U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 0-8638
WULF INTERNATIONAL LTD. (formerly Wulf Oil Corporation)
(Exact name of small business issuer as specified in its charter)
COLORADO 83-0218086
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1909 Central Dr. (Suite 200), Bedford, TX 76021
(Address of principal executive offices) (Zip Code)
817.540.7432
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares outstanding of common stock as of September 30, 2000:
Common Stock, par value $.01 35,369,111
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Table of Contents
-----------------
Part I - Financial Information Page No.
Item 1 - Wulf International Ltd.
Financial Statements (UNAUDITED)
Balance Sheets as of September 30, 2000 and 1999 3
Statement of Operations for the Nine Months ended
September 30, 2000 and 1999 5
Statement of Operations for the Three Months ended
September 30, 2000 and 1999 6
Statement of Cash Flows for the Nine Months ended
September 30, 2000 and 1999 7
Notes to Financial Statements 9
Item 2 - Management's Discussion and Analysis or Plan of Operation 15
Part II - Other Information
Item 1 Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits: (None)
(b) Reports on form 8-K (None)
Signature Page 20
2
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<TABLE>
<CAPTION>
PART I
Item 1. Financial Statements
WULF INTERNATIONAL LTD.
-----------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, 2000 AND 1999
---------------------------
(Unaudited)
Assets
------
2000 1999
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 29,110 $ 83,948
Accounts receivable, trade 70,946 111,307
Advances to employees and other 2,503 26,923
Total current assets 102,559 222,178
---------- ----------
Property and equipment, net of $52,695
of accumulated deprecation 93,395 108,506
---------- ----------
Other assets:
Deposits and prepaid insurance 16,842 6,776
Deferred income tax benefits 172,975 93,043
Goodwill, net of $62,859 and $18,488
of accumulated amortization 380,857 425,228
Investment in Warisan Group JV -- --
Investment in Philippines mineral exploration data, 225,000 200,000
---------- ----------
Net of $75,000 and 0 of amortization, respectively
795,674 725,047
---------- ----------
$ 991,628 $1,055,731
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 165,512 $ 32,251
Accrued payroll and other expenses 152,286 109,913
Bank loans 55,074 59,392
Current portion of long term debt 7,398 3,451
Other current liabilities 3,150 3,150
----------- -----------
Total current liabilities 383,420 208,157
----------- -----------
Long-term notes and advances payable, net of current portion 102,950 27,037
Stockholders' equity:
Convertible preferred stock, 10,000,000
shares authorized, 1,590,300 and 1,346,300
issued and outstanding, respectively 1,590,300 1,346,300
Common stock, $ .01 par value,
50,000,000 shares authorized,
35,369,111 and 27,833,390
issued and outstanding, respectively 353,691 278,333
Paid in capital in excess of par value 3,427,830 3,005,890
Accumulated deficit (4,866,563) (3,809,986)
----------- -----------
505,258 820,537
----------- -----------
$ 991,628 $ 1,055,731
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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<TABLE>
<CAPTION>
WULF INTERNATIONAL LTD.
-----------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
-----------------------------------------------------
(Unaudited)
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Loan origination and other fees $ 2,393,314 $ 1,421,590
Other income 104 61
----------- -----------
2,393,418 1,421,651
Operating costs and expenses:
Personnel costs 1,118,275 786,603
Loan production costs 893,111 577,783
General and administrative 502,164 208,720
Amortization 108,279 18,488
Depreciation 27,900 10,870
----------- -----------
2,649,729 1,602,464
----------- -----------
Operating loss (256,311) (180,813)
Corporate general and administrative expenses,
principally related to Philippines Housing project (594,428) (452,343)
Interest expense 2,916 996
----------- -----------
Loss before income taxes (853,655) (634,152)
Provision for income tax benefit --
----------- -----------
Net loss $ (853,655) $ (634,152)
=========== ===========
Net loss per share:
Basic $ (.027) $ (.029)
Diluted $ (.022) $ (.023)
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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WULF INTERNATIONAL LTD.
-----------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
------------------------------------------------------
(Unaudited)
2000 1999
--------- ---------
Revenues:
Loan origination and other fees $ 782,175 $ 765,458
Other income 104
--------- ---------
782,279 765,458
Operating costs and expenses:
Personnel costs 421,214 477,551
Loan production costs 301,262 340,501
General and administrative 86,888 66,917
Amortization 36,093 11,093
Depreciation 9,300 6,522
--------- ---------
854,757 902,584
--------- ---------
Operating loss (72,478) (137,126)
Corporate general and administrative expenses,
principally related to Philippines Housing project (322,360) (177,749)
Interest expense 417 318
--------- ---------
Loss before income taxes (395,255) (315,193)
Provision for income tax benefit -- --
--------- ---------
Net loss $(395,255) $(315,193)
========= =========
Net loss per share:
Basic $ (.012) $ (.012)
Diluted $ (.009) $ (.009)
The accompanying notes are an integral part of the financial statements.
6
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WULF INTERNATIONAL, LTD.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED September 30, 2000 AND 1999
-----------------------------------------------------
(Unaudited)
2000 1999
----------- -----------
Cash flows from operating activities:
Cash from customers $ 2,420,840 $ 1,462,118
Cash paid to employees (1,050,474) (751,219)
Cash paid to suppliers (1,638,568) (1,297,967)
Interest paid (2,916) (996)
----------- -----------
Net cash used in operating activities (271,118) (588,064)
----------- -----------
Cash flows from investing activities:
Employee advances repaid 1,500 36,680
Purchase of property and equipment (15,023) (35,848)
----------- -----------
Net cash used in investing activities (13,523) 832
----------- -----------
Cash flows from financing activities:
Issuance of common and preferred stock 125,800 415,050
Long term advances from affiliate 148,825 59,392
Repayments of notes payable & bank loans (21,134) (4,260)
----------- -----------
Net cash provided by financing activities 253,491 470,182
----------- -----------
Cash flows from acquisition of SFM Mortgage -- 145,901
-----------
Net increase (decrease) in cash (31,150) 28,851
Cash at beginning of period 60,260 55,097
----------- -----------
Cash at end of period $ 29,110 $ 83,948
=========== ===========
The accompanying notes are an integral part of the financial statements.
7
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<TABLE>
<CAPTION>
WULF INTERNATIONAL, LTD.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED September 30, 2000 AND 1999
-----------------------------------------------------
Reconciliation of Net Loss to Net Cash
--------------------------------------
Used in Operating Activities
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net loss $(853,655) $(634,152)
--------- ---------
Adjustment to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 136,179 29,358
Writeoff of uncollectible account -- 51,659
Common stock issued for services 75,880 16,700
Preferred stock issued for services 317,500 4,800
(Increase) decrease in Accounts Receivable-trade 27,422 (6,484)
Increase (decrease) in accounts pay., trade 31,273 (9,074)
Increase (decrease) in accrued expenses 67,801 10,892
Increase (decrease) in other current assets/ liabilities (73,518) (51,763)
--------- ---------
Total adjustments 582,537 46,088
--------- ---------
Net cash used in operating activities $(271,118) $(588,064)
========= =========
Supplemental Schedule of Non-Cash Investing
-------------------------------------------
and Financing Activities
------------------------
Issuance of preferred stock for purchase of
Philippines mineral exploration data $ 100,000 $ 200,000
Issuance of preferred stock for payment of advances $ 200,000
and payment for services
Issuance of preferred stock for services $ 187,500
Acquisition of SFM for common stock $ 781,308
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
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WULF INTERNATIONAL, LTD.
------------------------
AND SUBSIDIARY
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business
-------------------------
Wulf International, Ltd. ("Wulf" or the "Company") was incorporated in the state
of Colorado in 1973. The Company originally operated as an oil and gas
exploration entity until 1992. In 1992, the Company became inactive and ceased
reporting with the SEC but retained its status as a registered company. During
1997 and 1998 the Company negotiated a joint venture agreement with a native
Philippines company and an agency of the Government of the Philippines, the
Southern Philippines Development Authority (SPDA) (Note 2), to construct one
million low cost housing units in the southern portion of the country. The
Company is currently seeking funding and government guarantees for this project,
neither of which can be assured.
In April 1999, through the acquisition described below, the Company's primary
operations became mortgage banking and at September 30, 2000, the majority of
its net assets and its revenues and expenses were from this operating segment.
Business combinations
---------------------
On April 30, 1999, the Company acquired 100% of the outstanding stock of
Specialized Financial Services, Inc. ("SFM"), a Texas corporation engaged in
mortgage banking activities, in exchange for 7,500,000 shares of Wulf's common
stock valued at $0.104 a share. The transaction was accounted for as a purchase.
The purchase price was allocated to the fair value of the net assets acquired
with the excess of Wulf's cost over the fair value of acquired net assets
allocated to goodwill.
As part of the agreement, SFM purchased 50,000 shares of Wulf's preferred stock
at $1.00 per share and received an option to purchase 200,000 shares of the
Company's preferred stock at $0.10 per share. This option must be exercised
prior to any proposed secondary public offering of the Company's preferred
stock. The accompanying consolidated statement of operations includes SFM's
results of operations subsequent to April 30, 1999.
The following pro forma information is presented as if the above acquisition had
occurred as of January 1, 1999, the beginning of the earliest period presented
in the accompanying consolidated financial statements.
Nine months ended
September 30,
------------------------
2000 1999
---------- ----------
Revenues $2,393,418 2,711,933
Net loss (853,655) (663,642)
Net loss per share (.027) (.030)
9
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Principles of consolidation and basis of presentation
-----------------------------------------------------
The accompanying unaudited consolidated condensed financial statements of Wulf
International Ltd have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the financial statements and footnotes thereto included in
the Company's report on Form 10-KSB for the year ended December 31, 1999. These
statements include the general accounts of the Company and its wholly owned
subsidiary Specialized Financial Services, Inc. (SFM). All inter-company
transactions, accounts and balances have been eliminated in the consolidation.
Property and equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment are being provided by accelerated methods
for financial and tax reporting purposes over estimated useful lives of five to
seven years.
Goodwill
--------
Goodwill relating to the Company's purchase of SFM is being amortized using the
straight-line method over ten years. For the quarter September 30, 2000,
amortization expense totaled $11,093.
Management estimates
--------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reporting amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash flows
----------
For purposes of the statement of cash flows, each includes demand deposits and
time deposits with maturities of less than three months.
Impairment of long-lived assets
-------------------------------
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used, and long-lived assets and
certain identifiable intangibles to be disposed of. The Company periodically
evaluates, using independent appraisals and projected undiscounted cash flows,
the carrying value of its long-lived assets and certain identifiable intangibles
to be held and used whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In addition, long-lived
assets and identifiable intangibles to be disposed of are reported at the lower
of carrying value or fair value less cost to sell.
10
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Net loss per share
------------------
Basic loss per share amounts are computed by dividing the net loss by the
weighted average number of common stock shares outstanding. Diluted loss per
share amounts reflect the maximum dilution that would have resulted from the
conversion of the preferred stock shares and warrants. Diluted loss per share
amounts are computed by dividing the net loss by the weighted average number of
common stock shares outstanding plus the assumed conversion of preferred stock
shares and warrants.
For the quarters ended September 30, 2000 and 1999, basic loss per share amounts
are based on 33,833,111 and 27,315,890 weighted average shares of common stock
outstanding, respectively. For the nine months ended September 30, 2000 and 1999
the basic loss per share amounts are based on 31,668,561 and 21,589,614 weighted
average shares of common stock outstanding, respectively.
2. INVESTMENT IN UNCONSOLIDATED AFFILIATES
Warisan Group JV (WRG)
----------------------
In April 1998, the Company formed a joint venture with a Republic of the
Philippines company, Amin and Sons Corporation (ASC), for the purposes of
participating in a socialized low cost housing project for the Republic of the
Philippines. The name of this joint venture is Warisan Group JV("WRG"). The
Company owns an 80% interest and ASC owns a 20% interest in this joint venture,
which is registered and organized under the laws of the Republic of the
Philippines. Wulf is considering, but has not yet made a final decision, giving
a Philippines company certified in the Philippines as a builder of low cost
housing a 10% interest in the joint venture to strengthen the joint venture's
operating credentials.
To further WRG's goal of participating in the Philippines low cost housing
market WRG formed a joint venture with the Southern Philippines Development
Authority (SPDA), a government owned and controlled corporation. The name of
this joint venture is SPDA-Warisan Joint Venture (SWJV) and it is owned 70% by
WRG and 30% by SPDA. This JV's objective is to finance and build low cost
housing in the southern Philippines.
The Company accounts for its investment in WRG using the equity method of
accounting. For the quarters ended September 30, 2000 and 1999, all capital
contributed to the joint venture has been expended for operating purposes and,
as a result, the joint venture has substantially no net assets. Accordingly,
there is no difference between the amount at which this joint venture investment
is carried and the Company's underlying equity in the joint venture's net
assets.
Philippines Mineral Exploration Investment
------------------------------------------
Wulf has acquired from several Filipino companies the sole proprietary rights to
the geologic data on gold and other mineral deposits in two areas in the
Republic of the Philippines. We have been informed that the sellers' cost with
respect to such data was approximately $1.49 million dollars. The data was
acquired during the period 1996-1998 and consists of rock samples, geologic
surveys, numerous maps and other information. Wulf issued 300,000 shares of its
$1 par value authorized unissued preferred stock for these rights and copies of
all data. The information covers two geographic areas, one in the northern
Philippines, the Playa de Oro Project, and the other in the southern
Philippines, the Sierra de Oro Project.
Playa de Oro Project - This is an area of known gold deposits lying offshore
from a large deposit of primary gold that has been mined for many years. The
area of interest covers about 57,000 hectares in shallow water. The exploration
plan is to (1)complete the exploration permits, (2) conduct detailed side-scan
sonar over the ocean floor, and (3) collect selected sub-sea samples and analyze
for gold content. The Company plans to complete the exploration permit
requirements in the later part of 2001. The estimated cost of completing and
filing such permits is approximately $15,000.
11
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Sierra de Oro Project - The Island of Mindanao is known for several primary gold
deposits. The area of sampling covers about 580,000 hectares and some 29
exploration permit areas. Hundreds of rock samples were collected and analyzed
for gold, silver, and other minerals. The exploration plan is to (1) acquire new
permits on the anomalous gold areas as defined by the sampling, (2) conduct an
air magnetic survey and possibly color satellite photography, and (3) obtain
core-drilling samples in the most promising areas. The cost of this program is
estimated at $700,000. Subject to the availability of funds, which cannot be
assured, the Company plans to conduct the air magnetic survey in the second half
of 2001.
The Company is amortizing its investment in the geologic data over three years
(3), starting January 1, 2000, and has amortized $75,000 to date.
3. CONVERTIBLE PREFERRED STOCK
The Company's preferred stock shares are convertible into the Company's common
stock shares at any time after one year from the date of issuance at the rate of
five common stock shares for each share of preferred stock. The preferred shares
do not pay a dividend, are non-voting and have a preference in liquidation of up
to $1.00 per share. In addition, each preferred share entitles the holder to one
warrant to purchase for $.10 per share one common stock share for each preferred
stock share held. The warrants expire one year from the date of issuance of the
accompanying preferred stock.
4. COMMITMENTS AND CONTINGENCIES
Leases
------
The Company conducts its operations from facilities in (a) Bedford, Texas under
a lease expiring in September 2003 requiring a monthly rental of $5,798, and (b)
Azle, TX which is under a month to month lease at a rate of $300 per month.
Litigation
----------
The Company is subject to legal proceedings that arise in the ordinary course of
business. Management does not believe that the outcome of any of these matters
will have a material adverse effect on the Company's consolidated financial
position, operating results or cash flows. See Part II, Item 1 legal proceedings
describing a suit again the Company's SFM subsidiary for which no loss provision
has been made.
12
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Contingent liabilities
----------------------
SFM is subject to normal industry buyback provisions on loans sold to investors
on which there is fraud, first payment default and for sub-prime loans defaults
in the first year and other normal and customary provisions. SFM has no loans at
the present time that are subject to such buybacks.
The Company has entered into several transactions related to its Philippines
housing project joint venture (Note 2) for which payment of the obligations
incurred is contingent upon funding of the project. These amounts are only due
and payable when and if funding for this project is obtained. Accordingly, no
liabilities relating to this contingency have been recorded in the accompanying
financial statements. At September 30, 2000 the amount of this contingent
liability was $346,050.
At September 30, 2000 SFM had temporarily funded loans through two lending
institutions in the aggregate amount of $1,679,020 for loans not yet funded by
the final lender.
5. EMPLOYEE BENEFIT PLAN
The Company's SFM subsidiary has adopted a profit sharing plan under Section
401(k) of the Internal Revenue Code of 1986. The plan covers substantially all
full time employees that meet general eligibility requirements. Company matching
and discretionary contributions to the plan are determined annually by the SFM
Board of Directors, subject to a limitation of 25% of 5% of eligible
compensation. Participants vest in their employee deferral account balances
immediately and in their employer matching and discretionary account balances
over a period of two to six years based on years of service. For the quarters
ended September 30, 2000 and 1999, employer matching and discretionary
contributions to the plan totaled $6028 and 0, respectively.
6. NOTES PAYABLE
The Company's notes payable consist of a business line of credit (balance
$46,810) of SFM due in July 2001 which bears interest at a rate of the Wall
Street Journal Prime Rate plus 1.0%, and is secured by substantially all the
assets of its SFM subsidiary. The interest rate is currently 10.5%. Also, a loan
financing computer equipment matures in July 2001 and has a balance of $8,264.
It is secured by the equipment financed. Both loans are guaranteed by the SFM
President and chief executive officer, who is a beneficial owner of
approximately 11 % of the common stock of Wulf, and one of her family members.
The loans are payable on demand by the bank, and are also subject to customary
default conditions for this size business, including change in control or key
management.
Included in long term debt is $88,825 which was advanced by a family member of
the SFM President and chief executive officer , who is a beneficial owner of
approximately 11 % of the common stock of Wulf. This unsecured loan matures on
April 15, 2002.
13
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In addition, the Company has another note payable with principal and interest
payable monthly through November 2003. This note bears interest at 8.25% and is
secured by the equipment it is financing. The current balance totals $21,523.
7. INCOME TAXES
The Company uses the accrual method and SFM uses the cash basis method of
accounting for tax reporting purposes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. In addition, future tax benefits, such as those from net operating loss
carry forwards, are recognized to the extent that realization of such benefits
is more likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments, which potentially subject it to credit
risks, consist of its cash, accounts receivable and notes payable.
Cash
----
The Company maintains its cash in bank deposit and other accounts that, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believe it is subject to any credit risks
involving cash.
Accounts receivable
-------------------
The Company's accounts receivable are unsecured and represent fees of closed
mortgage loans from customers in the Dallas/Ft. Worth metropolitan area not
collected at quarter's end. Management believes it is not exposed to any
significant credit risks affecting accounts receivable and that these amounts
are fairly stated at estimated net realizable amounts.
Notes payable
-------------
Management believes the carrying value of these notes represent the fair value
of these financial instruments because their terms are similar to those in the
lending market for comparable loans with comparable risks.
14
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Item 2. Management's Discussion and Analysis
Acquisition of SFM Mortgage Co.
-------------------------------
On April 30, 1999, Wulf consummated its agreement to acquire all of the
shares of Specialized Financial Services, Inc. d/b/a SFM Mortgage Company of
Bedford, Texas, for 7,500,000 shares of Wulf common stock. SFM is an eleven-year
old mortgage finance company with 44 employees. SFM does business primarily in
Texas, but is qualified and does limited business in other states. Through lines
of credit with financial institutions, SFM provides mortgage money primarily to
the home real estate market. This acquisition has the potential to be helpful to
Wulf because SFM can assist with mortgage financing for the Philippines National
Shelter Project when, and if that project can obtain funding, government
approvals and be implemented. This project is for one million new homes to be
built by the Southern Philippines Development Authority (SPDA)-Warisan Joint
Venture in which Wulf has a 49% interest and is further described below.
Philippines National Shelter Low Cost Housing Projects
------------------------------------------------------
The Company's Philippines Projects, which are described in detail in the
Company's Form 10-KSB for 1999, and which are subject to obtaining financing and
government guarantees, neither of which can be assured, are described in outline
form below. Mr. Franklin, President of Wulf visited the Philippines and met with
government officials during July of this year, and again in November 2000.
Wulf, through joint venture participation in the Warisan Group JV, continues to
pursue low cost housing development programs in the Philippines. These programs
are comprised of three distinct initiatives:
1. The SPDA-Warisan Joint Venture to develop one million low cost homes, on
or near the main southern island of Mindanao, is progressing and must be
presented to the President of the Philippines for final approval. Before
being presented to the President for final approval a number of steps are
required. The next such step is to have a Philippines based consultant
conduct over the next four months a market- based feasibility study to
identify the existing housing inventory, the demand for new homes in all
economic categories, and the available developer and contractor resources
in each location. This data will be collected for all cities and principal
towns in the Southern Philippines, and it will be used to identify the ten
most advantageous locations in which to start this program. It is
anticipated that these sites will constitute the first two years' ramp-up
of the program. The study will also be coordinated with the Investment
Coordinating Council, which must recommend to the President the approval of
the bond issue to provide operating capital to the program. This market
based feasibility study is underway and is expected to be completed by the
end of 2000.
2. Preliminary negotiations are underway with the National Development
organization (NDC) for a similar housing program for the entire country.
The NDC (and public law) supports conversion of previously authorized but
unused agricultural bonds to be used for housing infrastructure
development. The NDC also is prepared to make available for housing
development all of the land it owns across the Philippines. It is
anticipated that The Flagship Committee will recommend to the President
that he approve this conversion at its presentation in December 2000. This
will be supported by the second part of the above described feasibility
study, which will provide detailed information concerning the housing
market throughout the Republic of the Philippines.
15
<PAGE>
3. Squatter relocation projects continue to be authorized by the National
Housing Authority in response to the needs of infrastructure projects
sponsored by the Flagship Committee. The Warisan Group, in joint venture
with an experienced local general contractor (WERR Construction
International), has begun to submit proposals to construct these projects.
Results of Operations
---------------------
Quarter ended September 30, 2000
--------------------------------
Wulf's mortgage subsidiary (SFM) incurred a pretax loss of $58,051 in the
third quarter of 2000, compared to a loss of $99,393 in the prior year third
quarter. The loss is due primarily to two reasons: (1) SFM's entry into the
wholesale mortgage business (dealing with other brokers directly as opposed to
originating retail loans directly with individuals) has taken longer then
anticipated to build up volume; and (2) SFM retail volume has declined in line
with industry general trends.
General and administrative expenses for the three months totaled $322,360
compared to $177,749 in the same period in the prior year. The majority of these
expenses were related to the Philippines National Shelter Project and included
professional fees, travel, and expenses associated with the Project's office in
the Philippines.
Wulf's total net losses for the third quarter were $395,255 compared to a
loss of $315,193 in the comparable third quarter of 1999.
Nine Months Ended September 30, 2000
------------------------------------
Wulf's net losses for the nine months ended September 30, 2000 were
$853,655 compared to $634,152 in the same period in the prior year. Expenses
related to our proposed projects in the Philippines totaled $594,428 in the
current period compared to $452,343 in the prior year. Losses at our SFM
Mortgage subsidiary totaled $151,051 in the nine months ended Sept 30, 2000
compared to $128,393 in the comparable nine months of 1999.
Liquidity and Capital Resources
-------------------------------
Wulf continued in this quarter to fund its business through private sales
of securities and issuance of common and preferred stock in exchange for
professional services and other expenses. Wulf expects to continue to fund
itself through these same types of private sales of securities as well as
continued issuance of stock for the services of certain experts and other
expenses. Bank of Texas has extended the Company's SFM Mortgage subsidiary's
line of credit of $50,000 (current balance $46,810) for another year effective
to July 29, 2001. The line is secured by a lien on equipment, inventories and
accounts. In addition, SFM had a two year bank loan for $21,000 (current balance
$8,264) covering certain computer equipment, secured by same, maturing July 28,
2001. Also included in long term debt is $88,825 which was advanced by a family
member of the SFM President and chief executive officer , who is a beneficial
owner of approximately 11 % of the common stock of Wulf. This unsecured advance
matures on April 15, 2002.
See Note 6 above for additional information.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
Insofar as is known to the Company's management as of September 30, 2000,
there are no material legal proceedings now pending, threatened, or contemplated
in any court or agency to which the Company is, or may be a party, or against
any officer or director, in such capacity; or of which any of their property is
the subject. Wulf's mortgage subsidiary, SFM was named as defendant in a lawsuit
filed October 25, 2000, by a mortgage funding company whom SFM had sold a
residential mortgage to in April of 1997. Plaintiff alleges breach of contract
in regards to the work of an outside independent appraiser and damages in the
amount of $146,552 plus legal costs and fees and interest against the Company's
subsidiary, SFM. SFM management believes the suit is without merit and intends
to vigorously contest same. Wulf is not a party to this litigation.
Item 2. Changes in Securities and Use of Proceeds
To fund the Company's operations both common and preferred stock have been
sold in private sales under section 4(2) of the Securities Act of 1933, as
amended. In addition both common and preferred shares have been issued as
payment for services of certain experts and for other expenses. These are
summarized in the table below:
Three Months Ended Sept. 30, 2000
---------------------------------
Shares Dollars
--------- --------
Common stock sold cash 1,320,000 $ 66,000
Common stock issued for services 1,132,000 56,600
Common stock issued in preferred conversion 620,000 124,000
Preferred stock issued 177,500 177,500
(see note 1 below)
Nine Months Ended Sept. 30, 2000
--------------------------------
Shares Dollars
--------- --------
Common stock sold cash 1,918,800 $125,800
Common stock issued to employees as
retention incentive 1,328,000 13,280
Common stock issued for preferred converted 1,370,000 274,000
Common stock issued for services 1,732,000 62,600
Common stock issued for warrants exercised 58,000 5,800
Preferred stock issued(see note 1 below) 177,500 177,500
Preferred stock issued(see note 2 below) 200,000 200,000
Preferred stock issued for Philippines mineral 100,000 100,000
Exploration data
Note 1. This preferred stock was issued to a company that has and will continue
to perform engineering, architectural and project management services for Wulf.
W.L. Franklin, President and a Director of Wulf, is also President and a major
shareholder of the company performing these services. This preferred stock
issued will vest quarterly in the amount of 177,500 shares per quarter starting
in the 3rd quarter of 2000 and finishing in the quarter ended June 30, 2001, for
a total of 710,000 preferred shares.
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Note 2. A family member of an 11% shareholder advanced $60,000 to SFM Mortgage,
which advance was eliminated in exchange for $60,000 of the preferred stock
listed above, with the remainder of the stock being issued as payment for
services. An additional advance of $88,825 to SFM Mortgage from that same family
member remains open, payable on April 15, 2002, and is included as part of long
term advances.
The holders of preferred stock have the option to convert their preferred stock
to common on the basis of five shares of common for each share of preferred
after one year from date of issue. Preferred shareholders are also entitled to
one warrant to purchase common stock for $0.10 per share for each share of
preferred held, with the warrant expiring one year from date of purchase of the
preferred stock. The preferred stock is non-voting stock but has first right on
all assets in the event of liquidation up to $1.00 per preferred share.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information.
On April 1, 1998, SFM et al entered into a compromise Conciliation Agreement
with the United States Department of Housing and Urban Development and the Fort
Worth Human Relations Commission settling a complaint which alleged a violation
by SFM of the Fair Housing Act. The Settlement Agreement provides that over the
next three years SFM will increase the funds available to low/moderate income
minority single family, owner-occupied mortgage loans by $35,415,258 in the
Dallas/Ft. Worth metroplex.
SFM was informed on August 3, 2000 that its loan origination agreement with the
U.S. Department of Housing and Urban Development (HUD) with respect to its
Bedford, TX office was terminated with respect to loans originating in the HUD
Ft. Worth region. The action was taken because of the above average number of
defaults of SFM originated loans. This action does not affect SFM's right to
purchase insured mortgages or to service its own portfolio or the portfolio of
others. SFM did not underwrite these loans and has since hired its own
underwriter for these type loans. SFM may after 6 months reapply for the ability
to originate HUD loans from its Bedford, TX office. During this period SFM
retains the right to originate loans from its Azle, TX office.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (None)
(b) Reports on Form 8-K (None)
SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995.
Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
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Independent Accountant's Report
Turner, Stone & Company
Board of Directors and Stockholders
Wulf International Ltd.
and subsidiary
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Wulf
International, Ltd. and subsidiary as of September 30, 2000 and the related
consolidated statements of operations and cash flows for the three month and
nine month periods then ended. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
Turner, Stone & Company
Certified Public Accountants
November 13, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this Form 10-QSB report for the quarter ended September 30, 2000
to be signed on its behalf by the undersigned, thereunto duly authorized.
WULF INTERNATIONAL LTD.
/s/ George R. Wulf
Date: November 13, 2000 -------------------------------------------
George R. Wulf, Chairman and CEO
(Principal executive officer)
/s/ Joseph A. Denahan
-------------------------------------------
Joseph A. Denahan, Vice president
and chief financial officer
(Principal Financial & Accounting Officer)
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