UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
[ X ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from January 1, 2000 to June 30, 2000.
Commission file number: 0-23823
Wallstreet Racing Stables, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1313024
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(State of incorporation) (I.R.S. Identification No.)
1001 Kings Avenue, Suite 200, Jacksonville, FL 32207
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(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 346-0170
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Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 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. [X]Yes []No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X].
The aggregate market value of the common stock held by non-affiliates of
the Company was approximately $4,361,662 on September 29, 2000, calculated using
the average between the closing high bid and low asked price thereof as reported
on the OTC Bulletin Board. On September 29, 2000, 9,949,383 shares of common
stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Proxy Statement for the Annual Meeting of Shareholders to be held
October 19, 2000 is incorporated by reference herein into Part III, Item 9
through 12.
Transitional Small Business Disclosure Format: [] Yes [X] No
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TABLE OF CONTENTS
PART I........................................................................1
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ITEM 1. DESCRIPTION OF BUSINESS..........................................1
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ITEM 2. DESCRIPTION OF PROPERTY..........................................11
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ITEM 3. LEGAL PROCEEDINGS................................................11
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............12
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PART II.......................................................................12
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........12
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ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION....................................................12
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ITEM 7. FINANCIAL STATEMENTS.............................................19
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................19
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PART III......................................................................20
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ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............20
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ITEM 10. EXECUTIVE COMPENSATION.........................................20
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................20
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................20
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PART IV.......................................................................20
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................20
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PART F/S.....................................................................F-1
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SIGNATURES....................................................................23
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Additional Information
Descriptions in this Report are qualified by reference to the contents of
any contract, agreement or other documents described herein and are not
necessarily complete. Reference is made to each such contract, agreement or
document filed as an exhibit to this Report, or previously filed by the Company
pursuant to regulations of the Securities and Exchange Commission (the
"Commission"). (See "Item 13. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K.")
Special Note Regarding Forward Looking Statements
Certain statements contained herein constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements are identified by words such as "hopes," "expects,"
"anticipates," "plans" and the like and include, without limitation, statements
regarding our plan of business operations and related expenditures, receipt of
working capital, potential contractual arrangements, anticipated revenues and
related expenditures. Factors that could cause actual results to differ
materially include, among others, the following: receipt of additional working
capital, acceptance of the Company's service in the market place, competition,
new regulations which might be adopted by Federal or state governments, our
costs and the pricing of our services, the level of demand for our services,
changes in our business strategies and other factors set forth under Item 6.,
Management's Discussion and Analysis of Financial Condition and Results of
Operation. Most of these factors are outside the control of the Company.
Investors are cautioned not to put undue reliance on forward-looking statements.
Except as otherwise required by applicable securities statutes or regulations,
the Company disclaims any intent or obligation to update publicly these forward
looking statements, whether as a result of new information, future events or
otherwise.
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PART I
Item 1. Description of Business
General
Wallstreet Racing Stables, Inc., is a Colorado corporation doing business
as Pipeline Technologies, Inc. We were originally founded to acquire and race
thoroughbred racehorses. In June, 2000, our subsidiary, WRS Merger Corp., was
merged into Pipeline Technologies, Inc., a Florida corporation, and we began
operation in the communications industry. At that time, we began doing business
under the name Pipeline Technologies. Pipeline was organized under the laws of
the State of Florida in December, 1999. All references to our company include
our wholly-owned subsidiary, Pipeline.
Our Products and Service.
We currently offer nationwide, voice over Internet protocol ("VoIP") based,
monthly flat-rate long distance service. Our services are marketed under the
tradename "Ride the Pipe.com." Customers who subscribe to our service are
offered unlimited long distance service for a flat monthly rate which varies
between residential and commercial customers. Our service is distinguished from
that of traditional telephone companies, as we offer flat-rate long distance
service for which traditional telephony companies bill on a usage-sensitive
basis.
Our VoIP service utilizes a private network to transmit voice in a manner
similar to information transmitted over the Internet. However, we believe our
technology offers advantages to using the Internet as a network. We intend to
utilize this emerging technology to provide flat-rate, unlimited long distance
service to affinity groups and members of the general public.
We also offer VoIP based prepaid long distance calling cards to customers
throughout the United States. Similar to calling cards offered by a variety of
other companies, our calling cards offer prepaid long distance calling anywhere
in the U.S. Unlike other companies, however, our cards do not charge a
connection fee, so all of the customers' money goes directly into long distance
service. We also believe that our service is distinguished by the quality
offered by our network provider. Purchasers of our calling cards are provided
personal identification numbers, which in turn provide access to the network for
the duration of the call.
We are a very recent entrant into the competitive communications industry.
We began offering our service in May, 2000, following execution of an agreement
with our network provider. Our marketing focus is geared to residential and
small commercial customers. However, as of fiscal year end June 30, 2000, we had
very few customers and very limited revenues. We should be considered in the
development stage and are subject to all the risks inherent in that status. (See
Item 6., Management's Discussion and Analysis of Financial Condition and Results
of Operation).
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Voice communication is currently conducted primarily through telephone
lines operated by regional telephone companies. Despite substantial competition
among these carriers and their resellers, traditional forms of long distance
voice communication are relatively expensive. The reason for this is that
traditional voice communication takes place over independent circuits which must
be open throughout the conversation. As only one conversation can be conducted
over a circuit, the cost to complete the call is relatively expensive.
As interest in the Internet has grown substantially in recent years,
efforts have been made to utilize that network as a means of transmitting voice
communication. Preliminary research suggested that the Internet could be used in
the future as an inexpensive alternative to traditional phone service. The
advantage of the Internet is that numerous bits of information can be
transmitted simultaneously over the same network. However, experiments with the
Internet have generally been disappointing, as quality of the voice transmission
is imperfect. VoIP service over private networks has therefore developed in an
effort to fill the void between traditional phone service and Internet-based
voice transmission service.
In its simplest form, VoIP service involves conversion of electronic voice
impulses to digitized data, which is subsequently compressed and transmitted
over this private network. Upon reaching its destination, this data is
unscrambled and transmitted. With the technology enabled by the Internet, this
voice data can be transmitted over private networks such that communication can
occur on a real time basis. We believe this technology provides a substantial
advantage to either traditional telephone transmission or voice-over-Internet
service.
Our strategy, then, is to exploit what we believe to be an excellent
opportunity to market VoIP service using a private network. Using experience
from the communication industry during the 1980's and 1990's, we hope to act as
a reseller of VoIP service to large groups of individuals and businesses
searching for a lower cost alternative to traditional phone service. We believe
our agreement with our network provider will provide access to equipment and
facilities necessary to offer this service to our customers at a level of
quality which will be deemed highly satisfactory. Our immediate efforts will
therefore be geared to aggressively marketing our service on a nationwide basis.
In order to attract a large number of customers and grow our services
rapidly, we hope to offer an array of service to compliment our domestic long
distance service. We hope this will accelerate the success of our marketing
efforts. We also hope to develop national brand recognition for our company and
our service through an aggressive campaign of marketing and advertising. If we
are successful in penetrating the market for domestic long distance service, we
hope to expand our service to include international long distance. However, this
will require additional agreements with companies which can provide
international service.
Our service is enabled by a private network owned and operated by a network
provider in the Southeastern United States. Most of the equipment and the other
assets necessary to provide this service are owned by the third party. We market
the service, provide customer support, billing and other administrative services
to the customers. Our network provider has constructed and configured a network
of fiber optic cable and various switches which enable the transmission of voice
communication in a highly efficient manner.
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We have recently contracted with Patriot Communications, a third-party
operator of a customer service call center, to assist in customer service and
administration. Patriot provides customer sign-up, trouble shooting and service
support 24 hours a day, 7 days a week through a toll free, 800 telephone number
maintained for that purpose. Our agreement with Patriot provides back-up support
in the event that its customer service representatives are unavailable for any
reason. We also make available to our customers a direct telephone number to our
executive offices in the event they are not satisfied with the service support
for any reason.
Billing for our customers is done directly to credit cards, eliminating
many accounts receivable problems. Since the customer pays a flat monthly rate
for domestic long distance service, it is easy for them to budget monthly fees.
This should also help reduce accounts receivable problems.
As a means to enhance our marketing, we have recently contracted with an
independent third party to enhance and expand our site on the World Wide Web. It
is our intention to make the site fully interactive in order that customers may
obtain information and contract for services directly through the site. We
expect development of the site to be complete on or about December, 2000.
In the future, it is our intention to expand our service to include a more
complete array of communication services. In addition to domestic long distance
and calling card services which we currently provide, we hope to add the
following services in the future as working capital permits and our development
allows:
o VoIP based, monthly flat rate international long distance service.
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We are currently exploring various strategic alliances or
relationships with network operators in an effort to obtain access to
international markets. Current providers include unrelated entities
such as ITXC Corp., the operator of an international network with
locations in numerous countries throughout the world. It is our hope
to execute one or more agreements with an international provider in
order to obtain international service for our customers. The
international market is large, accounting for billions of dollars of
revenue on an annual basis. We hope to add international service as a
complement to our existing domestic service in the near future.
o Next generation unified communications products.
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Various evolving technologies allow customers an array of unified
messaging services through one identification number. Customers can
access e-mail, voice mail, fax and additional services through one
number which tracks the customer throughout his or her daily routine.
We are currently in negotiations with a provider of this service and
hope to offer it to our customers in the near future.
o Third generation digital wireless communications products.
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We are presently exploring a Nextel designed platform combined with a
Motorola cellular telephone that allows all incoming and/or device to
device calls to be completed without change. Per minute billing will
be applied only to outgoing calls.
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All of these additional services are currently in the planning stage and
there is no assurance that we will be successful in implementing any or all of
the services.
Network Technology.
The backbone of our current service is the private network operated by a
network provider in the Southeastern United States. A copy of our agreement with
this provider has been filed as an exhibit to this Report. This agreement
provides us access to the network and equipment maintained by our network
provider in order to provide certain of our services. We believe that our
agreement with our network provider is the most important element of our
business strategy at present.
The network operated by our network provider is co-located in major
telecommunication companies' sites covering approximately 145 major metropolitan
areas and 70% of the United States. It is based on a hub and spoke topography
and represents what we believe to be the largest, privately operated fiber optic
network in the country, assembled by agreement with other network providers
throughout the country. It consists of these connected networks together with
VoIP switches placed in the facilities of telecommunications companies in
various metropolitan areas. Coverage of the network is being expanded
continually to provide expanding service to our customers. The network is
monitored 24 hours a day, seven days a week by a staff of highly trained network
analysts. Coverage includes intracity, intrastate and interstate.
Following is a depiction of the network operated by our provider:
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[GRAPHIC OF USA WITH ALL THE NETWORK LOCATIONS THROUGHOUT THE COUNTRY SHOWN]
The agreement with our network provider allows us to offer a variety of
services to our existing and potential customers. These include
message-sensitive voice services and flat rate voice services. These services
are described in more detail above. For our monthly fee, our network provider
has agreed to provide us access to the network and equipment necessary to
facilitate this service. Our network provider agrees to provide this service on
a timely basis, to secure, operate and maintain such services and facilities as
shall be necessary to provide us this service and to maintain all necessary and
appropriate relationships with network and service providers.
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We have agreed to pay for the service in accordance with a schedule which
we negotiated with our network provider. This schedule includes a combination of
flat rate and usage sensitive charges for access to the network. The rates
agreed to in the schedule are subject to change at the discretion of our network
provider in the event that the rates and charges paid by it for services and
facilities are increased at any time. Our network provider may also increase
rates as a result of charges paid to governmental authorities or local exchange
carriers in conjunction with providing its service.
Our arrangement with our network provider may be terminated at certain
times and upon certain conditions. It may be terminated by our network provider
in the event we fail to pay any amounts due under the agreement, in the event we
engage in conduct or activity detrimental to the business of our network
provider or if we violate any material term or provision of the agreement. The
initial term of our agreement with our network provider is two years, and may be
renewed for an additional one year thereafter. Since we believe our relationship
with our network provider is critical to the success of our business, we will do
our best to maintain that relationship in good standing.
Marketing, Advertising and Distribution.
In keeping with our strategic plan, our marketing and distribution is
geared to reach customers in the residential and small business market. Our
marketing efforts will be designed to establish brand recognition and emphasize
the superior customer support we hope to provide.
In order to develop and enhance our goal of nationwide brand recognition,
we have retained the services of a nationally recognized public relations firm.
While working within the limits of our capital resources, this entity has
committed to developing our image and brand identification on a nationwide
basis. Such efforts will include graphic design and traditional means of
advertising, such as television, radio, billboard and other mass communication,
as well as electronic advertising through websites and various Internet portals.
We hope to quickly establish ourselves as a nationally recognized communications
company with appeal in many different markets.
To assist in marketing and distribution of our prepaid calling cards, we
have contracted with a nationwide distributor of prepaid calling cards. This
company acts as our exclusive electronic terminal distributor throughout the
United States and its territories. This national calling card distributor has
arrangements with thousands of retail distributors and dealers through which our
calling cards may be offered. We expect our relationship with the national
calling card distributor to be a material part of our business for the
foreseeable future.
We also hope to target affinity groups throughout the United States. Our
chief executive officer and the rest of our marketing and sales staff regularly
contact groups such as credit union members, national trade associations and
similar groups in an effort to offer our service to members of those
organizations. In essence, we hope that the organizations will act as defacto
distributors on our behalf in an effort to reach the members within each group.
While we have contacted many organizations in an effort to interest them in our
service, we have yet to execute an agreement with any specific group.
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Our marketing staff also targets defined groups such as members of the
military, college campuses and universities. We have test-marketed our service
at the campus of the University of Florida with encouraging results. This fall,
we hope to be on the campuses of five colleges and universities with members of
our staff or contracted personnel. When students report for college, they will
be presented marketing materials describing the benefits of our service. We also
hope to target groups such as seniors, military personnel and small commercial
businesses.
Regulation.
Voice-over-Internet telephony is currently unregulated by the Federal
Communications Commission (FCC). However, efforts to regulate this service may
increase. On May 16, 2000, the House passed H.R. 1291, the Internet Access
Charge Prohibition Act. The bill prohibits the FCC from imposing on Internet
service providers any access fees to support the Universal Service Fund that are
imposed on telephone companies - if the "contribution" would be based on a
measure of the time that telecommunications services are used in the provision
of Internet access service.
Despite the prohibition against access surcharges, the bill does allow the
FCC to charge access fees for Internet telephone services, regardless of whether
a telephone or other apparatus is used to place a call. The bill failed in
limiting the FCC to flat rate charges on Internet phone use. Thus, the FCC can
choose any method it wants, including a fee based on the per-minute usage by
consumers. Although no rulings regarding any limitations have yet been made by
the FCC, there is no assurance such regulations may not be adopted in the
future.
The FCC is currently considering whether to impose surcharges or other
common carrier regulations upon certain providers of Internet telephony,
primarily those which provide Internet telephony services to end users located
within the U.S. While the FCC has presently decided that information service
providers, including Internet telephony providers, are not telecommunications
carriers, various companies have challenged that decision. Congressional
dissatisfaction with FCC conclusions could result in requirements that the FCC
impose greater or lesser regulation, which in turn could materially adversely
affect our business, financial condition, operating results and future
prospects.
The FCC has expressed an intention to examine the question of whether
certain forms of phone-to-phone Internet telephony are information services or
telecommunications services. The two are treated differently in several
respects, with certain information services being regulated to a lesser degree.
The FCC has noted that certain forms of phone-to-phone Internet telephony appear
to have the same functionality as non-Internet telecommunications services and
lack the characteristics that would render them information services.
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If the FCC were to determine that certain Internet-related services
including Internet telephony services are subject to FCC regulations as
telecommunications services, the FCC could subject providers of such services to
traditional common carrier regulation, including requirements to make universal
service contributions, and/or pay access charges to local telephone companies.
It is also possible that the FCC may adopt a regulatory framework other than
traditional common carrier regulation which would apply to Internet telephony
providers. Any such determinations could materially adversely affect our
business, financial condition, operating results and future prospects to the
extent that any such determinations negatively affect the cost of doing business
over the Internet or otherwise slow the growth of the Internet.
State regulatory authorities may also retain jurisdiction to regulate the
provision of intrastate Internet telephony services. Several state regulatory
authorities have initiated proceedings to examine the regulation of such
services. Others could initiate proceedings to do so.
International. The regulatory treatment of Internet telephony outside of
the U.S. varies widely from country to country. A number of countries that
currently prohibit competition in the provision of voice telephony also prohibit
Internet telephony. Other countries permit but regulate Internet telephony. Some
countries will evaluate proposed Internet telephony services on a case-by-case
basis and determine whether it should be regulated as a voice service or as
another telecommunications service. Finally, in many countries, Internet
telephony has not yet been addressed by legislation. Increased regulation of the
Internet and/or Internet telephony providers or the prohibition of Internet
telephony in one or more countries could materially adversely affect our
business, financial condition, operating results and future prospects.
Proprietary Rights.
Proprietary rights are important to our potential success and our
competitive position. As of August 31, 2000, we have registered one trademark in
the U.S., "Ride the Pipe." The laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the U.S., and effective
copyright, trademark and trade secret protection may not be available in such
jurisdictions. In general, our efforts to protect our intellectual property
rights through copyright, trademark and trade secret laws may not be effective
to prevent misappropriation of our content, and our failure to protect our
proprietary rights could materially adversely affect our business, financial
condition, operating results and future prospects. Despite such protection, a
third party could, without authorization, copy or otherwise appropriate our
proprietary network information. Our agreements with employees and others who
participate in development activities could be breached, we may not have
adequate remedies for any breach, and our trade secrets may otherwise become
known or independently developed by competitors.
We rely upon license agreements with respect to our use of the software and
hardware provided to us by our vendors. Those license agreements may not
continue to be available to us on acceptable terms, or at all.
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Our Competition.
The long distance telephony market is highly competitive. There are several
large and numerous small competitors, and we expect to face continuing
competition for our Company based on price and service offerings from existing
competitors and new market entrants in the future. The principal competitive
factors in our market include price, quality of service, breadth of geographic
presence, customer service, reliability, network size and capacity and the
availability of enhanced communications services. Our competitors include major
and emerging telecommunications carriers in the U.S. and foreign
telecommunications carriers.
o Internet Protocol and Internet Telephony Service Providers.
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During the past several years, a number of companies have introduced
services that make Internet telephony or voice services over the
Internet available to businesses and consumers. AT&T Global
Clearinghouse, GRIC Communications, ITXC Corp. and iBasis and the
wholesale divisions of Net2Phone and deltathree.com route traffic to
destinations worldwide. Other Internet telephony service providers
focus on a retail customer base and may in the future compete with us.
Furthermore, companies in related markets have begun to provide voice
over the Internet services or adapt their products to enable voice
over the Internet services. These related companies may potentially
migrate into the Internet telephony market as direct competitors.
o Telecommunications Companies and Long Distance Providers.
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A number of telecommunications companies, including AT&T, Deutsche
Telekom, Level Three, MCI WorldCom and Qwest Communications, currently
maintain, or plan to maintain, data networks to route the voice
traffic of other telecommunications companies. These companies, which
tend to be large entities with substantial resources, generally have
large budgets available for research and development, and therefore
may further enhance the quality and acceptance of the transmission of
voice over the Internet.
o Software/hardware providers.
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Companies such as VocalTech, Netspeak and E-Net produce software and
other computer equipment that may be installed on a users computer to
permit voice communications over the Internet.
o Network hardware manufacturers.
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A large number of telecommunications providers and equipment
manufacturers, including Alcatel, Cisco, Lucent Technologies, Northern
Telecom and Dialogic have announced that they intend to offer products
similar to ours or our competitors.
o Voice-enabled online commerce providers.
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Several companies, including USA Global Link and AT&T's Inter@ctive
Communications, have begun to apply Internet telephony technologies in
connection with online commerce transactions.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies which could hinder our ability to market our VoIP
services. We believe that our key competitive advantages are our ability to
deliver reliable, high quality voice service in a cost-effective manner. We
cannot assure you, however, that this advantage will enable us to succeed
against comparable service offerings from our competitors.
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Acquisition of Pipeline Technologies.
The acquisition of Pipeline was effective June 21, 2000. In that
transaction, our subsidiary, WRS Merger Corp., merged with Pipeline and Pipeline
became our wholly-owned subsidiary. In connection with that transaction, all of
the assets and liabilities of Pipeline were acquired by WRS (now Pipeline) and
our management changed. Since that date, we have continued the business of
Pipeline. In October of 2000, we intend to hold a meeting of our shareholders
to, among other things, consider a proposal to formally change our name to
Pipeline Technologies, Inc.
In connection with the acquisition of Pipeline, we issued an aggregate of
8,453,425 shares of our common stock to the former shareholders of that entity
in exchange for all of the outstanding stock of Pipeline. All of the shares
issued to the former Pipeline shareholders were restricted from resale under
certain conditions under relevant provisions of federal and state securities
laws. The shareholders of Pipeline at that time were Timothy Murtaugh and Robert
Maige, each an executive officer, director and principal shareholder of our
company and LM Investments Group, Inc., the owner of more than five percent of
our common stock. As a result of that transaction, Mr. Murtaugh received
4,564,849 shares of our common stock, Mr. Maige received 2,282,425 shares and LM
received 1,606,151 shares. The amount of shares which we issued to the former
Pipeline shareholders was determined by negotiations between our officers and
those of Pipeline, and took into consideration such factors as the trading price
of our common stock at the time, the proposed business and operations of
Pipeline, the industry within which Pipeline operated, the combined assets and
liabilities of the entities and the estimated revenue for Pipeline. We did not
assign any relative weight to any of these factors but considered all of them
material in our estimation of the consideration issued in connection with the
merger.
Also in connection with the merger, we agreed to certain anti-dilution
provisions with certain of our shareholders. These provisions would require us
to issue common stock purchase warrants to these shareholders in the event we
issue stock for a price less than $6.00 per share, except for certain permitted
transactions. We also entered into indemnification agreements with our former
officers and certain directors in connection with the merger.
Employees.
We currently employ seven individuals, including our chief executive
officer, vice president of administration, chief financial officer, chief
information officer, sales, marketing and administrative personnel. Two of our
executive officers serve us pursuant to written employment contracts for a
period of four years. Our other employees are employed at will. None of our
employees are covered by collective bargaining agreements, and we believe we
enjoy excellent relations with our employees.
We anticipate adding additional employees as our working capital permits
and the needs of our business dictate. Additional individuals will be retained
to service significant accounts which we successfully obtain in the future. We
also expect to retain additional assistance in customer service, technology and
operations.
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Item 2. Description of Property.
The Company owns no real property as of the date of this Report. We
currently lease 4,500 square feet of office space under a 60-month lease through
March 31, 2005. The lease provides for two five-year renewal options at the
prevailing market rate. The current monthly rental is $5,025 plus sales tax,
utilities and maintenance expenses. The lease provides for annual monthly
increases of $188 per month (i.e. an annual escalation of 50 cents per square)
beginning in March of 2001. We believe that this space will adequate for our
needs for the foreseeable future.
The Company currently subleases 2,250 square feet of the leased space to a
company affiliated with an officer for one-half of the monthly rental expense.
The sublease ended effective September 30, 2000.
Item 3. Legal Proceedings.
We are currently defendants in a civil action pending in the circuit
court for Dade County, Florida. On or about August 18, 2000, plaintiffs J.R.
Bautista and Scarlett Investment Group, Inc. sued our Company, Pipeline, Timothy
Murtaugh, our President and Chief Executive Officer, and other individuals and
entities in relation to certain transactions which occurred prior to that date.
The suit arises from a settlement of prior claims involving these parties.
Plaintiffs allege that they were shareholders in a Florida corporation
called Ameritalks.com, Inc. and that certain defendants appropriated a corporate
opportunity from that entity. Plaintiffs further allege that they were
fraudulently induced to enter into certain settlement agreements with defendants
and that defendants breached the terms of that agreement. Plaintiffs claim
damages in the amount of $175,000 with regard to the alleged breach of the
settlement agreement and $14 million with regard to the corporate opportunity
claim. We and the other defendants deny the material allegations of those
claims. It is our belief that the corporate opportunity claim is precluded by
the settlement agreement. We further dispute plaintiffs' interpretation of that
settlement agreement. While this litigation was only recently commenced, we
intend to vigorously defend the claims.
We also believe we are protected by an indemnification agreement with LM
Investment Group, Inc., with which one of the individual defendants is
affiliated. Representatives of that entity were primarily responsible for
negotiating the settlement with plaintiffs and have indemnified us from any
claims arising therefrom. In the event this litigation proceeds, we also intend
to assert a claim for indemnification against LM.
We are unaware of any other material litigation pending or threatened
against us or in which any of our officers or directors are parties adverse to
our interest. In the future, we may be party to routine matters of litigation
relating to our business which we do not believe will have a material effect on
our financial condition or operations.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the security holders, through solicitation of
proxies or otherwise, during the fourth quarter of the fiscal year covered by
this Report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock currently trades over the counter and Quotations are
currently reported on the "Bulletin Board" maintained by the NASD. The following
table shows the range of high and low bids for our common stock for the last two
fiscal years or portions thereof as reported by the NASD. Prices represent
quotations between dealers, do not include retail mark-ups, mark-downs or
commissions and do not necessarily represent prices at which actual transactions
occurred. Our common stock has traded over the counter since _____________.
Fiscal Quarter Ended High Low
-------- ---------
1999
March 31 $ 2.00 $ 2.00
June 30 1.56 1.56
September 30 1.5625 1.03125
December 31 1.75 1.03125
2000
March 31 8.25 1.3125
June 30 7.50 3.00
September 22 6.4375 3.125
As of June 30, 2000 there were approximately 27 record holders of our
common stock and approximately 150 beneficial owners. No dividends have been
paid with respect to our common stock and we have no plans to pay dividends in
the foreseeable future. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, results of operations, current and
anticipated cash needs and plans for expansion.
Item 6. Managements' Discussion and Analysis or Plan of Operation.
We are a development stage company operating in the communications
industry. During the recently completed six month period ended June 30, 2000, we
did not receive significant revenue from operations. We only commenced
operations in June, 2000, following the acquisition of Pipeline. Since that
date, our efforts have been devoted to refining our business plan, obtaining
financing and marketing our service to third parties. Our service consists of
various forms of communication services, primarily domestic, long distance voice
communication.
12
-15-
<PAGE>
Effective June 21, 2000, we acquired all of the outstanding stock of
Pipeline, then a privately held Florida corporation. This acquisition was
accomplished through a merger of our wholly-owned subsidiary, WRS Merger Corp.,
with Pipeline. As a result of that transaction, Pipeline became our wholly-owned
subsidiary. Pipeline was originally organized in December, 1999 to operate in
the communications industry.
Effective with the date of acquisition, we issued 8,453,425 shares of our
common stock to the former shareholders of Pipeline, representing approximately
89.5% of our then-issued and outstanding common stock. Because of the number of
shares issued in connection with the acquisition, the transaction has been
treated for accounting purposes as a recapitalization of Pipeline as though
Pipeline were the acquiring entity, although from a legal standpoint, we were
the acquiring entity. The transaction was essentially treated as a reverse
acquisition for accounting purposes, as if Pipeline had acquired us.
Historically, Pipeline had a fiscal year end of December 31. Because
Pipeline was deemed the acquiring entity for accounting purposes, its fiscal
year survives for reporting purposes under relevant rules of the Securities and
Exchange Commission. On August 22, 2000, a determination was made to change the
fiscal year end of Pipeline from December 31 to June 30. The decision was made
by the Company's Board of Directors and was effective for the period ending June
30, 2000.
Plan of Operation
(A) General. Our plan of operation, in general, is to become a nationwide
provider of domestic and international long distance and related
communication services. We intend to offer these services through equipment
owned, operated and/or maintained by independent third parties. We will
essentially operate as a service provider in the diversified communications
industry. We began offering our service in May of this year, following
execution of the agreement which allowed us access to a communications
network. By relying upon facilities and equipment provided by third
parties, we eliminate the costly investment in capital which might
otherwise be required. Our capital requirements will primarily consist of
payments for network access, other costs of our service, together with
general and administrative expenses necessary to run our business.
(B) Revenue. Initially, we expect our revenues will be provided by services
fees paid by our customers, together with receipts from the sale of long
distance calling cards. We currently offer flat rate, domestic long
distance service throughout the continental United States. Our customers
pay a flat monthly service fee for unlimited long distance service. We also
sell domestic, long distance calling cards. Accordingly, our revenue is
directly related to the number of customers which we obtain. In order to
cover our overhead and satisfy payments to our network provider, it is
necessary that we obtain a substantial number of new customers.
13
-16-
<PAGE>
In order to attract the large number of new customers which we need to
become profitable, we hope to direct our marketing efforts to large groups
of individuals and small businesses. Our initial marketing efforts will be
geared toward affinity groups, such as members of credit union associations
and retired persons. We also hope to target colleges, universities and
other named accounts through direct sales efforts. Members of our marketing
staff are continually involved in promotional programs directed to these
groups in an effort to attract additional customers. We hope by appealing
to these large organizations that our marketing costs will be held to a
minimum while our customer base can increase rapidly.
We also hope to target members of the general public through
additional means of marketing. We intend to upgrade our existing website to
include links which will allow customers to subscribe for service directly
on the Internet. Pending receipt of additional working capital, we also
intend to conduct advertising through radio, billboard and other means of
mass communications.
Prepaid calling cards represent another potential source of revenue
for us. Through our agreement with a leading national vendor of prepaid
long distance calling cards, we currently anticipate offering prepaid,
domestic long distance calling cards in approximately 30,000 retail
locations throughout the United States. The vendor acts as a distributor on
our behalf and pays us a negotiated percentage over our costs for this
service. We hope this facet of our revenue will grow quickly in the
immediate future.
As we expect our revenues will be derived from prepaid calling cards
and monthly service fees, it is not anticipated that collection of accounts
receivable will be a material part of our business. Customer service fees
will be billed monthly to our customers' credit card and monitored closely
by our customer service department. Delinquencies can be addressed quickly,
through discontinuation of service if necessary. Calling cards fees will be
paid by the distributor on a monthly basis.
(C) Costs and Expenses. The expenses of our operation generally include costs
of service, general and administrative expenses. Our cost of goods sold is
based on our agreement with our network provider and will vary depending on
whether calls are on or off the network. On-network calls are those calls
placed from a location where the network provider has a switch colocated
with the local telephone provider. Off-network originating calls are placed
to a location where the provider has no such switch, and calls must rely on
toll free access to our network provider. On-network calls are billed to us
at a flat monthly rate throughout the United States. For off-network calls,
we must pay a switching fee, depending on intrastate versus interstate call
transmission. Our network provider is continually expanding its network and
accordingly, we expect a majority of our service will be provided
on-network. In any event, our agreement with our network provider requires
a minimum monthly payment of $50,000 beginning in August, 2000. Until we
reach that level of service, we expect to lose money.
We also will contract with a call center as a source of customer
service and support. Such service will be provided by an independent third
party through a contractual relationship with us. This relationship
requires payments based on the number of functions performed on our behalf
during the term of the contract. As our revenue grows in the future, we
expect to continuously monitor this arrangement to insure its adequacy and
cost effectiveness. However, we expect it to be adequate for our needs for
the foreseeable future.
14
-17-
<PAGE>
General and administrative expenses consist primarily of management
and administrative support, public relations, marketing and advertising. We
anticipate that advertising and marketing will require substantial
expenditures in the immediate future as we endeavor to build our customer
base quickly and build brand recognition throughout the country. Depending
upon our success in raising additional capital, we expect to conduct radio
and outdoor advertising, as well as various promotion and other marketing
programs. Finally, a substantial investment will be made in public
relations in an effort to gain nationwide acceptance of our name.
(D) Capital Requirements. Due to the fact that we do not own or operate our own
network, we expect our capital requirements to be relatively limited. Many
of our competitors have substantial investments in fiber optic cable,
switches and other hardware necessary to operate a nationwide network of
communications. However, we believe we can successfully operate our
business without substantial investment in capital. Accordingly, our
capital requirements will be limited to costs of service, general and
administrative expense until our revenue is sufficient to support those
items.
Liquidity and Capital Resources.
(A) June 30, 2000. At June 30, 2000, we had a deficit in working capital of
$(767,072), consisting of current assets of $246,256 and current
liabilities of $1,013,328. We also had a substantial deficit in
shareholders equity of $(734,696). As stated in the report of our
independent accountants, our continued existence as a going concern is
dependent upon our ability to obtain capital from outside sources, as well
as generate cash from operations. At June 30, 2000, we were still in the
development stage with very limited revenue.
Our greatest needs for capital as we enter the 2001 fiscal year
include contract payments to our network provider, payment of general and
administrative expenses and retirement of short-term debt. Our agreement
with our communications network provider requires minimum monthly payments
of $50,000 beginning in August of 2000, the sum of which will total
$600,000 during fiscal 2001. That commitment was made with the expectation
that our customer revenue would increase at a rate sufficient to satisfy
the obligation shortly after it arose. As of the date of our prospectus,
our revenues are insufficient to satisfy that payment, and accordingly, we
expect that cash from outside sources will be necessary to pay the
obligation.
During the six month period ended June 30, 2000, we borrowed
$1,000,000 from private individuals or entities, $925,000 of which remained
outstanding at June 30, 2000. The proceeds of those loans were utilized to
pay operating expenses and settlement of certain litigation. These notes
are payable in full on June 21, 2001. We also require cash for payment of
general and administrative expenses, including ongoing salaries, legal and
accounting fees. See Item 6, Plan Of Operation, for a more complete
description of our anticipated capital requirement for the coming fiscal
year.
15
-18-
<PAGE>
Our acquisition of Wallstreet in June of this year was designed in
part to facilitate financing. We believe it is easier for development stage
entities to obtain financing as a publicly, rather than privately held,
entity. Toward that end, we negotiated an agreement with Wallstreet.
In May, 2000, we executed a non-binding letter of intent with a
financial services company to sell up to $10,000,000 of our common stock to
obtain additional financing. Subject to certain conditions, including
execution of a definitive purchase agreement, an affiliate of that
financial services company has agreed to purchase up to $10,000,000 of our
common stock at a discount from the trading price as reported on the OTC
Bulletin Board. It is anticipated that the sale of our common stock will be
made to the purchaser pursuant to exemptions from the registration
requirements imposed by federal and state securities laws. However, we
intend to file a registration statement with the Securities and Exchange
Commission to register the proposed sale of our common stock by the
purchaser in that transaction. Pending execution of a definitive agreement
and satisfaction of other conditions in the letter of intent, including the
trading volume and price of our common stock, there can be no assurance
that this transaction will be completed. In the event we are unsuccessful
in completing that transaction, we intend to solicit other equity financing
to meet our capital requirements. We do not believe that we are a viable
candidate for conventional debt financing, as we have no history of
operations and few assets with which to secure such borrowing.
In addition to the short term financing discussed above, we financed
our capital requirements during the six months ended June 30, 2000 through
the sale of our common stock in a private transaction. We sold 500,000
shares of our common stock to two private investors in exchange for
cancellation of promissory notes in the amount of $252,952, including
principal and interest. The proceeds of that financing were used to defer
operating expenses set forth in more detail below.
(B) December 31, 1999 At December 31, 1999, we had a deficit in working capital
of $(8,608), consisting of current assets of $4,215 and current liabilities
of $12,823. We also had a deficit in shareholders' equity at that time. We
were only organized on December 2, 1999, and efforts during the period
ended December 31, 1999 were limited to developing our business plan.
Results of Operation.
Our operations include those of Pipeline, our wholly-owned subsidiary,
through which we conduct all of our business.
(A) Six months ended June 30, 2000. During the six month period ended June 30,
2000, we realized a net loss of $979,047, or $0.12 per share, on $1,095 of
total revenue. We remained in the development stage during that time,
without significant revenue from operations. During this period, we were
successful in executing an agreement for access to a private network
through which we intend to offer communications services, although we had
not yet obtained significant customers. As a result, our revenue was
insubstantial.
16
-19-
<PAGE>
During the six months ended June 30, 2000, general and administrative
expenses represented our greatest expense. A majority of those expenses, in
turn, were related to costs of our merger with Pipeline and resolution of a
dispute with former shareholders of another communications company. We paid
a total of $611,860 in connection with the merger and to resolve that
dispute, all of which was expensed during the six month period. See Legal
Proceeding for a more complete description of that dispute. Salaries
accounted for approximately $75,000 of expense during the six months, while
advertising and promotion added approximately $34,000 of expense. We also
paid $137,500 in investment banking fees in connection with financing which
we obtained during the period.
We expect to incur losses until such time as our revenue is sufficient
to cover our cost of goods sold and our general and administrative
expenses. However, due to our limited operating history, we are unable to
predict with any degree of accuracy when that time will come.
(B) Inception through December 31, 1999. During the period from inception
(December 2, 1999) through December 31, 1999, we realized a net loss of
$9,608, or $0.00 per share, on no revenue. During that period, we were only
recently organized and had not yet implemented our business plan. Our loss
was related to general and administrative expenses associated with our
business, including rent, salary and office expense.
During the period from inception through June 30, 2000, we realized a
net loss of $988,655, or $0.12 per share.
Special Factors
In addition to the other factors set forth in this Report, investors should
be aware of the following factors which may affect our business, results of
operations and/or financial condition in the future:
We are entirely dependent on a third party for access to the network. Due
to our limited working capital and operating experience, we are entirely
dependent on our network provider for access to the network essential to
providing our service. As a result, we are entirely dependent on our network
provider to operate our business. An interruption or failure in their network or
termination of service would adversely affect our customers and results of
operation. We essentially act as a reseller of service made possible through our
network provider. While we believe other network providers may be available,
there is no assurance that such access can be obtained on terms which are
acceptable or which would result in profit. Furthermore, there is no assurance
that our agreement with our network provider can be renewed following its
expiration.
Our success depends on our ability to keep up with rapidly changing
technology. We depend on a network, computers, telecommunications equipment and
software capabilities to run our business. However, we do not have sufficient
capital to invest in development of our own equipment or software. Consequently,
we are dependent on the resources of third parties to maintain our technological
advantage. Our failure to maintain the competitiveness of our technological
capabilities or respond effectively to technological change could negatively
affect our business, results of operation or financial condition. We do not
invest funds in research and development. We depend on products and services
developed by independent third parties for our technology. Our future viability
and profitability will depend on numerous factors, including our ability to (i)
market our existing technology to a sufficient number of customers; (ii)
increase our service offerings to attract additional customers; and (iii) keep
up with technological change in our industry. We cannot assure that technologies
or services developed by our competitors, especially those in the
voice-over-Internet arena, will not render our products or services
non-competitive or obsolete.
17
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<PAGE>
In the event we experience difficulty managing our operations, our chances
of achieving profitability may be reduced. Our future performance will depend,
in part, on our ability to manage our anticipated growth effectively. To that
end, we will have to undertake the following tasks:
o Develop our operating, administrative, financial and accounting systems and
controls;
o Improve coordination among our accounting, finance, marketing and
operations personnel;
o Enhance our management information systems capabilities;
o Evaluate and perfect our customer service; and
o Hire and train additional qualified personnel.
If we cannot accomplish these tasks, our chances of achieving profitability will
be diminished.
Because we are unable to predict the volume of usage on the network which
we lease, we may be forced to enter into disadvantageous contracts that would
reduce our operating margins. Because of our limited operating history, we are
unable to predict with any degree of accuracy the volume of usage on the network
which we lease. Furthermore, since we do not own the network, we are unable to
control access by third parties. This may result in overuse in the network,
impeding or impairing call quality or transmission. While our network provider
has pledged to increase the capacity as our usage increases, there is no
assurance it will successfully complete that expansion. We may therefore have to
enter into other long-term agreements for leased capacity. Long-term agreements
for network capacity may adversely effect our operations and financial
performance.
Our business may suffer if we lose the service of any key personnel. We
depend on the continued services of a key management employee. This individual
is Timothy J. Murtaugh, President and Chief Executive Officer. Mr. Murtaugh
founded the Company and is primarily responsible for marketing the Company's
service. The loss of the services of Mr. Murtaugh could adversely affect our
business. While we have an employment agreement with Mr. Murtaugh for a period
of four years, we maintain no "key man" life insurance on his life. The loss of
this individual would adversely affect our business.
18
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<PAGE>
Our failure to attract and retain affiliates, distributors and customers
will negatively affect our business. If we are unable to attract and retain
affiliates, distributors and customers, our revenues will suffer and adversely
affect our results of operations. Our business is dependent on attracting
affiliates or affinity groups who we hope will help market our service to their
members. These potential affiliates include credit unions, colleges and
universities, social, fraternal and other organizations. We also hope to reach
additional agreements with distributors to assist in marketing our service to
end users. However, our ability to attract affiliates and customers will depend
on a number of factors, including:
o Our ability to reach agreement with affinity groups, telephony resellers
and individual customers regarding the terms and conditions applicable to
our business relationship;
o Our success in marketing our service to potential new and existing
affiliates and customers;
o Pricing by traditional carriers;
o The rate at which we are able to deploy our service;
o Consolidation in the telecommunications industry; and
o The quality of the customer and technical support we provide.
Any damage to or failure of our system or operations could result in
reductions in, or termination of, our service. Our success depends on our
ability to provide efficient and uninterrupted, high quality service. The
network which we lease, our systems and operations are vulnerable to damage or
interruption from natural disasters, power loss, telecommunications failures,
physical or electronic break-ins, sabotage, intentional acts of vandalism or
similar events that may or may not be beyond our control. The occurrence of any
or all of these events could hurt our reputation and cause us to lose customers.
Item 7. Financial Statements.
Reference is made to the Index of Financial Statements following Part IV of
this Report for a listing of the Company's financial statements and notes
thereto.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Changes in our accountants
We retained Stark Tinter & Associates, LLC, independent accountants, to
audit our financial statements for the year ended June 30, 2000. Stark Tinter &
Associates, LLC replaced Kish Leake & Associates, P.C., who acted as the
accountant for us and audited our financial statements for the year ended June
30, 2000. The dismissal of Kish Leake & Associates, P.C. and hiring of Stark
Tinter & Associates, LLC was approved by our Board of Directors.
The reports of Kish Leake & Associates, P.C. for the past two fiscal years
did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to any uncertainty, audit scope or accounting
principles.
19
-22-
<PAGE>
During the Company's two most recent fiscal years and the interim period
since that date, there were no disagreements with Kish Leake & Associates, P.C.
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of Kish Leake & Associates, P.C., would have caused Kish Leake &
Associates, P.C. to make reference to the matter in their report. Further, there
were no reportable events as that term is described in Item 304(a)(1)(iv)(B) of
Regulation S-B.
During the two most recent fiscal years and any subsequent interim period,
the Company has not consulted Stark Tinter & Associates LLC, regarding any
matter requiring disclosure.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated herein by reference
from the Company's proxy statement for the annual meeting of shareholders to be
held October 19, 2000.
Item 10. Executive Compensation.
The information required by this item is incorporated herein by reference
from the Company's proxy statement for the annual meeting of shareholders to be
held October 19, 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by reference
from the Company's proxy statement for the annual meeting of shareholders to be
held October 19, 2000.
Item 12. Certain Relationships and Related Transactions.
The information required by this item is incorporated herein by reference
from the Company's proxy statement for the annul meeting of shareholders to be
held October 19, 2000.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following is a list of exhibits filed or incorporated by reference into
this Report:
20
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<PAGE>
No. Description
---- -----------
2(1) Articles of Merger, Pipeline Technologies, Inc., as the survivor and
WRS Merger Corp., dated April 28, 2000, as filed with the Secretary
of State of the State of Colorado on June 21, 2000.
3.1(2) Articles of Incorporation, Colorado, of Wallstreet Racing
Stables, Inc. as filed on July 18, 1995 with the Colorado Secretary
of State.
3.2(2) Articles of Amendment to the Articles of Incorporation of Wallstreet
Racing Stables, Inc., as filed on September 18, 1995 with the Colorado
Secretary of State.
3.3(2) Bylaws of Wallstreet Racing Stables, Inc.
3.4(2) Amendment to the Bylaws of Wallstreet Racing Stables, Inc.
4(2) Form of Certificate for Common Stock.
9 Not applicable.
10.1(*) Employment Agreement between Pipeline Technologies, Inc. and
Timothy J. Murtaugh dated May 1, 2000.
10.2(*) Employment Agreement between Pipeline Technologies, Inc. and
Robert L. Maige dated July 1, 2000.
10.3(*) Lease between Pipeline Technologies, Inc. and Upchurch-Sutton, Inc.,
dated February 28, 2000.
10.4(*) Financial Advisory Agreement between Pipeline Technologies, Inc. and
LM Investment Group, Inc. dated May 1, 2000.
10.5(*4) Services Agreement dated May 1, 2000 between Pipeline
Technologies, Inc. and a network provider.
10.6(*4) Resale and Distribution Agreement dated April 24, 2000 between
Pipeline Technologies, Inc. and a national calling card distributor.
10.7(*) Form of Convertible Loan Agreement dated June 21, 2000.
10.8(2) Non-Qualified Stock Option and Grant Plan dated August 1, 1995.
11 Not applicable.
12 Not applicable.
16(3) Letter, dated August 21, 2000, from former certifying accountant,
Kish Leake & Associates, P.C.
21(*) List of subsidiaries.
21
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<PAGE>
23 Not applicable.
24 Not applicable.
25 Not applicable.
26 Not applicable.
27(*) Financial Data Schedule.
99 Not applicable.
-------------------------------
* Filed herewith.
(1) Filed as an Exhibit to Form 8-K dated July 5, 2000 and incorporated herein
by reference.
(2) Filed as an Exhibit to Form SB-2, File No. 333-29859, on June 20, 1997 and
incorporated herein by reference.
(3) Filed as an Exhibit to Form 8-K/A dated July 24, 2000 and incorporated
herein by reference.
(4) Material identifying the party to this agreement has been omitted pursuant
to a request for confidential treatment and filed separately with the
Commission.
-------------------------------
(b) Reports on Form 8-K.
(i) Form 8-K dated June 21, 2000 to report changes in control of
Registrant;
(ii) Form 8-K/A dated June 21, 2000 to report Financial Statements,
Proforma Financial Information and Exhibits;
(iii)Form 8-K dated July 24, 2000 to report Changes In Registrant's
Certifying Accountant;
(iv) Form 8-K/A dated July 24, 2000 to report Changes In Registrant's
Certifying Accountant; and
(v) Form 8-K dated August 22, 2000 to report Change In Fiscal Year.
22
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<PAGE>
PART F/S
-26-
<PAGE>
Item 7: Financial Statements
============================
Index to Financial Statements
Page
Report of Independent Auditors. F-2
Consolidated Balance Sheets at December 31, 1999 and June 30, 2000. F-3
Consolidated Statements of Operations for the six months ended June F-4
30, 2000, December 2, 1999 (Inception) through December 31, 1999, and
December 2, 1999 (Inception) through June 30, 2000.
Consolidated Statement of Stockholders' (Deficit) for the period F-5
December 2, 1999 (Inception) to June 30, 2000.
Consolidated Statement of Cash Flows for the six months ended June 30, F-6
2000, December 2, 1999 (Inception) through December 31, 1999, and
December 2, 1999 (Inception) through June 30, 2000.
Notes to Consolidated Financial Statements F-7
-27-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Wallstreet
Racing Stables, Inc. dba Pipeline Technologies, Inc., A Development Stage
Company, as of December 31, 1999 and June 30, 2000, and the related statements
of operations, stockholders' (deficit) and cash flows for the period December 2,
1999 (inception) to December 31, 1999 and the six months ended June 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wallstreet Racing Stables, Inc.
dba Pipeline Technologies, Inc., A Development Stage Company, as of December 31,
1999 and June 30, 2000, and the results of its operations, and its cash flows
for the period December 2, 1999 (inception) to December 31, 1999 and the six
month period ended June 30, 2000, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has negative working capital. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Stark Tinter & Associates, LLC
----------------------------------
Stark Tinter & Associates, LLC
Denver, Colorado
August 4, 2000
F-2
-28-
<PAGE>
<TABLE>
WALLSTREET RACING STABLES, INC. DBA PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
December 31, 1999 June 30, 2000
-------------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 395 $ 228,055
Accounts receivable-related party 3,820 18,201
-------------------- ------------------
Total current assets 4,215 246,256
-------------------- ------------------
PROPERTY AND EQUIPMENT, net of depreciation - 32,376
-------------------- ------------------
$ 4,215 $ 278,632
==================== ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 596 $ 75,001
Accrued expenses-related party 12,227 13,327
Notes payable - 925,000
-------------------- ------------------
Total current liabilities 12,823 1,013,328
-------------------- ------------------
STOCKHOLDERS' (DEFICIT)
Common stock, $0.001 par value, 15,000,000 shares
authorized, 8,453,425 and 9,949,383 shares issued
and outstanding 1,000 1,500
Additional paid in capital - 252,459
Deficit accumulated during the development stage (9,608) (988,655)
-------------------- ------------------
(8,608) (734,696)
-------------------- ------------------
$ 4,215 $ 278,632
==================== ==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-3
-29-
<PAGE>
<TABLE>
WALLSTREET RACING STABLES, INC. DBA PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
DECEMBER 2, 1999 DECEMBER 2, 1999
SIX MONTHS (INCEPTION) (INCEPTION)
ENDED THROUGH THROUGH
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 2000
----------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES $ 1,095 $ - $ 1,095
COST OF GOODS SOLD 2,137 - 2,137
----------------- ------------------ ------------------
GROSS (LOSS) (1,042) - (1,042)
----------------- ------------------ ------------------
GENERAL AND ADMINISTRATIVE EXPENSES 976,569 9,608 986,177
----------------- ------------------ ------------------
(LOSS) FROM OPERATIONS (977,611) (9,608) (987,219)
----------------- ------------------ ------------------
OTHER INCOME (EXPENSE)
Rental income 4,260 - 4,260
Interest expense (5,696) - (5,696)
----------------- ------------------ ------------------
(1,436) - (1,436)
----------------- ------------------ ------------------
NET (LOSS) $ (979,047) $ (9,608) $ (988,655)
================= ================== ==================
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 8,502,406 8,453,425 8,495,906
================= ================== ==================
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.12) $ (0.00) $ (0.12)
================= ================== ==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-4
-30-
<PAGE>
<TABLE>
WALLSTREET RACING STABLES, INC. DBA PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIOD DECEMBER 2, 1999 (INCEPTION) TO JUNE 30, 2000
<CAPTION>
Common Stock Additional Total
--------------------- Paid in Accumulated Shareholders'
Shares Amount Capital Deficit (Deficit)
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 2, 1999 - $ - $ - $ - $ -
Stock issued at inception 8,453,425 1,000 - - 1,000
Net (loss) for the period ended December 31, 1999 - - (9,608) (9,608) (9,608)
--------- -------- --------- ----------- ----------
Balance, December 31, 1999 8,453,425 1,000 - (9,608) (8,608)
Shares issued for reorganization 995,958 - - - -
Shares issued for conversion of notes 500,000 500 252,459 - 252,959
Net (loss) for the six months ended June 30, 2000 - - - (979,047) (979,047)
--------- -------- --------- ----------- ----------
Balance, June 30, 2000 9,949,383 $1,500 $252,459 $(988,655) $(734,696)
========= ======== ========= =========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-5
-31-
<PAGE>
<TABLE>
WALLSTREET RACING STABLES, INC. DBA PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
DECEMBER 2, 1999 DECEMBER 2, 1999
SIX MONTHS (INCEPTION) (INCEPTION)
ENDED THROUGH THROUGH
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 2000
----------------- ------------------ ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (979,047) $ (9,608) $ (988,655)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Depreciation 1,005 - 1,005
Changes in:
Accounts receivable-related party (14,381) (3,820) (18,201)
Accounts payable and accrued expenses 74,405 596 75,001
Accrued expenses-related party 1,100 12,227 13,327
----------------- ------------------ ------------------
Net cash (used in) operating activities (916,918) (605) (917,523)
----------------- ------------------ ------------------
INVESTING ACTIVITIES
Purchase of property and equipment (33,381) - (33,381)
----------------- ------------------ ------------------
Net cash (used in) investing activities (33,381) - (33,381)
----------------- ------------------ ------------------
FINANCING ACTIVITIES
Proceeds from issuance of stock - 1,000 1,000
Proceeds from note payable 1,252,959 - 1,252,959
Payments on notes payable (75,000) - (75,000)
----------------- ------------------ ------------------
Net cash provided by financing activities 1,177,959 1,000 1,178,959
----------------- ------------------ ------------------
Net increase in cash 227,660 395 228,055
CASH AT BEGINNING OF YEAR 395 - -
----------------- ------------------ ------------------
CASH AT END OF YEAR $ 228,055 $ 395 $ 228,055
================= ================== ==================
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid for:
Interest $ - $ - $ -
================= ================== ==================
Income taxes $ - $ - $ -
================= ================== ==================
NON CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to common stock $ 252,959 $ - $ 252,959
================= ================== ==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements
F-6
-32-
<PAGE>
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
A Development Stage Company
Notes to the Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On July 18, 1995 Wallstreet Racing Stables, Inc. (the Company) was
incorporated under the laws of Colorado. Wallstreet Racing Stables,
Inc.'s primary purpose was to engage in all phases of the thoroughbred
horse racing industry.
On June 21, 2000 Pipeline Technologies, Inc. (Pipeline) completed a
reorganization with Wallstreet Racing Stables, Inc., which at that
time had no assets or liabilities. In conjunction therewith,
Wallstreet Racing Stables, Inc. issued 8,453,425 (89%) shares of its
common stock for all of the issued and outstanding common shares of
Pipeline. This reorganization has been accounted for as though it were
a recapitalization of Pipeline and sale by Pipeline of 995,958 (11%)
shares of common stock in the exchange for the net assets of
Wallstreet Racing Stables, Inc. The Company is in the business of
providing telecommunications services and doing business as Pipeline
Technologies, Inc.
Basis of reporting
The Company's financial statements are presented on a going concern
basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business.
The Company has experienced recurring losses from operations as a
result of its general and administrative expenses necessary to achieve
its operating plan which is long-range in nature. For the period ended
December 2, 1999 (inception) through December 31, 1999 and the six
months ended June 30, 2000 the Company realized net losses of $9,608
and $979,047, respectively. In addition, the Company has a working
capital deficit of $767,072 at June 30, 2000.
The Company's ability to continue as a going concern is contingent
upon its ability to secure financing from outside sources, implement
its business plan and attain profitable operations. In addition, the
Company's ability to continue as a going concern must be considered in
light of the problems, expenses and complications frequently
encountered by entrance into established markets.
The Company is pursuing financing for its operations and seeking
additional private placement investment. Failure to secure such
financing or to raise additional private placement investment may
result in the Company depleting its available funds and not being able
pay its obligations or begin operations.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may
result from the possible inability of the Company to continue as a
going concern.
F-7
-33-
<PAGE>
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
A Development Stage Company
Notes to the Consolidated Financial Statements
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Depreciation
Property and equipment are depreciated or amortized using the
straight-line method over the following estimated useful lives:
Furniture and office equipment 3-5 years
Leasehold Improvements 5 years
Depreciation expense for the six month period ended June 30, 2000 was
$1,005. There was no depreciation expense for the period December 2,
1999 (inception) through December 31, 1999.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
June 30, 2000. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values.
These financial instruments include cash, accounts receivable,
accounts payable, accrued expenses, and notes payable. Fair values
were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on
demand.
Impairment of long-lived assets
The Company periodically reviews the carrying amount of its
identifiable assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, such loss is measured by
the amount that the carrying value of such assets exceed their fair
value. Considerable management judgement is necessary to estimate the
fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or
fair value less costs to sell. As of June 30, 2000, management does
not believe there is any impairment of the carrying amounts of assets.
Revenue recognition
Revenue is recognized when telecommunications service are performed.
Advertising costs
The Company expenses all costs of advertising as incurred. Total
advertising expense for the period December 2, 1999 (inception) through
December 31, 1999 and the six month period ended June 30, 2000 was
$6,767 and $34,449, respectively.
F-8
-34-
<PAGE>
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
A Development Stage Company
Notes to the Consolidated Financial Statements
Income taxes
The Company follows Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") for recording the
provision for income taxes. Deferred tax assets and liabilities are
computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted marginal
tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some
portion or all of the deferred tax assets will not be realized, a
valuation allowance is provided to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes
in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
Net (Loss) per Common Share
The Company calculates net income (loss) per share as required by SFAS
No. 128, "Earnings per Share." Basic earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number
of common shares outstanding for the period. Diluted earnings (loss)
per share is calculated by dividing net income (loss) by the weighted
average number of common shares and dilutive common stock equivalents
outstanding. During the periods presented common stock equivalents were
not considered as their effect would be anti- dilutive.
Comprehensive Income
The Company follows Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components in the financial statements.
Segment Reporting
The Company follows Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information." The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands its
operations.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
F-9
-35-
<PAGE>
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
A Development Stage Company
Notes to the Consolidated Financial Statements
Recent Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB
Statement No. 133". The Statement defers for one year the effective
date of FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The rule now will apply to all fiscal quarters
of all fiscal years beginning after June 15, 2000. In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company has not
yet determined what the effect of SFAS No. 133 will be on the earnings
and financial position of the Company.
Note 2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less
accumulated depreciation at June 30, 2000:
Furniture and fixtures $ 19,549
Leasehold improvements 13,832
-------------
33,381
Less: Accumulated depreciation 1,005
-------------
Total $ 32,376
=============
Note 3. NOTES PAYABLE
Convertible notes payable were issued for cash to be used for operations.
The following are summaries of notes payable at June 30, 2000:
Short-term:
12% convertible notes, interest payable semi-annually,
convertible including accrued interest, at the holders'
discretion into shares of Common Stock at rate of
$2.00 per share
$925,000
========
Note 4. CONTINGENCIES
The Company is a defendant in a lawsuit filed by a former affiliate
alleging fraud in the inducement to enter into a settlement agreement.
Plaintiff also alleges lost opportunity. The Company feels that the claims
are barred by the former settlement agreement. Additionally, the Company
has an indemnity agreement with LM Investment Group ("LM"). The Company
believes the claims are without merit and intends to vigorously defend
them. The Company will also look to LM if any loss is ascribed to the
Company.
Note 5. STOCKHOLDERS' EQUITY
At inception Pipeline issued 8,453,425 shares of common stock for cash
aggregating $1,000.
During the six months ended June 30, 2000, the Company accepted $252,959
worth of stock subscriptions in conversion of notes payable.
F-10
-36-
<PAGE>
Wallstreet Racing Stables, Inc. dba Pipeline Technologies, Inc.
A Development Stage Company
Notes to the Consolidated Financial Statements
Note 6. INCOME TAXES
The Company has a Federal net operating loss carryforward of approximately
$989,000, which will expire between the years 2018 and 2019. The deferred
tax asset relating to the tax benefit of this net operating loss has been
offset by a full allowance for realization.
Note 7. RELATED PARTY TRANSACTIONS
Certain officers of the Company loan money to the Company at various times
during the year when cash is needed. The balance due these officers was
$13,327 at June 30, 2000.
The Company leases office space to a company owned by an officer of the
Company for $2,130 per month. Total rental income collected for the six
months ended June 30, 2000 was $4,260.
Note 8. CONCENTRATION OF CREDIT RISK
The Company's funds are deposited in a federally insured institution which
insures deposits up to $100,000. As of June 30, 2000 the funds under
deposit exceed this insured amount by $126,968.
NOTE 9. LEASE OBLIGATION
The Company leases office space under an operating lease arrangement. The
lease expires on March 31, 2005.
Minimum future lease payments on the office lease are as follows:
Year Amount
---- --------
2001 $ 61,992
2002 64,239
2003 66,492
2004 68,739
2005 17,325
----------
$ 278,787
==========
For the six month period ended June 30, 2000, the amount charged to
operations for rent expense was $5,352. There was no rent expense charged
to operations for the period December 2, 1999 (inception) to December 31,
1999.
F-11
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized in Jacksonville, Florida on
the 3rd day of October, 2000.
WALLSTREET RACING STABLES, INC.
By: /s/ Timothy J. Murtaugh
-----------------------------------
Timothy J. Murtaugh, President,
Chief Executive Officer
Pursuant to the requirements of the Security Exchange Act of 1934, as amended,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
Signatures Title Date
------------------------- -------------------------- ---------------
/s/ Timothy J. Murtaugh President, Chief Executive October 3, 2000
------------------------- Officer, and Director ---------------
Timothy J. Murtaugh
/s/ Robert L. Maige, Jr. Chief Financial Officer, October 3, 2000
------------------------- Treasurer and Director ---------------
Robert L. Maige, Jr.
/s/ John D. McKey, Jr. Director
------------------------- October 3, 2000
John D. McKey, Jr. ---------------
23
-38-
