UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999.
WOLF INDUSTRIES INC.
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(Name of Small Business Issuer in its Charter)
Nevada E.I.N. 98-0171619
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
205 - 16055 Fraser Highway, Surrey, B.C. V3S 2W9
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 597-0036
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SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE ACT: NONE.
SECURITIES REGISTERED UNDER 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
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 ninety (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 the 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, 1999 were $nil. Issuer's Common Shares outstanding at March 29, 2000 was
7,430,664. The aggregate market value based on the voting stock held by
non-affiliates as of March 29, 2000 was $5,048,443 (based on 7,181,284 shares
and on an average of bid and asked prices of $0.703).
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" provision 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.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits
<PAGE>
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, the Company entered into an agreement to acquire two numbered
companies that were combined with 714674 Alberta Ltd. continuing in operation.
The business operated as Calgary Chemical, selling chemical products to the oil
and gas industry.
In March 1997, the Company's name was changed to Wolf Industries Inc. to reflect
these developments.
Effective June 30, 1998, the Company sold its subsidiary, 714674 Alberta Ltd.
("Calgary Chemical") to Gorda Technology Holdings Limited, a Turks and Cacios
Islands corporation ("Gorda"). The terms of the sale were as follows:
(a) forgiveness of the inter company debt owed by Calgary Chemical to the
Company in the amount of $82,289 (Canadian);
(b) Payment by Gorda to the Company of fifteen percent of Calgary Chemical's
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;
(c) Indemnification by Gorda to hold the Company harmless from any and all
liability arising from the debt guarantees of Calgary Chemical;
(d) Agreement by Gorda to hire Mr. Blair Coady as the President and Chief
Executive Officer of Calgary Chemical; and
(e) Receipt by the Company from Mr. Coady of his resignation as President and
Chief Executive Officer, Secretary, and Director of the Company and the
surrender of Mr. Coady's options to acquire 700,000 shares of the Company's
common stock.
This agreement is incorporated by reference from the Company's 10QSB filing for
the quarter ended March 31, 1998.
The sale of Calgary Chemical was subject to approval of the shareholders of the
Company, which was received at the Company's annual general meeting of July 24,
1998.
<PAGE>
On April 8, 1998, the Company entered into a License agreement with Andrew
Engineering Inc. ("Andrew") 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 patent pending device for the color matching of
dentures to a dental patient's existing tooth color. Drs. Rawicz and Melnyk hold
the patent pending for the color analyzer and Andrew developed and/or acquired
the techniques and other proprietary information related to the device. The
License agreement required the Company and Andrew to develop a business plan for
manufacturing and marketing the device, including obtaining financing of
$1,500,000 US. The license agreement required the issuance of 4.8 million shares
of restricted stock to Andrew with registration rights on 600,000 of those
shares, and also required that Mr. Patrick McGowan be appointed President and
Chief Executive Officer. Mr. McGowan signed a management agreement with the
Company, and 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. They were also appointed interim President and CEO, and Secretary,
Treasurer respectively, pending the approval of the shareholders of the Gorda
transaction wherein Mr. Coady would resign from all positions. The agreement
also provided for the Company to pay a royalty to Andrew 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.
This agreement is incorporated by reference from the Company's 10QSB filing for
the quarter ended March 31, 1998.
Upon approval by the shareholders of the sale of Calgary Chemical at the 1998
annual general meeting, Mr. P. McGowan, Mr. A. Schwabe and Dr. David Gane were
elected directors, and Messrs. McGowan and Schwabe were appointed President and
CEO, and Secretary, Treasurer respectively.
In September 1998, 4.8 million shares of the Company's stock were issued to
Andrew in accordance with that agreement.
As a result of settlement of the litigation with AEI Trucolor Inc. ("Trucolor"),
the License Agreement was cancelled and the 4,800,000 shares were returned to
the treasury in 1999. (see Item 3 - Legal Proceedings).
This action was settled by the execution of two agreements the effect of which
is that the Company can acquire a 60% interest in Trucolor, an arm's length
company. As a result of the agreement, Trucolor became the owner of the rights
to the device.
In March, 2000, the Company entered into an agreement with a private company,
Eastview Capital Inc. which, by a prior agreement, acts on behalf on Interactive
Travel Systems Media Group ("ITS") with the intention of entering into an
acquisition agreement with ITS. ITS is a private internet e-commerce technology
and content development company specializing in the travel and hospitality
industry. The acquisition of ITS is subject to funding requirements and the
satisfactory completion of a due diligence process by both parties.
The Company has agreed to a private placement in the amount of 1,500,000
restricted common shares to be issued at $0.50 per share to raise a total of
$750,000, as to $500,000 pursuant to the requirements for the acquisition, and
$250,000 for working capital.
(b) BUSINESS OF THE ISSUER
DENTAL COLOR ANALYZER
During 1998, the Company sold Calgary Chemical and acquired the worldwide
manufacturing and marketing rights to a dental color analyzer ("the product").
This technology was developed to assist the dental industry in determining the
shades and colors of dental materials used in replacement and/or restorative
work, by precisely matching these shades to the original teeth of patients. The
dental color analyzer discriminates between the minutest differences in tooth
shading and determines the best shade match for partial or total restorative
material. It does so by taking into account the differences in color of
spectrally unmatched materials when illuminated with different light sources
such as sunlight, incandescent lamps, and fluorescent lamps.
<PAGE>
Since acquiring the rights in April 1998, the Company's efforts have been
directed towards research, development and business plans for manufacturing and
marketing the product. This has involved manufacturing a small quantity of the
product for testing and demonstration purposes; engaging technical experts and
firms to evaluate the product; attendance at dental conventions and shows to
demonstrate the product; attendance at various dental firms and laboratories to
demonstrate and evaluate the product; and work on both the product and related
software to perfect its operation. The Company has also engaged the assistance
of consultants to develop marketing plans for the product. This has resulted in
the Company incurring substantial research and development expenditures in the
year 1998.
The Company has also held discussions with companies involved in the
distribution of dental products in Canada, the United States and Europe
regarding marketing of the product.
The Company has developed preliminary business plans to proceed with manufacture
and sale of the units, but was been delayed in proceeding pending completion of
this research and development, and by the action brought against the Company by
AEI Trucolor (see Item 3 - Legal Proceedings).
As a result of settlement of the Trucolor action, Trucolor became the owner of
the dental color analyzer. In the event that a manufacturing/distribution
agreement is consummated with at third party, as anticipated by the settlement
agreement, and subject to the terms and conditions contained in the
manufacturing/distribution agreement, the Company will own a 45% interest in
Trucolor, GPT a 40% interest, and AEI a 15% interest.
CALGARY CHEMICAL
The Company owned and operated its subsidiary, 714674 Alberta Ltd. until June
30, 1998, when it was sold as described previously. As a result, the Company is
no longer involved in the manufacturing and sale of chemical products.
ITEM 2. DESCRIPTION OF PROPERTY
As a result of the change of management and business direction, the Company
relocated its head offices from Calgary, Alberta to Vancouver, British Columbia.
Its Vancouver office was shared with other companies, and the Company paid for
its share of rent and office expenses under month-to-month arrangements with the
other companies. The Company occupied approx. 1,000 square feet of space and
paid $12,374 in the year 1999 for its share of office rent. Effective January,
2000, the company relocated its office to Surrey, B.C., a Vancouver suburb,
under an agreement to pay $200.00 per month for office rent, plus telephone
charges and disbursements. The company shares this office with other companies,
and occupies approx. 150 square feet.
ITEM 3 LEGAL PROCEEDINGS
AEI Trucolor
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An action was brought by AEI Trucolor Inc. ("Trucolor"), in the British Columbia
Supreme Court against the Company, Andrew Engineering Inc. ("AEI"), and the
other parties to the License Agreement. Trucolor made a claim against the
defendants as follows:
(a) A declaration that Trucolor holds all ownership rights and interest in the
Dental Color Analyzer (the "Analyzer");
(b) Injunction against the Defendants from continuing the commercial or other
development of the Analyzer;
(c) An injunction against the Defendants from disposing of or in any way
dealing with the Analyzer;
(d) An order that the Analyzer be delivered forthwith to the Plaintiff;
(e) An accounting of all monies, profits and benefits made and received by the
defendants for and on account of Trucolor;
(f) General damages; and
(g) Punitive damages.
<PAGE>
The dispute was settled and the action dismissed pursuant to the terms of a
binding Letter Agreement (the "Settlement Agreement"), dated June 25, 1999. The
Settlement Agreement provides that the shareholdings in Trucolor, the owner of
the Analyzer, be amended as follows:
GPT Management Ltd. - 45%
Andrew Engineering Inc. - 25%
EAW Enterprises Ltd. - 20%
Wolf Industries Inc. - 15%
By way of a separate Asset Purchase Agreement, also dated June 25, 1999, the
Company acquired the 25% interest in Trucolor held by AEI. As a result, the
Company's current equity interest in Trucolor in equal to 40%.
The Settlement Agreement also contains the following provisions:
(a) that, upon consummation of a marketing/distribution agreement with a
qualified third party manufacturing/distribution company (the "Third Party
Agreement"), the 20% interest in Trucolor held in escrow by EAW Enterprises
Ltd. ("EAW"), will be transferred to the Company;
(b) that, in the event such a Third Party Agreement in not executed within 1
year of June 25, 1999, EAW's 20% will be transferred to GPT Management Ltd.
("GPT");
(c) that, in the event the Third Party Agreement is not executed within the 1
year time frame, and GPT's equity interest in Trucolor is increased to 65%,
AEI will have the right, for a period of 120 days from June 25, 2000, to
purchase GPT's interest for $300,000.00, paid on an after-tax basis;
(d) that, in the event a Third Party Agreement is executed, and the Company's
equity interest in Trucolor increases to 60%, AEI will have the right to
acquire 25% of the Company's interest, which amount will equal a 15% equity
interest in Trucolor;
(e) that the License Agreement be cancelled and, as a consequence, the
4,800,000 shares in the Company's capital, issued in respect of that
agreement, be cancelled.
In summary, in the event a Third Party Agreement is consummated, the Company
will hold a 45% equity interest in Trucolor, GPT will hold a 40% interest and
AEI a 15% interest.
It is the intention of the Company to work closely with GPT in order to attract
a large manufacturer/distributor for the Analyzer. Several entities have
expressed interest in becoming partners in the project. The Company is pleased
to have completed the Settlement Agreement which sees the litigation concerning
ownership of the technology resolved and allows action to be taken concerning
commercialization, manufacture, and sale of the Analyzer.
These agreements are incorporated by reference from the Company's 10QSB filing
for the quarter ended June 30, 1999.
Harvey Productions Inc.
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The Company was in litigation in the Los Angeles County Superior Court West
District, Santa Monica, California concerning the demand of approximately
$55,000 purportedly due and owing by the Company to the plaintiff Harvey
Productions Inc. for public relations services allegedly rendered but not paid.
The Company denied these allegations.
This litigation was settled in February, 2000 by agreement of the Company to
make a series of payments totalling $20,000 over the period from February to
December, 2000. The agreement stipulated that in the event the Company defaults
on any payment, the amount of $50,000 would then become due and payable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders of the Company during
the fourth quarter of the fiscal year ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTER
(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, 1999 there were eighteen stock
brokerage firms making a market in the Company's common stock. The high ask and
low bid prices of the Common Stock of the Company have been as follows:
Quarter Ending: High ask per share: Low bid per share:
--------------- -------------------- ------------------
March 31, 1999 $0.33 $0.08
June 30, 1999 $0.19 $0.10
September 30, 1999 $0.19 $0.11
December 31, 1999 $0.14 $0.04
The above quotations reflect inter-dealer prices, without retail mark-up,
markdown, or commission and may not necessarily represent actual transactions.
(b) HOLDERS
There were 40 holders of the Company's common stock as of December 31, 1999.
This includes four holders of 75,001 shares of the Company's common stock whose
certificates are restricted. 25,001 of the restricted shares were issued in
December 1997 and 50,000 were issued in August 1999.
(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 OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following should be read in conjunction with the Consolidated Financial
Statements and notes thereto appearing elsewhere in this report.
Revenue and expense transactions in Canadian funds are converted to US dollars
at the average rates in effect when the transactions occurred. Asset and
liability accounts are converted at year-end closing rates, which were $0.6928
U.S. for one Canadian dollar at December 31, 1999; $0.6522 at December 31, 1998
and $0.6991 at December 31, 1997.
(a) Results of Operations
The Company has had no revenues since June 30, 1998. As a result of the sale of
714674 Alberta Ltd. (Calgary Chemical) effective June 30, 1998, the Company
reflected the operations of Calgary Chemical as a discontinued operation.
Revenue from sales during the six months until the sale was $286,347 compared to
$444,192 for the year 1997. Cost of goods sold was $147,496 in 1998, and
$227,240 in 1997.
General and administrative expenses for the fiscal year ended December 31, 1999
were $275,494 compared to $769,790 in 1998. Due to the Trucolor legal action,
the Company substantially reduced its level of activity pending resolution of
the matter. Expenses in 1998 compared to 1997 reflect the change of business
direction of the Company, including substantial costs for staff, legal,
accounting, consulting, travel, and general office expenditures. Similar
expenditures were $8,078 in 1997, but are not comparable, as the Company's
operations were conducted by its former subsidiary, Calgary Chemical, which was
sold in 1998. The Company incurred $3,436 (1998 - $590,118) of research and
development costs in 1999, all related to the dental color analyzer. These costs
included the manufacture of a quantity of the product for demonstration and
testing purposes, and services of consultants and technical firms in testing,
evaluating, and perfecting the product.
<PAGE>
In 1998, the Company recorded a loss from discontinued operations of $14,350,
and a loss from the sale of the subsidiary of $273,099.
(b) Capital Resources
The Company had a working capital deficiency of $1,120,718 at December 31, 1999.
The AEI Trucolor matter (see Item 3 - Legal Proceedings) delayed the company's
plans to raise capital through the issuance of shares. In the meantime, the
Company has been meeting its obligations through funds loaned by a shareholder,
and has issued capital stock for certain services rendered to the Company in
accordance with an S-8 registration filing.
As at February, 2000, the funds loaned by the shareholder amounted to
$1,009,889. With the legal proceedings now settled, the Company has agreed to
settle this debt by the issuance of shares.
The Company has made no commitments for capital expenditures, but may have
further requirements to expend funds on research and development on the product.
As a result of the agreement with Eastview Capital Inc., (Item 1(a), the Company
has agreed to a private placement in the amount of 1,500,000 restricted common
shares to be issued at $0.50 per share to raise a total of $750,000, as to
$500,000 pursuant to the requirements of the acquisition, and $250,000 for
working capital .
(c) Liquidity
The Company is illiquid at the present time and has been dependent upon a
shareholder to provide funds to maintain its activities, as indicated
previously. As a result of resolution of the Trucolor legal matter the Company
expects to be able to raise funds through the issuance of shares.
(d) Year 2000 Computer Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
the year 2000 date is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change of date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to the efforts of customers, suppliers, or other third parties,
have been fully resolved.
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 to the date of this Form 10-KSB. The
principal accountants' report on the financial statements of the fiscal years
1999, 1998, and 1997 contained no adverse opinions, nor a disclaimer of opinion,
nor qualified as to uncertainty, audit scope, or accounting principles.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names, positions, and municipalities of residence and
relevant backgrounds of key personnel of the Corporation:
PATRICK A. McGOWAN - (Age 61). President, C.E.O. and Director, Coquitlam,
British Columbia. President of the Company since April 16, 1998. September
1996 to April 1999, president of Consolidated Ewing Industries Inc. (now
Lyra Resources Ltd.), Vancouver, B.C., a company formerly engaged in oil
and gas exploration, which is publicly traded on the Canadian Venture
Exchange ("CDNX"), formerly the Vancouver and Alberta Stock Exchanges.
November 1997 to the present, President of American Hunter Exploration,
Vancouver, B.C., a privately held Nevada corporation engaged in oil and gas
exploration. February 1998 to the present, President and Director of U.S
Diamond Corp., Vancouver, B.C., the parent company of American Hunter
Exploration, a public company involved in natural resources, and traded on
the CDNX. August 1997 to December 1997, President and Director of Globenet
Resources Inc., Vancouver, B.C., a public traded company traded on the
CDNX, engaged in natural resource exploration and development. October 1992
- September 1996, President and Director of The Indisposibles, Burnaby,
B.C., a manufacturer and distributor of infant wear, incontinent and
feminine hygiene products throughout North America and Europe. January 1988
to September 1992, Executive Vice President of Pacific Paper Products,
Burnaby, B.C., a manufacturer and distributor of paperboard products in
British Columbia and Alberta. Graduated from University of Western Ontario
with Masters of Business Administration in 1965, graduated University of
Oregon with Bachelor of Science, Finance and Economics in 1963.
ALLEN SCHWABE (Age 43). Treasurer and Director, Delta, British Columbia.
Treasurer since April 16, 1998. Since 1982 to the present, President and
owner of Buellex Holdings, Inc., Delta, B.C., a company engaged in
investing for its own account. January 1996 to present, a Consultant to
Pacific Insight Electronics Corporation, Nelson, B.C., Canada providing
investment advice with respect to current market conditions for a variety
of investment options. March 1996 to the present, Director of Porcher
Island Gold Corporation, Vancouver, B.C., a precious metal exploration
company publicly traded on the CDNX. March 1991 to June 1995, Director of
Cyberion Networking Corp., a publicly held company traded on the CDNX.
March 1995 to June 1996, Director of East West Resource Corp., a publicly
held mining company traded on the CDNX. May 1996 to September 1997,
Director of G.F.M. Resources Ltd., a publicly held mining company traded on
the CDNX.
PETER G.ROOK-GREEN (Age 59) Secretary of the Company, Surrey, British Columbia.
Secretary since March 20, 2000. Since 1994 to the present, President of
Rook-Green Investments Inc. (d.b.a. R-G Management), a company engaged in
providing administrative and accounting services to companies. May 1996 to
present, Corporate Secretary and C.F.O. of Pallaum Minerals Ltd.,
Vancouver, B.C., Canada, a resource company trading on the CDNX; February
1997 to present, Corporate Secretary of Globalstore.com Incorporated,
Vancouver, B.C., an internet technology company trading on the CDNX;
September 1998 to present, Corporate Secretary, Olympus Stone Inc.,
Vancouver, B.C., a resource company trading on the CDNX; February, 2000 to
present, Corporate Secretary of US Diamond Corp., Vancouver, B.C., a
resource company trading on the CDNX; March, 1998 to present, Director of
Anglo-Andean Explorations Inc., Vancouver, B.C., a resource company trading
on the CDNX; and January, 2000 to present, Director of Rystar
Communications Ltd., Vancouver, B.C., trading on the CDNX. Mr. Rook-Green
obtained a Certified Management Accountant (C.M.A.) designation in 1971.
Mr. Schwabe resigned as Secretary of the Company on March 20, 2000, and was
replaced by Mr. Rook-Green. Mr. Schwabe remains a Director and Treasurer of the
Company.
ITEM 10. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE (OMITTED FOR SIMPLICITY)
A private company wholly-owned by Mr. McGowan received or was due a total of
$66,427 of compensation in the fiscal year ended December 31, 1999 in accordance
with a management agreement approved by the directors in April, 1998 at a rate
of $7,000 per month, which was subsequently amended to Canadian $5,000 per month
effective August, 1999.
<PAGE>
Mr. Schwabe received $12,902 during the year 1999 for consulting services
provided to the Company.
(b) OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
The Company has a Directors and Officers Stock Option Plan, and a Key Personnel
Compensation Plan, as described below. There have been no other options granted,
except in accordance with these plans.
(c) AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
There were no exercises of options in the last fiscal year.
(d) LONG-TERM INCENTIVE PLANS - AWARDS IN THE 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 to the Company. In 1996 and 1997, a total of 960,000
options to purchase shares were granted under this plan. As a result of the sale
of Calgary Chemical, and change of management, the 960,000 options were
cancelled in 1998. By resolution of the directors of the Company dated May 28,
1998, the Company reserved an additional one million shares of common stock of
the Company for the Plan bringing the total shares reserved to 2,000,000 and
renamed the Plan "The Wolf Industries Inc. 1998 Directors and Officers Stock
Option Plan" ("the Revised Plan") with all other terms and conditions of the
Plan remaining in full force and effect.
In September 1998, the Company by resolution of the directors, established the
"1998 Key Personnel Compensation Plan" ("Key Plan") whereby 1,000,000 shares of
the Company's stock was reserved for issuance. By resolution of the directors
dated November, 1998, a further 1,000,000 shares of common stock was authorized
to be reserved for issuance, bringing the total issuable under the Key Plan to
2,000,000 shares of common stock.
During 1998, under the terms of the Revised Plan, a total of 1,050,000 option to
purchase common shares of the Company were granted to three officers and
directors of the Company at $0.25 per share for a five-year period.
During 1998, under the terms of the Key Plan, options to purchase 75,000 shares
of the common stock of the Company was granted to an employee at $0.25 per
share, for a five-year period. Also under the terms of the Key Plan, 1,973,026
shares of common stock of the Company were issued at a deemed price of $0.25 per
share, and 1,000,000 shares of common stock of the Company at a deemed price of
$0.20 per share for services rendered by key personnel to the Company. In 1999,
under the terms of the Key plan, 350,000 shares were issued at a deemed price of
$0.18, and 100,000 shares were issued at a deemed price of $0.15.
(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
As a result of the sale of Calgary Chemical (Item 1(a)), Mr. Coady resigned at
President and Chief Executive Officer, Secretary, and Director of the Company.
There was no additional cost to the Company for severance or vacation pay
resulting from this termination.
<PAGE>
Mr. Patrick McGowan was appointed President and Chief Executive Officer of the
Company in April 1998, at an annual fee of $84,000, which was subsequently
amended to Canadian $5,000 per month effective August, 1999. In 1999, Andrea
Resources Ltd. a company wholly-owned by Mr. McGowan received or was owed a
total of $66,427 for services rendered under this agreement.
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,
1999 unless otherwise noted. The number of shares beneficially owned is deemed
to include shares of Common Stock which directors of officers have a right to
acquire pursuant to the exercise of options within sixty days of December 31,
1999. 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.
None
(b) SECURITY OWNERSHIP OF MANAGEMENT.
Name and Address Number Percentage
Of Shares of Class
- --------------------------------------------------------------------------
Patrick A. McGowan
211 - 1148 Westwood Street
Coquitlam, B.C.
V3B 4S4 650.000 (1) 8.1%
Allen Schwabe
1730 Beach Grove Drive
Delta, B.C. 200,000 (1) 2.5%
V4L 1P3
(1) Consists entirely of options to purchase shares at a price of $0.25 per
share.
(c) CHANGES IN CONTROL
Changes in control occurred in April 1998, when Patrick A. McGowan was appointed
the President and C.E.O. of the Company and Mr. Schwabe was appointed Secretary,
Treasurer and members of the Board of Directors. All of the former directors
resigned at that time and were replaced by the current directors, consisting of
Mr. McGowan, Mr. Schwabe, and Dr. David Gane. Dr. Gane resigned as a director in
June, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. McGowan is the sole shareholder of Andrea Resources Ltd., which billed the
Company a total of $66,427 during 1999 for services rendered under the
management agreement (Item 10(f)). Buellex Holdings Inc., a company wholly owned
by Mr. Schwabe, billed the Company $12,902 during 1999 for consulting services.
Also during 1999, Dr. Gane was paid $11,050 for consulting fees.
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 interest 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
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
The following documents are filed as part of this report under Part II, Item 8:
Audited Financial Statements and notes thereto Pages F-1 to F-13
(a) Exhibits as required by Item 601 of Regulation S-B
<TABLE>
<CAPTION>
Exhibit Number Description Incorporated by Reference to
- -------------- ----------- ----------------------------
<S> <C> <C>
(3) (a) (1) Articles of Incorporation as amended Registrant's Report on Form
10SB12G dated June 19, 1997.
(10) (1) Sale agreement between Wolf Industries Inc. Registrant's Quarterly Report on
and Gorda Technology Holdings Limited Form 10QSB for the quarter ended
March 31, 1998
(10) (2) License agreement between Wolf Industries Registrant's Quarterly Report on
Inc., Andrew Engineering Inc., Andrew Rawicz Form 10QSB for the quarter ended
Ph.D. and Ivan Melnyk Ph.D. March 31, 1998
(10) (3) Asset purchase agreement between Wolf Registrant's Quarterly Report on
Industries Inc. and Andrew Engineering Inc. Form 10QSB for the quarter ended
June 30, 1999
(10) (4) Agreement between Wolf Industries Inc., Andrew Registrant's Quarterly Report on
Engineering Inc., Andrew Rawicz and GPT Form 10QSB for the quarter ended
Management Ltd. June 30, 1999
</TABLE>
<PAGE>
WOLF INDUSTRIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
F-1
<PAGE>
INDEPENDENT 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, 1999, and 1998 and the consolidated statements of loss and retained
earnings (deficit), stockholders' equity and cash flows for the years then
ended. 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 audits in accordance with general accepted auditing standards
in the United States and Canada. 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Wolf Industries Inc as at December 31, 1999
and 1998 and the results of its operations and cash flows for the years then
ended in accordance with general accepted accounting principles.
Without qualifying our opinion we draw attention to the fact that the Company
has incurred a net loss of $307,331 for the year ended December 31, 1999 and as
at that date, the Company's current liabilities exceeded its current assets by
$1,120,718. These factors raise substantial doubt that the Company will be able
to continue as a going concern.
The statements of loss and retained earnings (deficit), stockholders' equity,
and cash flows for the year ended December 31, 1997 were audited by other
auditors who expressed an opinion, without qualification, on March 12, 1998.
Vancouver, Canada /s/ "Morgan & Company"
-------------------------
March 24, 2000 Chartered Accountants
Comments by Auditors on United States - Canada reporting difference
In Canada, reporting standards for auditors do not permit the addition of an
explanatory paragraph (following the opinion paragraph) when the consolidated
financial statements are affected by conditions and events that cast substantial
doubt on the Company's ability to continue as a going concern. Although our
audit was conducted in accordance with both United States and Canadian generally
accepted auditing standards, our report to the stockholders dated March 24, 2000
is expressed in accordance with United States reporting standards which require
a reference to such conditions and events in the Auditor's Report.
Vancouver, Canada /s/ "Morgan & Company"
-----------------------
March 24, 2000 Chartered Accountants
F-2
<PAGE>
<TABLE>
<CAPTION>
WOLF INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
AS AT DECEMBER 31
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
Current
Cash $ 2,084 $ -
Accounts receivable 4,591 27,858
Prepaid expenses - 25,000
------------- -------------
6,675 52,858
------------- -------------
Intangible Asset (Net of Amortization) (Note 6) - 1,293,600
Investment in AEI Trucolor Inc. (Note 7) 7,500 -
------------- -------------
$ 14,175 $ 1,346,458
============= =============
LIABILITIES
Current
Bank indebtedness $ - $ 11,716
Accounts and advances payable and accrued liabilities 1,127,393 882,129
------------- -------------
1,127,393 893,845
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock (Note 3) 1,084,473 2,342,973
Retained Earnings (Deficit) (2,197,691) (1,890,360)
------------- -------------
(1,113,218) 452,613
------------- -------------
$ 14,175 $ 1,346,458
============= =============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF LOSS AND RETAINED EARNINGS (DEFICIT)
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31
1999 1998 1997
------------- ------------- -------------
Expenses
<S> <C> <C> <C>
Administration $ 275,494 $ 769,790 $ 8,078
Amortization - 50,400 -
Executive compensation 66,427 63,000 -
Rent 12,374 38,073 -
Research and development 3,436 590,118 -
------------- ------------- -------------
357,731 1,511,381 8,078
------------- ------------- -------------
Loss for the year, before undernoted items: (357,731) (1,511,381) (8,078)
Recovery of prior years amortization of intangible asset (Note
7) 50,400 - -
Loss from discontinued operations - (14,350) (88,308)
Loss on sale of subsidiary company (Note 5) - (273,099) -
------------- ------------- -------------
Net Loss for the year (307,331) (1,798,830) (96,386)
------------- ------------- -------------
Retained Earnings (Deficit), beginning of year (1,890,360) (91,530) 4,856
------------- ------------- -------------
Deficit, end of year $ (2,197,691) $ (1,890,360) $ (91,530)
============= ============= =============
Loss per share:
On net loss from continuing operations before
extraordinary item $ (0.04) $ (0.16) $ (0.00)
============= ============= =============
On Net Loss $ (0.03) $ (0.19) $ (0.01)
============= ============= =============
Weighted Average Number of Shares Outstanding
10,067,961 9,364,129 10,591,008
============= ============= =============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Provided By (Used For):
Operating Activity
Loss from continuing operations $ (357,731) $ (1,511,381) $ (8,078)
Item Not Affecting Cash
Amortization - 50,400 -
Changes in working capital:
Accounts receivable 23,267 (27,858) -
Prepaid expenses 25,000 (25,000) -
Accounts payable 323,264 1,495,583 24,171
Discontinued operations - 17,698 (132,913)
------------- ------------- -------------
13,800 (558) (116,820)
------------- ------------- -------------
Financing Activities
Issue of common shares - - 101,449
Share issue costs - - (54,412)
------------- ------------- -------------
- - 47,037
------------- ------------- -------------
Increase (Decrease) In Cash 13,800 (558) (69,783)
Cash (Bank Indebtedness), Beginning Of Year
(11,716) (11,158) 58,625
------------- ------------- -------------
Cash (Bank Indebtedness), End Of Year $ 2,084 $ (11,716) $ (11,158)
============= ============= =============
</TABLE>
SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES:
- -----------------------------------------------------------------------
During the year ended December 31, 1999, the Company issued 450,000 (1998 -
2,973,026) common shares for the non-cash consideration of services provided to
the Company in the amount of $78,000 (1998 - $644,606).
F-5
<PAGE>
<TABLE>
<CAPTION>
WOLF INDUSTRIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31
Retained Foreign
Shares Additional Earnings Exchange
Common Amount Paid-in Capital (Deficit) Gains Total
------------- ------------ ----------------- ---------------- ------------ -----------------
1999
- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, Beginning
Of Year 11,334,648 $ 11,334 $ 2,331,639 $ (1,890,360) $ - $ 452,613
1998 Issuance Cancelled (Note
7) (4,800,000) (4,800) (1,339,200) - - (1,344,000)
Common shares issued 500,000 500 85,000 - - 85,500
Share issue costs - - - - - -
Net loss - - - (307,331) - (307,331)
------------- ------------ ----------------- ---------------- ------------ -----------------
Balance, End Of Year 7,034,648 $ 7,034 $ 1,077,439 $ (2,197,691) $ - $ (1,113,218)
============= ============ ================= ================ ============ =================
1998
Balance, Beginning
Of Year 10,684,716 $ 10,684 $ 343,683 $ (91,530) $ 8,258 $ 271,095
Stock Reverse Split 3:1 (7,123,094) (7,123) 7,123 - - -
Common shares issued 7,773,026 7,773 1,980,833 - - 1,988,606
Net loss - - - (1,798,830) - (1,798,830)
Unrealized foreign
Exchange gain - - - - (8,258) (8,258)
------------- ------------ ----------------- ---------------- ------------ -----------------
Balance, End Of Year 11,334,648 $ 11,334 $ 2,331,639 $ (1,890,360) $ - $ 452,613
============= ============ ================= ================ ============ =================
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
=============== == ========== == =============== == ============== == ========== === ==============
</TABLE>
F-6
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 business offices are located in
Vancouver, British Columbia, Canada.
In April 1998, the Corporation acquired an exclusive license to develop and
market a dental color analyzer. (Note 6&7). The Company's primary business
activity since that date has been to conduct research, development and
marketing plans to manufacture and sell the product. Prior to this
acquisition, the Corporation's primary business activity was the blending
of chemicals for use in oilfield production from a wholly owned
subsidiary's plant in Calgary, Alberta, Canada. The subsidiary 714674
Alberta Ltd. was sold effective June 30, 1998. (Note 5)
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation (Discontinued Operations)
The Corporation sold its wholly owned subsidiary, 714674 Alberta
Ltd. (o/a Calgary Chemical) effective June 30, 1998. (Note 5) The
presentation of the consolidated financial statements for this
and prior years has been changed to reflect the subsidiary as a
discontinued operation.
(b) Intangible Asset
Intangible asset, license and patent rights, are recorded at cost
less accumulated amortization. Amortization is provided on a
straight line basis over a term of twenty years. Pursuant to
Statement of Financial Accounting Standards No 121, long lived
assets held by the Company must be reviewed for impairment
whenever events or circumstances indicate the carrying amount of
the asset may not be recoverable. An impairment loss is
recognized in the period it is determined.
F-7
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Foreign Currency Translation
The Company's functional currency is the Canadian Dollar and
reporting currency is the United States dollar. Monetary assets
and liabilities are translated at the exchange rate in effect at
the balance sheet date and non-monetary assets and liabilities at
the rate in effect on the dates of the related transactions.
Revenues and expenses are translated at rates approximating
exchange rates in effect at the time of the transactions. Gains
or losses arising on conversion of foreign currency transactions
are included in income in the period they occur.
(d) Income Taxes
The Company uses the liability method of accounting for income
taxes pursuant to SFAS No. 109. The only significant tax assets
the Company has are the accumulated non-capital losses which are
available to offset future taxable income. The Company's
operations have no income subject to income taxes and cannot be
determined that such tax assets will be realized. Accordingly,
the Company would eliminate the effect of the recognition of any
of these tax assets by the recording of a valuation allowance
equal to the value of the tax assets.
(e) Use of Estimates
The preparation of financial statements, in conformity with
generally accepted accounting principles, required management to
make estimates and assumptions that reflect the reported amount
of assets, liabilities, revenues, expenses and related
disclosures. Actual results could differ from those estimates.
(f) Loss Per Share
Basic net income (loss) per share is based on the weighted
average number of common shares outstanding during the year.
Diluted net income (loss) per share is based on the weighted
average number of shares outstanding during the year and dilutive
common equivalent shares from options and warrants outstanding
during the year. No common equivalent shares are included for
loss periods as they would be anti-dilutive.
As a result, diluted (loss) per share does not differ
significantly from basic (loss) per share for fiscal 1999, 1998,
and 1997 due to the losses incurred in each year.
F-8
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Investment in AEI Trucolor Inc.
The Company carries its interest in AEI Trucolor Inc., a British
Columbia private corporation, at cost. The Company does not
exercise significant influence over the investee.
3. COMMON STOCK
Authorized: 200,000,000 common shares, par value $0.001 each.
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
Number Amount Number Amount
---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Issued and outstanding
Balance beginning of year 11,334,648 $ 2,342,973 10,684,716 $ 354,367
Cancellation of Licence (Note 7) (4,800,000) (1,344,000) -- --
---------------- ---------------- -------------- --------------
Balance, beginning of year, restated 6,534,648 998,973 10,684,716 354,367
3:1 Reverse Stock Split -- -- (7,123,094) --
Acquisition of interest in AEI
Trucolor Inc. (Note 7) 50,000 7,500 -- --
Acquisition of license -- -- 4,800,000 1,344,000
For services 450,000 78,000 2,973,026 644,606
---------------- ---------------- -------------- --------------
7,034,648 $ 1,084,473 11,334,648 $ 2,342,973
================ ================ ============== ==============
Represented by:
Common shares at par value 7,034 $ 11,334
Additional paid in capital 1,077,439 2,331,639
---------------- --------------
$ 1,084,473 $ 2,342,973
================ ==============
</TABLE>
F-9
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
3. COMMON STOCK (Continued)
At December 31, 1999, options providing for the issue of additional common
shares are outstanding as follows:
Number Price Expiry Date
------------------ ------------------ ------------------------
850,000 $0.25 August 17, 2003
75,000 $0.25 October 1, 2003
The Company accounts for options granted using the intrinsic value method
and in accordance with the accounting prescribed in Accounting Principles
Board Opinion No 25 ("APB 25"). Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized. An alternative method is the fair value accounting provided for
under FASB statement No. 123 ("SFAS No 123"), which required the use of
option valuation models. Pro forma information regarding net income and
earnings per share is required by SFAS No. 123, and has been determined as
if the Company had accounted for its options granted under the fair value
method of that Statement. The fair value for these options was estimated at
the date of the grant using a Black-Scholes option pricing model with the
following weighted average assumptions for 1999, and 1998; risk free rate
of 5.25%; no dividends, volatility factor of the expected life of the
Company's common stock of 163%; and a weighted average expected life of the
options granted in each year of five years. The pro forma effect of SFAS No
123 is as follows:
Pro Forma
December 31, 1999
Net loss for the period $ 307,331
Loss per share $ 0.03
Pro Forma
December 31, 1998
Net loss for the period $ 2,074,046
Loss per share $ 0.221
No fair value estimate was made for 1997 as the Company's stock was not
publicly traded.
4. RELATED PARTIES
(i) During the year, the company paid or accrued $66,427 (1998 - $63,000)
for management fees to a company wholly owned by a director.
F-10
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
4. RELATED PARTIES (Continued)
(ii) A total of $12,947 (1998 - $31,679) was paid or accrued to a director
and to a company owned by a director for consulting and technical
services rendered.
(iii) A total of $11,050 was paid to a former director for consulting fees.
(iv) Accounts payable includes $25,995 (1998 - $4,900) payable to a company
wholly owned by a director.
5. SALE OF 714674 ALBERTA LTD. (O/A CALGARY CHEMICAL)
The Corporation disposed of its wholly owned subsidiary, 714674 Alberta
Ltd. (o/a Calgary Chemical) effective June 30, 1998 to an arm's length
corporation. The consideration for the sale was: a payment of fifteen
percent of the subsidiary's audited after-tax profit for the fiscal year
1998; indemnification of the Corporation from Calgary Chemical's bank debt;
a release of the employment contract of the former president of the
Corporation; cancellation of options to purchase shares of the Corporation
held by the former president; and forgiveness by the Corporation of $59,735
owed by the subsidiary to the Corporation.
As a result of the sale of 714674 Alberta Ltd. (Calgary Chemical) effective
June 30, 1998, the company has reflected the operations of Calgary Chemical
as a discontinued operation. Revenue from sales during the six months until
the sale was $286,347 compared to $444,192 for the year 1997 and $145,889
for the year 1996 (from acquisition September 30, 1996). Cost of goods sold
was $147,496 in 1998, $227,240 in 1997 and $75, 723 in 1996.
6. LICENSE AGREEMENT
On April 8, 1998, the Corporation entered into a License Agreement with
Andrew Engineering Inc., ("Andrew") an arm's length corporation, whereby
the Corporation acquired a worldwide license to manufacture and market a
patented device for the color matching of dentures to a patient's tooth
color. The license agreement required the Corporation and Andrew to develop
a business plan for manufacturing and marketing of the device, including
obtaining of financing; issuance of 4.8 million shares of the Corporation's
stock to Andrew; and provided for the Corporation to pay a royalty of 10%
of the gross profit of sales if the Corporation manufactured the product
itself, or 7% of gross profit if manufacturing is done by an independent
third party. The 4.8 million shares were issued during 1998 for a deemed
value of $1,344,000.
F-11
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
6. LICENSE AGREEMENT (Continued)
As a result of the settlement of litigation with AEI Trucolor Inc. ("The
Settlement Agreement") (Note 7). The License agreement was cancelled and
4.8 million shares were returned to treasury.
7. AEI TRUCOLOR INC.
An action was brought by AEI Trucolor Inc. ("Trucolor") in British Columbia
Supreme Court against Wolf Industries Inc., Andrew Engineering Inc., and
other parties to the license agreement.
This action was settled by the execution of two agreements the effect of
which is that the Company can acquire up to a 60% equity interest in AEI
Trucolor Inc., an arm's length private company. As at December 31, 1999,
the Company has a 40% interest in AEI Trucolor Inc. as described below.
The first agreement was an asset purchase agreement entered into with
Andrew Engineering Inc. ("AEI"), which will see the Company acquiring AEI's
25% equity interest in Trucolor. As consideration for the acquisition, the
Company issued to AEI 50,000 restricted shares in its capital stock. As
well, AEI was granted the right to acquire, in the event a
manufacturing/distribution agreement is consummated, as described below,
25% of the Company's then existing interest in Trucolor.
The second agreement was entered into between the Company, AEI, Andrew
Rawicz and GPT Management Ltd. ("GPT") and results in the litigation
initiated by GPT concerning the ownership of the Analyzer being dismissed
(Victoria Registry No. 99-0811), and in a declaration that Trucolor is in
fact the owner of the Analyzer.
This agreement goes on to provide for the Company acquiring 15% of GPT's
equity interest in Trucolor and for its acquisition, without additional
consideration, of a further 20% interest, upon execution by Trucolor of an
agreement with a third party for the manufacturing/distribution of the
Analyzer. The additional 20% interest can be obtained by the Company if
Trucolor receives, in cash, an aggregate after tax benefit of at least
$750,000.
This agreement (the "Settlement Agreement") provides further that the
Company's May, 1998 License Agreement with AEI be cancelled and, as a
consequence, the 4,800,000 restricted shares of the Company, issued in
respect of the License Agreement, were returned to treasury for
cancellation.
F-12
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
8. CONTINGENCY
As at December 31, 1999 the Company was in litigation in the Los Angeles
County Superior Court, West District, Santa Monica, California, concerning
the approximately $55,000 demand of the complainant purportedly due and
owing by the Company to the Plaintiff Harvey Productions Inc. for public
relations services allegedly rendered but not paid. The Company had denied
these allegations. (Note 12(a))
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
10. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and accrued liabilities. Unless otherwise noted, it is
management's opinion that the company is not exposed to significant
interest, currency, or credit risks arising from these financial
instruments. The fair values of these financial instruments approximate
their carrying values.
11. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to confirm with
the presentation adopted in the current year.
12. SUBSEQUENT EVENTS
Subsequent to the end of the year, the Company:
(a) settled the litigation with Harvey Productions Inc. by agreement to
make a series of payments totaling $20,000 over the period from
February to December, 2000. The agreement stipulates that in the event
the Company defaults on any payment, the amount of $50,000 will become
due and payable.
F-13
<PAGE>
WOLF INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
12. SUBSEQUENT EVENTS (Continued)
(b) has entered into an agreement with a private company, Eastview Capital
Inc. which, by a prior agreement, acts on behalf of Interactive Travel
Systems Media Group ("ITS") with the intention of entering into an
acquisition agreement with ITS. ITS is a private internet e-commerce
technology and content development company specializing in the travel
and hospitality industry. The acquisition of ITS is subject to funding
requirements and the satisfactory completion of a due diligence
process by both parties
(c) issued 251,016 common shares at $0.15 per share as consideration for
services, previously rendered.
(d) issued 145,000 common shares at $0.25 per share as a result of the
exercise of stock options.
(e) agreed to issue 4,039,554 shares of common stock at a deemed value of
$0.25 per share to settle $1,009,888 of accounts and advances payable
owing by the Company to a shareholder of the Company.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities 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, 2000
- ------------------------------
Wolf Industries Inc.
By /s/ Patrick A. McGowan
- ----------------------------------------------------------------------------
Patrick A. McGowan, Title: President, Chief Executive Officer, and Director
By /s/ Allen Schwabe
- --------------------------------
Allen Schwabe, Title: Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
condensed consolidated financial statements of Wolf Industries Inc. as of and
for the twelve month period ended December 31, 1999 included in this report on
form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-1-1999 JAN-1-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 2,084 0
<SECURITIES> 0 0
<RECEIVABLES> 4,591 27,858
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,675 52,858
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 14,175 1,346,458
<CURRENT-LIABILITIES> 1,127,393 893,845
<BONDS> 0 0
0 0
0 0
<COMMON> 1,084,473 2,342,973
<OTHER-SE> (2,113,267) (993,616)
<TOTAL-LIABILITY-AND-EQUITY> 14,175 1,346,458
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 357,731 1,511,381
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (307,331) (1,798,830)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (357,731) (1,784,480)
<DISCONTINUED> 0 (14,350)
<EXTRAORDINARY> 50,400 0
<CHANGES> 0 0
<NET-INCOME> (307,331) (1,798,830)
<EPS-BASIC> (0.04) (0.19)
<EPS-DILUTED> (0.03) (0.17)
</TABLE>
