Nevada under the name Wolf
Exploration, Inc. with a business plan to acquire property for precious
metal exploration in the Western United States. However after considering
several properties, the Company determined that the properties identified
were not suitable to fully implement an exploration and development project
in the United States. In August 1996, the Company changed management and
developed a new business plan.
In October 1996, Wolf Exploration entered into an agreement with Bill Bell
and J.T. Bell (not related) to acquire all of the outstanding common stock
of 418297 Alberta, Ltd. operating as Calgary Chemical. The consideration
paid was $620,500 (U.S.). The two "numbered companies were combined with
71467 Alberta Ltd. continuing in operation. The Company continues the
business of Calgary Chemical as its activities are targeted to the oil and
gas service industry through a wholly owned subsidiary operating as Calgary
Chemical.
In March 1997, the name was changed to Wolf Industries Inc. to reflect
these developments. The Company does not have any plans, proposals,
arrangements or understandings with respect to future acquisitions.
(b) BUSINESS OF THE ISSUER
----------------------
CALGARY CHEMICAL
----------------
Wolf Industries Inc. carries out its present operations through a wholly
owned subsidiary company 714674 Alberta Ltd., operating as Calgary
Chemical. Calgary Chemical began operations in 1989 and has experienced
steady growth. In the fiscal year ending July 1996, its gross revenue was
Can. $1,029,150 (U.S. $744,345), with an operating profit before
compensation to the former owners and income taxes of approximately Can.
$310,000 (approximately U.S. $227,850).
The Company was founded in 1988 by William Bell, who had worked for NOWSCO,
a Canadian worldwide provider of services to oil and gas exploration firms.
Mr. Bell directed the creation of NOWSCO's in house custom blending
operations. Mr. Bell created Calgary Chemical because he perceived a
unique market niche for a company capable of custom blending oil and gas
lubricants for production companies.
Thus, Calgary Chemical's primary service is the custom blending of
chemicals for application in the production of oil and gas. The Company
provides dewaxing chemicals, scale inhibitors
2
<PAGE>
and demulsifying agents and lubricants to its customers throughout Western
Canada. In addition to providing a custom blending service, Calgary
Chemical carries quantities of certain basic liquids, such as zylene,
methanol and kerosene, in stock for the immediate use of its customers and
also provides a storage service to its customers for their own blended
products.
The manner of the relationship among the Company and its customer is that
the custom blends are demanded by the production company whose ingredients
are subject to a confidentiality agreement in place. Formulas are
proprietary to the end-users. Raw materials are delivered to Calgary
Chemical who then provides the service of blending the formulas and
producing the finished product. It does not provide any chemical
production facilities. Nor does Calgary Chemical ship the finished
products. This is done by independent shippers.
The blending process was designed by the Company. In addition to the
blending and storage facility and office space, the Company has its own
laboratory facilities for testing its product and supporting customers'
special needs.
The raw materials used by the Company historically have been readily
available from a number of different suppliers. The pricing of these raw
materials historically has not been volatile, and the Company has no
significant supply contracts extending into the future.
The products used by the Company are toxic and some are hazardous, which
requires the Company to comply with local and provincial environmental and
fire protection standards. The Company takes strict precautions to
maintain compliance with regulatory environmental and safety standards. In
addition the Company is going to seek ISO 9002 certification.
The Company's current customer list comprises the majority of those that
have been customers since the Company's inception. The commitment to
servicing this customer base has resulted in customer loyalty, built
through the confidentiality with which each customer's recipes for chemical
blending are treated, combined with an accurate and timely service
delivery.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal office is located at 4020, 7 Street, S.E., Calgary,
Alberta T2G 2Y8; phone no. (403) 543-0970; facsimile no. (403) 543-0977.
These premises are leased. The premises consist of an industrial warehouse
of 12,100 square feet, of which 1,750 is used as office space, and are
subject to a lease that expires December 31, 2001. The Company owns its
own blending and storage equipment, together with forklift trucks for use
on the Company's premises.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal proceedings involving the Company or its management.
3
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS.
No matters were submitted for a vote of security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET INFORMATION
------------------
Since December 15, 1997, the Company's stock has been listed for sale on
the OTC Electronic Bulletin Board. As of December 31, 1997, there was one
stock brokerage firm making a market in the Company's Common Stock. (As of
March 31, 1998, there are three firms making a market). The high bid and
low asked prices of the Common Stock of the Company have been as follows:
Quarter ending: December 31, 1997
High Bid Per Share: $2.00
Low Ask Per Share: $2.00
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual
transactions.
(b) HOLDERS
-------
There were 66 holders of the Company's Common Stock as of December 31,
1997. Additionally, there were three holders of 75,000 shares of the
Company's Common Stock whose certificates are restricted. These three
holders are not affiliates of the Company.
(c) DIVIDENDS
---------
The Company has paid no dividends to date on its Common Stock. The Company
reserves the right to declare a dividend when operations merit.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
All of the figures contained in this Item 6. are in U.S. dollars computed
at a $0.735 exchange rate of CN $1.00 for fiscal years ended December 31,
1996 and December 31, 1996.
(a) Results of Operation
The Company's revenue from product sales for the year ended December 31,
1997, was $444,192. Revenue from product sales for the fiscal year ended
December 31, 1996, was $145,889. However, this only represents the sales
of the Company's wholly owned subsidiary, 714674 Alberta, Ltd., doing
business as Calgary Chemical from September 30, 1996 (the date of the
acquisition of Calgary Chemical) to December 31, 1997. Cost of goods sold
were
4
<PAGE>
$227,240 and $75,723 for the fiscal years ended December 31, 1997, and
1996, respectively with the later only showing the last quarter sales of
Calgary Chemical. This results in gross margins of $216,952 (48% of sales)
and $70,166 (48% of sales) for the periods respectively.
Sales and gross margins for the two fiscal years have remained
approximately the same and do not yet reflect the Company's increased
marketing efforts. the Company expects that these revenues will continue
and sales margins may increase as the Company's business and accounting
practices continue to impact its operations. The Company expects to
increase revenue without further capital investment, as a result of
implementation of its marketing plan and presently underutilized
facilities. Consistent with Management's prior expectations, revenue for
the first quarter of 1998, will show an increase of approximately 100% over
revenues for the similar period of 1997.
General and administrative expenses for the fiscal year ended December 31,
1997, were $157,926. These expenses have increased substantially from that
of Calgary Chemical's operations due to increases in administrative staff,
the legal and accounting expense of being a public company, and increase in
the Company's insurance coverage. While general and administrative
expenses are expected to remain at theses levels, Management believes that
the increased revenues and the steady gross margin will be sufficient to
pay all of the Company's expenses and produce profits.
(b) Capital Resources
The Company's current financial condition is stable. The Company has
raised additional capital through the sale of securities during the fiscal
year ended December 31, 1997. In September 1997, the Company sold 50,000
shares at $.50 per share. The Company received $25,000. Presently, the
Company has no current plans to raise additional funds through a securities
offering. During the fiscal year ended December 31, 1996 the Company
conducted two private placements of common stock. In January 1996,
$100,000 ($0.01 per share) was raised by selling 10,000,000 share of common
stock pursuant to a Regulation 504 offering. In November 1996, Wolf
Industries Inc. raised an additional $266,150 ($.50 per share) by selling
532,300 shares of common stock also in reliance upon Regulation D, Rule
504.
The Company has not expended funds on research and development. The
Company does not have any commitments for capital expenditures and does not
anticipate any short term need to make capital expenditures in order to
maintain and increase operations.
(c) Liquidity
The Company has good banking relationships and credit-worthiness. In June
1997, the Company restructured its long term debt which resulted in the
$169,327 of long term debt. In November 1997, the former owners of the
Company's wholly owned subsidiary converted the remaining balance of the
acquisition debt ($46,449) into 77,416 shares of the Company's common
stock.
The Company also realizes cash flow from operations. Historically, this
cash flow has been sufficient to meet current cash demands. The Company
expects that increasing revenue will
5
<PAGE>
provide sufficient liquidity for the Company to continue its planned
development. The Company will investigate asset based bank financing or
equity based financing for capital expansion as and when necessary, but
these cash resources are not needed for current cash needs.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company are filed under this
Item, and are included herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosures
from the inception of the Company through the date of this Form 10-KSB.
The principal accountants' report on the financial statements of the fiscal
years 1996 and 1997 contained no adverse opinions, nor a disclaimer of
opinion, nor was qualified as to uncertainty, audit scope, or accounting
principles.
6
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The following are the names, positions, municipalities of residence and
relevant backgrounds of key personnel of the Corporation.
BLAIR COADY -(Age 56). Director, President and Secretary, Calgary, Alberta.
OCTOBER 1992 THROUGH MARCH 1995. Chairman of the Board of Earthwhile
Developments Inc., a Canadian corporation involved in waste
management, specifically solvent recycling, bioremediation and
composting.
1985-1992. Chairman and Director of Calto Industries Ltd., a Canadian
corporation engaged in biomedical waste remediation and solvent
recycling.
1978-1984. Director; 1978-1982 President of Terato Resources Ltd., a
Canadian public corporation engaged in the exploration, development
and production of oil and gas in Western Canada and the Southern
United States.
1966-1976. Partner, Director and Vice President in Bongard, Leslie &
Co., Ltd. a Canadian Investment Dealer and Brokerage firm.
JOHN EDWARD KENNETH GROVE - (Age 42). Director, Chairman of the Audit
Committee and Consultant, Calgary, Alberta.
SEPTEMBER 1994 TO PRESENT. Mr. Grove is Vice President, Vestiture
Corporation, a merger, acquisition and corporate finance firm.
APRIL 1991 TO AUGUST 1994. Mr. Grove was with Armada Development
Group and responsible for leasing 150,000 square feet of new strip
mall development.
JUNE 1988 TO AUGUST 1991. Mr. Grove was President and Director of
CR-3 Express Ltd., a refrigerated transportation company which he
created, developed to an annual gross sales level of 7 million dollars
and then sold the company.
JULY 1985 TO FEBRUARY 1988. Mr. Grove was President and Director of
Hurricane Hydrocarbons Ltd., a public company of which he was one of
the founders and which he developed to a level of $600,000 gross
revenue per annum.
JULY 1983 TO JULY 1985. Mr. Grove was General Manager of Slant
Systems Ltd., a private oil and gas drilling company.
DECEMBER 1980 TO JUNE 1983. Mr. Grove was with H.C.I. Holdings Ltd.
of Toronto as an oil and gas analyst for that company and also Elliot
and Page.
SEPTEMBER 1978 TO NOVEMBER 1980. Bastion Drilling Ltd., President and
Director. Mr. Grove graduated from the University of Alberta in 1978
with a Bachelor of Commerce Degree.
JAMES DONALDSON - (Age 36). Director, Vancouver, British Columbia.
1991 TO PRESENT. Donegal Developments Ltd., Vancouver, B.C., Project
Manager. Mr. Donaldson supervises property evaluation programs
throughout the western hemisphere for this mining company.
7
<PAGE>
1993-1995. Nicholson & Associates, Vancouver, B.C., Project
Manager/Exploration Technician. Mr. Donaldson supervised mining
exploration programs throughout the western hemisphere for this mining
company.
1987-1994. Goldon Mining Ltd., Delta, B.C., Geophysical Technician.
Mr. Donaldson performed geophysical surveys on mineral exploration
properties throughout Canada.
1985-1987. Freegold Recovery Inc., Vancouver, B.C., Mill
Technician/Geotechnician. Mr. Donaldson installed gravity
concentrating systems and conducted testing at various mining
operations.
1984-1985. Erana Mines Ltd., Lively, Ontario, Mill Technician. Mr.
Donaldson was responsible for installing, operating and maintaining
production plant equipment for this mining company.
(b) SIGNIFICANT EMPLOYEES.
---------------------
IAN BUBIS - (Age 27). Calgary Chemical Plant Manager, Calgary, Alberta,
1994 to present. Mr. Bubis has extensive experience in the blending of
chemical formula and related plant operations. Mr. Bubis is an original
employee of Mr. Bill Bell, the founder of the Company. From 1990 to 1994,
Mr. Bubis was a self employed Equestrian Trainer.
ITEM 10. EXECUTIVE COMPENSATION.
(a) SUMMARY COMPENSATION TABLE (OMITTED FOR SIMPLICITY)
--------------------------
Mr. Coady received $4,380 of compensation per month for fiscal year 1997.
No other cash compensation was granted or paid in the fiscal year ended
December 31, 1997.
(b) OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
---------------------------------------------------------
The Company has a Management Stock Option Plan, described below. There
have been no other options granted.
(c) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
--------------------------------------------------------------
OPTION/SAR VALUES
-----------------
There have been no exercises in the past fiscal year.
(d) LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
-------------------------------------------------------
In November 1996, the Company adopted the Wolf Exploration Inc. 1996
Directors and Officers Stock Option Plan (the "Plan") for its officers,
directors, key personnel and consultants of the one million shares
contributed to the Plan, Mr. Coady in November 1996, was awarded a five
year option to acquire 700,000 at $0.50 per share. In March 1997, Mr.
Grove received 150,000 options at $0.50 per share. Mr. Donaldson was
awarded 75,000 options at $0.50 per share in November 1996. The purpose of
the Plan is to advance the business and development of the Company and its
shareholders by affording to its Directors, Officers, Employees and
Consultants the opportunity to acquire a propriety interest in the Company
by the grant of Options.
8
<PAGE>
Stock options at $.50 per share were granted under the Plan in fiscal year
1997 to five other individuals. Ian Bubis, an employee of the Company, was
granted an option to purchase 15,000 shares. Steve Fiwchuck, an employee,
was granted an option to purchase 5,000 shares. Bruce Ulmer, William Bell
and J.T. Bell acted as consultants to the Company and each was granted an
option to purchase 5,000 shares. Each of the five options expires November
30, 2001.
(e) COMPENSATION OF DIRECTORS
-------------------------
1. Standard Arrangements
---------------------
The members of the Company's Board of Directors are reimbursed for actual
expenses incurred in attending Board meetings.
2. Other Arrangements
------------------
There are no other arrangements.
(f) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, CHANGE IN
-------------------------------------------------------------
CONTROL ARRANGEMENTS
--------------------
Pursuant to a five year employment agreement dated October 1,1 996, Mr.
Coady receives a salary of $52,560 per annum and three weeks of paid
vacation per annum.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock by each director and nominee and by
all directors and officers of the Company as a group and of certain other
beneficial owners of more than 5% of any class of the Company's voting
securities as of December 31, 1997 unless otherwise noted. The number of
shares beneficially owned is deemed to include shares of Common Stock which
directors or officers have a right to acquire pursuant to the exercise
options within sixty days of December 31, 1997. Each such person has sole
voting and dispositive power with respect to such securities, except as
otherwise indicated.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
-----------------------------------------------
Number Percentage
Name and Address of Shares of Class
- ---------------- ---------- ----------
John Donaldson (1) 2,150,000 20.4%
329 Brill Road, RR#1
Foster, Quebec
T2J 3N6, Canada
9
<PAGE>
Chen Jih Hwee 900,000 8.5%
c/o Monarch Consulting Services, Inc.
7th Floor, Kalaw-Ledesma Condo.
117 Gamboa St., Legaspi Village
1229 Makati City, Metro Manila
Philippines
Clive P. H. Ng 900,000 8.5%
c/o Monarch Consulting Services, Inc.
7th Floor, Kalaw-Ledesma Condo.
117 Gamboa St., Legaspi Village
1229 Makati City, Metro Manila
Philippines
Ernesto Geromino 900,000 8.5%
c/o Monarch Consulting Services, Inc.
7th Floor, Kalaw-Ledesma Condo.
117 Gamboa St., Legaspi Village
1229 Makati City, Metro Manila
Philippines
Cheng Ming Lee 900,000 8.5%
c/o Monarch Consulting Services, Inc.
7th Floor, Kalaw-Ledesma Condo.
117 Gamboa St., Legaspi Village
1229 Makati City, Metro Manila
Philippines
Shiew Ming Moo 900,000 8.5%
c/o Monarch Consulting Services, Inc.
7th Floor, Kalaw-Ledesma Condo.
117 Gamboa St., Legaspi Village
1229 Makati City, Metro Manila
Philippines
(1) Does not include 147,300 shares beneficially owned by his son, James
Donaldson, a Director of the Registrant for which John Donaldson disclaims
any beneficial ownership.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
--------------------------------
Shares Percentage of Class
Blair Coady 700,000 (1) 6.6%
4020, 7 Street, SE
Calgary, Alberta, Canada
John Grove 150,000 (2) 1.4%
4020, 7 Street, SE
Calgary, Alberta, Canada
James Donaldson 147,300 (3) 1.4%
4020, 7 Street, SE
Calgary, Alberta, Canada
Combined Ownership of 997,300 9.5%
Management
10
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(1) Consists of shares issuable upon exercise of options at $.50 per share.
Does not include 490,000 shares held by Christopher Coady, the brother of
Blair Coady, for which Blair disclaims beneficial ownership.
(2) Consists of shares issuable upon exercise of options at $.50 per share.
(3) Consists of 75,000 shares issuable upon exercise of options at $.50 per
share and 72,300 shares purchased in November 1996. Does not include
2,150,000 shares held by his father, John Donaldson, for which James
Donaldson disclaims beneficial ownership.
(c) CHANGES IN CONTROL.
------------------
Changes in control occurred in August 1996, when Blair Coady was appointed
the sole officer of the Company and a member of its Board of Directors. As
part of the change in control, Mavis Robinson, a former director and
officer, resigned. This occurred on March 19, 1997. At that time John
Grove joined the Board of Directors.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) VESTITURE CORPORATION
---------------------
Mr. Grove is an Executive Vice President of Vestiture Corporation as well
as a director of Wolf Industries Inc. Vestiture Corporation was paid
$35,770 for brokering the transactions by which Mr. Bill Bell and Mr. J.T.
Bell sold their interests to Wolf Exploration in Calgary Chemical. It was
further paid an additional $7,300 for arranging certain bank financing in
connection with the Bell transaction.
The Company's By-laws include a provision regarding RELATED PARTY
TRANSACTIONS which requires that each participant to such a transaction
identify all direct and indirect interests to be derived as a result of the
Company's entering into the related transaction. A majority of the
disinterested members of the board of directors must approve any Related
Party Transaction.
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FROM 8-K.
The audited financial statements as of December 31, 1997, and December
31, 1996.
Report of Independent Certified Public Accountant
Financial Statements . . . . . . . . . . . . . . . . . . . . . . Page F-1
Balance Sheet as of December 31, 1997, & 1996. . . . . . . . . . . . .F-2
Statement of Operations for years ended:
December 31, 1997, & 1996 . . . . . . . . . . . . . . . . . . . .F-3
Statement of Cash Flows for years ended:
December 31, 1997, & 1996 . . . . . . . . . . . . . . . . . . . .F-4
Statement of Stockholders Equity as of:
December 31, 1997, & 1996 . . . . . . . . . . . . . . . . . . . .F-5
Notes to Financial Statements as of December 31, 1997,
are included herein . . . . . . . . . . . . . . . . . . . . . . .F-6
11
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
<PAGE>
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF WOLF INDUSTRIES INC.
We have audited the consolidated balance sheets of Wolf Industries Inc. as
at December 31, 1997 and 1996 and the consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1997
and 1996. These consolidated financial statements are the responsibility
of the corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Wolf Industries Inc. as at
December 31, 1997 and 1996 and the results of its operations and the
changes in its cash flow for the years then ended in accordance with
generally accepted accounting principles in Canada.
Calgary, Alberta /s/ DICK COOK SCHULLI
March 12, 1998 CHARTERED ACCOUNTANTS
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
As at December 31,
1997 1996
---- ----
ASSETS
CURRENT
Cash and short-term deposits $ - $ 58,625
Accounts receivable 62,951 117,519
Inventory 55,926 36,593
Prepaid expenses 1,736 9,369
---------- ----------
120,613 222,106
CAPITAL - Note 3 277,562 271,258
EXCESS OF COST OVER NET IDENTIFIABLE
ASSETS ACQUIRED - Note 4 227,714 248,357
---------- ----------
$ 625,889 $ 741,721
========== ==========
LIABILITIES
CURRENT
Bank indebtedness - Note 5 $ 63,489 $ 65,430
Accounts payable and accrued
liabilities 121,978 112,380
Income taxes payable - 15,653
Current portion of long-term
debt - Note 6 33,522 126,265
---------- ----------
218,989 319,728
LONG-TERM DEBT - Note 6 135,805 109,807
---------- ----------
354,794 429,535
---------- ----------
STOCKHOLDERS' EQUITY
COMMON STOCK - Note 7 354,367 307,330
UNREALIZED FOREIGN EXCHANGE GAIN 8,258 -
RETAINED EARNINGS (DEFICIT) (91,530) 4,856
---------- ----------
271,095 312,186
---------- ----------
$ 625,889 $ 741,721
========== ==========
APPROVED BY THE BOARD:
___________________________, DIRECTOR
___________________________, DIRECTOR
See accompanying notes
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
COMMON SHARES ADDITIONAL RETAINED FOREIGN
--------------------- PAID-IN EARNINGS EXCHANGE
SHARES AMOUNT CAPITAL (DEFICIT) GAINS TOTAL
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
BALANCE, beginning
of year 10,497,300 $ 10,497 $ 296,833 $ 4,856 $ - $ 312,186
COMMON SHARES ISSUED 187,416 187 101,262 - - 101,449
SHARE ISSUE COSTS - - (54,412) - - (54,412)
NET LOSS - - - (96,386) - (96,386)
UNREALIZED FOREIGN
EXCHANGE GAIN - - - - 8,258 8,258
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, end of year 10,684,716 $ 10,684 $ 343,683 $ (91,530) $ 8,258 $ 271,095
========== ========== ========== ========== ========== ==========
1996
- ----
COMMON SHARES ISSUED 10,497,300 $ 10,497 $ 338,153 $ -
SHARE ISSUE COSTS - - (41,320) -
NET INCOME - - - 4,856
---------- ---------- ---------- ----------
BALANCE, end of year 10,497,300 $ 10,497 $ 296,833 $ 4,856
========== ========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(Expressed in U.S. Dollars)
For the years ended December 31,
1997 1996
---- ----
(Note 1)
REVENUE
Product sales $ 444,192 $ 145,889
Cost of goods sold 227,240 75,723
---------- ----------
GROSS MARGIN 216,952 70,166
---------- ----------
EXPENSES
Amortization 42,962 12,440
Administration 157,926 11,613
Executive compensation 51,000 16,708
Interest on long-term debt 17,426 1,478
Rent 53,904 11,571
---------- ----------
323,218 53,810
---------- ----------
INCOME (LOSS) FROM OPERATIONS (106,266) 16,356
INCOME TAXES (RECOVERY) (9,880) 11,500
---------- ----------
NET INCOME (LOSS) (96,386) 4,856
RETAINED EARNINGS, beginning of year 4,856 -
---------- ----------
RETAINED EARNINGS (DEFICIT), end of year $ (91,530) $ 4,856
========== ==========
EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.00
========== ==========
See accompanying notes
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
For the years ended December 31,
1997 1996
---- ----
(Note 1)
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income (loss) $ (96,386) $ 4,856
Amortization 42,962 12,440
---------- ----------
(53,424) 17,296
Changes in working capital:
Accounts receivable 54,568 15,073
Inventory (19,333) 16,797
Prepaid expenses 7,633 (5,821)
Demand bank loan (13,099) 65,430
Accounts payable 9,598 58,434
Income taxes payable (15,653) 11,500
---------- ----------
(29,710) 178,709
---------- ----------
FINANCING ACTIVITIES
Issue of common shares 101,449 348,650
Share issue costs (54,412) (41,320)
Long-term borrowings 174,750 134,500
Repayments of long-term debt (132,445) (7,477)
Foreign exchange 8,258 -
---------- ----------
97,600 434,353
---------- ----------
INVESTING ACTIVITIES
Purchase of capital assets (23,329) -
Purchase of 418297 Alberta Ltd.
(o/a Calgary Chemicals) (5,294) (663,487)
Vendor loan on acquisition
- repayment (62,601) 109,050
- converted into share capital (46,449) -
---------- ----------
(137,673) (554,437)
---------- ----------
INCREASE (DECREASE) IN CASH (69,783) 58,625
CASH, beginning of year 58,625 -
---------- ----------
CASH (BANK INDEBTEDNESS), end of year $ (11,158) $ 58,625
========== ==========
See accompanying notes
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
NOTE 1 - OPERATIONS
Wolf Exploration Inc. was incorporated under corporate charter of
the State of Nevada on January 4, 1996. Active operations
commenced on July 10, 1996. On March 17, 1997, Wolf Exploration
Inc. changed its name to Wolf Industries Inc.
The corporation's primary business activity is the blending of
chemicals for use in oilfield production from the corporation's
plant in Calgary, Alberta, Canada.
The consolidated financial statements of the corporation are
prepared in accordance with Canadian generally accepted
accounting principles and conform in all material respects with
accounting principles generally accepted in the United States
(see Note 10). Amounts are stated in U.S. dollars unless
otherwise noted.
The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to
make estimates and assumptions that reflect the reported amounts
of assets, liabilities, revenues, expenses and related
disclosures.
The prior year's figures are for the period July 10, 1996 to
December 31, 1996 and include the operations of its wholly-owned
subsidiary, 714674 Alberta Ltd. from the date of acquisition on
September 30, 1996 to December 31, 1996.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
(a) CONSOLIDATION
These financial statements include the accounts of the
corporation and its wholly-owned subsidiary, 714674 Alberta
Ltd. (o/a Calgary Chemicals).
(b) EXCESS OF COST OVER NET IDENTIFIABLE ASSETS ACQUIRED
The excess of cost over net identifiable assets acquired is
being amortized on a straight-line over ten years.
(c) CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is
provided to apportion the assets over their estimated useful
lives at the following annual rates:
Equipment 30% declining balance
Processing equipment 10% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 5 years straight-line
- Continued -
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(d) REVENUE RECOGNITION
Revenue earned on the blending of chemicals is recorded on
the completed contract basis.
(e) FOREIGN CURRENCY TRANSLATION
Substantially all of the corporation's activities are
carried out through the Canadian subsidiary, a self-sustaining
unit. The corporation uses the current rate method
whereby all assets and liabilities are translated at
exchange rates prevailing at the year-end and revenue and
expense items at average exchange rates for the year.
Translation adjustments arising from changes in exchange
rates form part of the change in the foreign currency
translation adjustment component of shareholders equity.
These adjustments are not included in operations until
realized through a reduction in the corporation's net
investment in such operations.
(f) INCOME TAXES
The corporation follows the tax deferral method in providing
for income taxes, whereby the income tax provision is based
on the income reported in the accounts. Under this method,
deferred income taxes arise as a result of providing for
amortization for income tax purposes on a different basis
than for accounting purposes. Deferred income taxes are
provided for on these differences at current income tax
rates. The excess of cost over net identifiable assets
acquired on the acquisition of the corporation's subsidiary
is not deductible for income tax purposes.
NOTE 3 - CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Equipment $ 27,700 $ 5,920 $ 21,780 $ 25,621
Processing equipment 250,969 18,397 232,572 243,220
Furniture and fixtures 11,723 370 11,353 2,417
Leasehold improvements 12,482 625 11,857 -
---------- ---------- ---------- ----------
$ 302,874 $ 25,312 $ 277,562 $ 271,258
========== ========== ========== ==========
</TABLE>
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
NOTE 4 - EXCESS OF COST OVER NET IDENTIFIABLE ASSETS ACQUIRED
1997 1996
---- ----
Excess of cost over net
identifiable assets acquired $ 257,647 $ 252,353
in acquisition of 714674
Alberta Ltd. (o/a Calgary
Chemicals).
Less accumulated amortization (29,933) (3,996)
---------- ----------
$ 227,714 $ 248,357
========== ==========
NOTE 5 - BANK INDEBTEDNESS
Bank indebtedness consists of:
1997 1996
---- ----
Bank overdraft $ 11,158 $ -
Demand operating loan 52,331 65,430
---------- ----------
$ 63,489 $ 65,430
========== ==========
NOTE 6 - LONG-TERM DEBT
1997 1996
---- ----
Term bank loan requiring monthly $ 169,327 $ -
payments of $2,796 plus interest
at Canadian bankers acceptance
rate plus 4.13%, secured by a
first charge on all assets.
Term bank loan requiring monthly - 127,022
payments of $3,736 plus
interest at the bank's prime rate
plus 1 3/4% secured by a general
security agreement and
postponement of the vendor loan
payable.
Vendor loan payable, requiring - 109,050
payments of $7,270 per month
for sixteen months including
interest at 9.4% ---------- ----------
169,327 236,072
Less current portion 33,522 126,265
---------- ----------
$ 135,805 $ 109,807
========== ==========
- Continued -
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
Note 6 - Long-term Debt - Continued
During the year, at the option of the vendor, $46,449 of the
vendor loan payable was converted into 77,416 common shares.
The future principal repayments required on long-term debt are
$33,522 per year.
NOTE 7 - COMMON STOCK
Authorized:
200,000,000 common shares, par value $0.001 each
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Number Amount Number Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Issued and outstanding:
Balance beginning
of year 10,497,300 $ 307,330 - $ -
On incorporation - - 10,000,000 100,000
Private placements 85,000 42,500 497,300 248,650
Conversion of vendor
loan 77,416 46,449 - -
For services 25,000 12,500 - -
---------- ---------- ---------- ----------
10,684,716 408,779 10,497,300 348,650
Less share issue costs - (54,412) - (41,320)
---------- ---------- ---------- ----------
10,684,716 $ 354,367 10,497,300 $ 307,330
========== ========== ========== ==========
Represented by:
Common shares at par value $ 10,684 $ 10,497
Additional paid-in capital 343,683 296,833
---------- ----------
$ 354,367 $ 307,330
========== ==========
</TABLE>
At December 31, 1997 and 1996, the corporation has granted
options to acquire 960,000 common shares at $0.50 per share.
These options expire November 30, 2001.
NOTE 8 - COMMITMENT
The corporation has entered into a premises lease, expiring
January 31, 2002, requiring a yearly base rental payment of
$45,900.
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
For the years ended December 31, 1997 and 1996
NOTE 9 - UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles and for
the years ending December 31, 1997 and 1996. There are no
material differences between Canadian Generally Accepted
Accounting Principles and United States Generally Accepted
Accounting Principles.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities set forth below on the dates indicated.
Date: March 31, 1998
Wolf Industries Inc.
- --------------------------------------------------------------------
By /s/ Blair Coady
------------------------------------------------------------------
Blair Coady, Title: Director, President and Secretary
- --------------------------------------------------------------------
By /s/ John Grove
------------------------------------------------------------------
John Grove, Title: Director
- --------------------------------------------------------------------
By /s/ James Donaldson
------------------------------------------------------------------
James Donaldson, Title: Director
- --------------------------------------------------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> CANADIAN DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<EXCHANGE-RATE> 0.735 0.735
<CASH> 0 58,625
<SECURITIES> 0 0
<RECEIVABLES> 62,951 117,519
<ALLOWANCES> 0 0
<INVENTORY> 55,926 36,593
<CURRENT-ASSETS> 120,613 222,106
<PP&E> 227,714 248,357
<DEPRECIATION> 29,933 3,996
<TOTAL-ASSETS> 625,889 741,721
<CURRENT-LIABILITIES> 218,989 319,728
<BONDS> 0 0
0 0
0 0
<COMMON> 354,367 307,330
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 709,161 736,865
<SALES> 0 0
<TOTAL-REVENUES> 444,192 145,889
<CGS> 227,240 75,723
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 323,218 53,810
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,426 1,476
<INCOME-PRETAX> (106,266) 16,356
<INCOME-TAX> (9,880) 11,500
<INCOME-CONTINUING> (96,386) 4,856
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (91,530) 4,856
<EPS-PRIMARY> (0.01) 0.00
<EPS-DILUTED> 0.00 0.00
</TABLE>
