SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 2000
LONE WOLF ENERGY, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-24684 73-1587867
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5400 N.W. Grand, Suite 510, Oklahoma City, Oklahoma 73112
(Address of principal executive offices)
(405) 943-4615
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition of Assets
Acquisition of Zenex Communications, Inc.
On June 21, 2000, Lone Wolf Energy Inc. ("Lone Wolf") completed the
previously announced acquisition of Zenex Long Distance, Inc. (d/b/a Zenex
Communications, Inc.) ("Zenex") through a merger of a wholly-owned subsidiary of
Lone Wolf, Prestige Acquisition Corporation ("Prestige Acquisition"), with and
into the parent of Zenex, Prestige Investments, Inc., an Oklahoma corporation
("Prestige Investments"). Prestige Investments was the surviving corporation in
the merger. The merger was pursuant to an Agreement and Plan of Reorganization
dated May 4, 2000, by and among Lone Wolf, Prestige Acquisition, Prestige
Investments and the five shareholders of Prestige Investments (the "Zenex Merger
Agreement"). Pursuant to the Zenex Merger Agreement, Lone Wolf issued 15,550,000
shares of Lone Wolf common stock to the shareholders of Prestige Investments, in
return for their surrender to Lone Wolf of all of their shares of common stock
of Prestige Investments. Following the merger, Prestige Investments became a
wholly owned subsidiary of Lone Wolf, and Zenex became, and is currently
operated as, a wholly owned subsidiary of Prestige Investments.
To the extent of changes resulting from the acquisition of Zenex, this Form
8-K is intended to supplement and amend the information in Lone Wolf's Annual
Report on Form 10-KSB for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission (the "Commission") on March 30, 2000 (as
amended by Form 10-KSB/A filed with the Commission on April 24, 2000); Lone
Wolf's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000, as
filed with the Commission on May 15, 2000; and the Company's Proxy Statement
dated May 26, 2000, as filed with the Commission on May 26, 2000.
Business and Properties
The following discussion describes the business and properties of Lone
Wolf, following the acquisition of Zenex. To the extent of changes resulting
from the acquisition of Zenex, the following information supplements the
"Description of Business" and the "Description of Properties" in Lone Wolf's
Annual Report on Form 10-KSB for the year ended December 31, 1999 and filed with
the Commission on March 30, 2000. The term "Company," as used below, includes
Lone Wolf and all of its direct and indirect subsidiaries.
General
The Company's telecommunications business segment consists primarily of the
rendering of Interactive Voice Response (IVR) services. IVR is most easily
described by thinking of IVR as a voice computer. Where a computer has a
keyboard for entering information, an IVR uses remote touch-tone telephones.
Where a computer has a screen for showing the results, an IVR uses a prerecorded
human voice that is stored (digitized) on a hard drive. In addition, it can use
a synthesized voice (computerized voice) for read back information that is
constantly changing. (The synthesized voice is commonly referred to as
Text-to-Speech.)
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Several companies sell IVR software and equipment that businesses buy and
use in their operations. The Company offers IVR services to businesses that do
not want to invest in the software and equipment. The Company combines the
telephone service with the IVR services so that it can serve multiple line needs
and multiple types of services via an 800 number through its phone switch (see
"Description of Properties" below).
IVR does not require a caller to say anything. The Company's system selects
pre-recorded voice messages to play to the caller to prompt the caller to do
something, such as "please enter your calling card number now," "please enter
your account number," or "press `1' for customer service."
The advantage of using an IVR service such as the Company's is that the
volume of calls that can be handled is much greater than what most businesses
could achieve on their own. The disadvantage to contracting for an IVR service
is that the business pays for the service continuously. It is the same decision
a business makes when deciding whether to lease or buy. However, even businesses
that invest in their own IVR equipment still must pay for the 800 number to
bring the call into the equipment.
IVR Services
The Company's IVR services primarily include wholesale sale of long
distance minutes to distributors of prepaid and postpaid calling cards,
automatic call direction, automated customer service, information lines,
automated telemarketing, and automated product ordering. The following is a
description of each of these services.
Prepaid and Postpaid Calling Cards. The Company sells IVR service, along
with both "inbound" and "outbound" long distance service, to distributors of
prepaid and postpaid calling cards on a "per minute" basis. The difference
between a prepaid calling card and a postpaid calling card is in the timing of
the payment by the end-user. With a prepaid card, the end-user pays for the card
prior to making the first call. Upon purchase, the card's "pin," or personal
identification number, is revealed to the end-user by peeling a tape off the
card or scratching off an opaque substance. The end-user uses the card by first
dialing the 800 number printed on the card, and then dialing the card pin number
and the desired long distance phone number when asked to do so by the
prerecorded voice generated by the Company's IVR equipment. Each prepaid card
has a finite number of long distance minutes preprogrammed onto the card. When
the number of long distance minutes has been consumed, the card expires
automatically.
With postpaid calling cards, the end-user pays for the number of long
distance minutes consumed, but after the call is made, typically on a monthly
basis. A postpaid card is used the same way as a prepaid card. The end-user is
given a pin number and an 800 number upon issuance of the card (usually the 800
number is also printed on the card itself). The end-user uses the card by
dialing the 800 number and then the pin number and desired long distance number
when prompted by the Company's IVR equipment. Postpaid cards are typically
requested by organizations for distribution to their employees for business use.
Like prepaid cards, there is usually a limit imposed on the number of long
distance minutes available for all of the postpaid cards furnished to an
organization.
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The Company's sales of IVR services and long distance minutes are primarily
to wholesale distributors that do not have their own switch or calling card
platform. For example, the Company may generate for Business A one million pin
numbers. Business A may print the pin numbers on a million prepaid calling cards
that it manufactures or causes to be manufactured, and then sell the cards to
Business B at a discount. Business B may then sell the cards on a prepaid basis
to individual store chains, convenience stores, and other ultimate sources for
end-user purchases of prepaid cards. When a card is used, Business A pays the
Company for every long distance minute consumed by the end-user.
Automatic Call Direction. The Company offers its clients automated call
direction, or "call-forwarding," services. For example, the Company's system may
prompt the caller to dial "1" to find the person now, or to dial "2" to leave a
message. If "1" is dialed, the Company's system will automatically forward the
call to the client's pre-instructed phone number. The Company markets its
automatic call direction services primarily to small businesses.
Automated Customer Service. The Company offers its clients automated
customer service assistance. This involves the creation of recordings that ask a
series of questions regarding the service problems most frequently experienced
by end-users of the client's products or services. If the caller dials the
appropriate response with respect to a particular prerecorded service message,
the Company's IVR equipment then plays a prerecorded message giving suggested
solutions to the problem. By using this service, customer service providers
typically experience a significant reduction in the number of personnel needed
to respond to customer service inquiries. The Company markets its automated
customer service services primarily to small, medium and large businesses.
Information Lines. The Company offers its clients automated information
lines. This involves the creation of recordings for the Company's clients that
provide information to callers. For example, a client in the seminar production
business may use the Company's service to advertise an 800 number to obtain
information about upcoming seminars. When a call comes in, the Company's IVR
system will say: "For a complete listing of upcoming seminars in your area,
please enter your area code." When the caller enters the area code, the system
plays the recording designated by the client for the caller's area. The Company
markets its information line services primarily to small, medium and large
businesses.
Automated Telemarketing. The Company offers its clients automated
telemarketing services. For example, the Company's system can place multiple
telemarketing calls on behalf of a client. If the Company's system detects that
an answering machine has answered the call, the system will leave a message for
the homeowner to call an 800 number selected by the Company's client. If the
Company's system detects that a person has answered the call, the system will
ask the person to hold while a live person comes on the line. While some of the
Company's competitors offer "canned" IVR software platforms, the Company
individually tailors and constructs the software required to meet its clients'
specific needs. The Company markets its automated telemarketing services
primarily to small businesses.
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Automated Product Ordering. The Company offers its clients automated
product ordering services. For example, the Company's client may use the system
to advertise an 800 number to order concert tickets. When a call comes in to
order tickets, the Company's system will ask for the caller's credit card
number, validate the credit card, and process the transaction. The Company
markets its automated products ordering services primarily to small businesses
and as an adjunct to businesses engaged in E-commerce.
Sources and Availability of Long Distance Minutes
For its operations, the Company purchases its long distance minutes from
long distance carriers. The Company connects directly with its contracted long
distance carriers and buys minutes of use on a monthly basis. In general, there
are many sources for these minutes. The Company currently buys minutes directly
or indirectly through Qwest, Telco, and MCI WorldCom and others. The Company,
like many of its competitors, is not "locked in" to a set price for long
distance minutes and it can terminate its long distance carrier contracts if the
contracted carrier increases its per-minute rate by more than five percent. If
the Company were to experience a material increase in the cost of minutes, it
would likely attempt to pass the cost along to its customers. Any such material
increase would probably similarly affect many of the Company's competitors, thus
reducing the odds that the Company's customers might switch service providers.
However, there can be no assurance that the Company's customers would not switch
to another service provider.
The Company faces certain risks when a significant customer requests the
Company to promise delivery of services on or before a specific date. One risk
inherent in this type arrangement is that there can be significant delays
between the ordering of new facilities to connect with the long distance
carriers and the actual connection. The Company may rely on outside vendors to
make the proper connection of T-1 lines to meet the anticipated increase in
demand. If the Company experiences delays in the vendor's promised connection
date, the Company could experience more customer demand than facilities to
supply. In this situation, some of the attempted calls from all customers would
be blocked at the Company's switch and callers would experience busy signals. As
a result, these customers might choose to discontinue using the Company's
services and the Company could suffer long-term harm.
A similar risk arises whenever the Company contracts with a new customer to
fulfill the customer's distribution requirements for long distance minutes and
that customer significantly underestimates the number of minutes it expects to
sell. In that event, if the Company's equipment is not sufficient to handle the
unexpected volume, callers experiencing busy signals would likely complain to
the Company's customer and the Company could suffer long-term harm.
With the Company's current switching equipment, management believes that it
could increase its existing call traffic by 80% to 100%. To grow beyond that
point will require significant capital expenditures and no assurances can be
given that the Company can raise the amount of capital needed.
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Marketing Strategies
The Company markets its IVR Services primarily through direct sales, trade
journal ads, and attendance at trade shows and conventions. The Company employs
a marketing and sales staff and also retains independent marketing and sales
agents who are paid on a commission basis. New accounts must be great enough to
cover attrition in order to sustain growth.
The Company seeks to capture and retain clients through its experienced
sales staff by offering superior client service, support and responsiveness.
Because the Company has its own source code to its IVR platform, the Company is
in a better position to make changes to the functionality of software than some
of its competitors that offer only "canned" software. The Company also is a
relatively small business compared to some of its competitors, which enables the
Company to interact with its clients on a more personal level. The Company's
small size also enables it to have relatively lower overhead costs. Unlike some
of its competitors, the Company also currently has extra capacity to meet
additional demand for its services.
IVR Contracts Terminable at Will; Dependence on One Customer
Although the Company has several IVR clients, virtually all IVR services
are rendered pursuant to contracts that are terminable either at the will of
either party or upon short notice by either party. One particular IVR client
currently accounts for approximately 80% of the Company's revenues. Loss of this
client would have a materially adverse impact on the Company's operations and
revenues.
Competition
The telecommunications industry is highly competitive and the Company faces
intense current and future competition with respect to the Company's IVR service
offerings. Many of the Company's current and potential competitors have
financial, technical, personnel and other resources, including brand name
recognition, substantially greater than the Company's. There has also been, and
the Company believes there will continue to be, significant merger and joint
venture activity and the creation of strategic alliances within the
telecommunications industry that will result in competitors with even greater
financial resources and other competitive advantages. In addition, rapidly
evolving technology, and new applications of existing technology, may also
provide competitors in the Company's markets with significant competitive
advantages over the Company. The Company cannot provide any assurance that the
Company will be able to respond to such competitive pressures or that
competition will not have a material adverse effect on the Company's business.
The Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements. They may also be able to
devote greater resources to the development, promotion and sale of their
products and services than the Company can.
The Company competes primarily on the basis of pricing, quality of
service and customer loyalty. The Company's ability to compete effectively will
depend on the Company's ability to maintain high quality services at prices
generally equal to or below those charged by the
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Company's competitors. If the Company's competition lowers their prices or the
Company is otherwise forced to lower its prices, the Company will be adversely
affected.
Regulation
Overview. The Company's services are subject to federal, state and local
regulation. The Company holds various federal and state regulatory
authorizations. The Federal Communications Commission (FCC) exercises
jurisdiction over telecommunications common carrier services to the extent the
carriers provide, originate and/or terminate interstate or international
communications. The FCC also establishes rules and has other authority over
certain issues related to local telephone competition. State regulatory
commissions retain jurisdiction over telecommunications carriers to the extent
they provide, originate or terminate intrastate communications. Local
governments may require the Company to obtain licenses, permits or franchises in
order to use the public rights of way or obtain zoning approvals necessary to
install and operate its networks.
Federal Regulation. The Company is categorized as a non-dominant carrier by
the FCC, and as a result the Company is subject to relatively limited regulation
of its interstate and international services. Tariffing and certain general
policies and rules apply, as well as certain reporting requirements, but the
Company's rates are not subject to prior FCC approval. The Company has all the
operating authority required by the FCC to conduct long distance and
international business at present. Additionally, as a non-dominant carrier, the
Company may install and operate additional facilities for the transmission of
domestic and international interstate communications without additional FCC
authorization, except to the extent that radio licenses or international
authorizations are required or that installation of a facility raises certain
environmental impact issues under the FCC's rules. The FCC also imposes prior
approval requirements on transfers of control and assignments of radio and
microwave licenses and authorizations for the provision of international
telecommunications services. The FCC has the authority generally to condition,
modify, cancel, terminate or revoke licenses and operating authority for failure
to comply with federal laws and/or the rules, regulations and policies of the
FCC. Fines or other penalties also may be imposed for such violations. The
Company cannot provide any assurance that the FCC or third parties will not
raise issues with regard to the Company's compliance with applicable laws and
regulations.
State Regulation. The Company is also subject to various state laws and
regulations. Most public utility commissions require providers such as the
Company to obtain authority from the commission prior to the initiation of
intrastate service. The Company has been certified to provide interexchange toll
services in all states except Alaska and Hawaii. Interexchange authority
(sometimes referred to as intraLATA authority) allows the Company to provide
toll services within each of these states listed above. In those states that
require tariffs, the Company has tariffs setting forth the terms, conditions and
prices for services that are classified as intrastate. The Company is also
required to update or amend its tariffs when it adjusts its rates or adds new
products, and it is subject to various reporting and record-keeping
requirements. Many states also require prior approval for transfers of control
of certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and the incurring by carriers of significant debt obligations.
Certificates of
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authority can generally be conditioned, modified, canceled, terminated or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations and policies of state regulatory authorities.
Fines or other penalties also may be imposed for such violations. The Company
cannot provide any assurance that state utilities commissions or third parties
will not raise issues with regard to the Company's compliance with applicable
laws or regulations.
Future Regulation. From time to time, federal or state legislators propose
legislation that could affect the Company, either beneficially or adversely. The
Company cannot provide any assurance that federal or state legislation will not
be enacted, or that regulations will not be adopted or actions taken by the FCC
or state regulatory authorities, that might adversely affect the Company's
business.
Employees and Agents
The Company currently has approximately eleven employees employed in the
Company's telecommunications segment. In addition, as of that date, the Company
had agreements with approximately ten independent sales agents to market the
Company's products and services. None of the Company's employees are represented
by a labor organization, and the Company considers the Company's employee
relations to be good.
To be successful, the Company must keep the services of a small number of
key management and operating personnel, including certain sales, technical and
marketing personnel. If one or more of these people joins a competitor or
otherwise competes against the Company, it could materially hurt the Company's
business. If the Company loses key people, the Company may not be able to hire
adequate replacements.
Intellectual Property
The Company owns the source code to all of the software the Company creates
pursuant to instructions received from the Company's clients, and the employees
and independent consultants the Company retains to assist in writing such
software cannot use it elsewhere.
The Company currently uses and has registered the following trademarks:
Zenex World Access (Registered June 10, 1997); Zpage (Registered July 1, 1997);
Calling For The Children (Registered Dec. 29,1998); and Z-NET (Registered May
25, 1999). The Company also uses the name "Virtual Office" for its automatic
call direction and voicemail service.
Research and Development
The Company does not spend a material amount of funds on research and
development. Currently all of the Company's research and development is done
internally by its employees.
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Description of Properties
The Company maintains its corporate headquarters in Oklahoma City, Oklahoma
where the Company leases approximately 4,525 square feet (2,955 square feet for
corporate and administrative office space and 1,570 square feet for switch and
equipment facility space) at a monthly rental of approximately $4,700. The
Company does not anticipate that its will encounter any material difficulties in
meeting its future needs for any leased space.
The Company owns a Harris 20/20 telecom switch and software and
approximately 30 computers that interface with the switch. Currently, the
Company has approximately 136 T-1 lines connected to its switch. With the
Company's current switching equipment, management believes that it could
increase its existing call traffic by 80% to 100%. To grow beyond that point
will require significant capital expenditures and no assurances can be given
that the Company can raise the amount of capital needed.
Management's Discussion and Analysis and Plan of Operation
The following discussion describes management's analysis and plan of
operation of the Company following the acquisition of Zenex. To the extent of
changes resulting from the acquisition of Zenex, the following information
supplements "Item 6. Management's Discussion and Analysis and Plan of Operation"
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1999 and filed with the Commission on March 30, 2000, and "Item 2. Management's
Discussion and Analysis or Plan of Operation" in the Company's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 2000 and filed with the
Commission on May 15, 2000.
There were no trends known to the Company either short-term or long-term
which would have a material adverse effect on the Company's liquidity.
It was necessary for the Company to be able to settle certain of past
liabilities in 1999 to continue operations with the amount of capital the new
owners were willing to contribute. In 1999, approximately $985,000 of old
liabilities were negotiated which were recognized in 1999 as other nonrecurring
income.
The balance sheet at March 31, 2000 shows current liabilities to be twice
the amount of current assets. The current liabilities are $820,000 more than
current assets. Of this shortfall in working capital, $410,000 is being funded
by making monthly payments on some old debts on an informal basis. The balance
is being funded by extended terms from the Company's long-distance carriers,
which give 60-75 days from month end to pay carrier bills. If the amounts due on
the old debts were accelerated and/or if the carriers changed their terms for
billing, the Company would face short-term liquidity problems and be forced to
look for outside sources of financing, which may not be available to it.
As described in the footnotes to the financial statements, the Company has
a $317,000 payment due on the buyout of Zenex by Prestige Investments when
collected revenues reach $10,000,000. The current collected revenues since the
purchase are approximately $4,000,000.
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The Company believes it will reach the $10,000,000 threshold in the next 12
months. Unless there is a significant increase in profits, the Company will have
to seek outside financing or equity funding to make the $317,000 payment which
will be due. Management believes, but can give no assurances, that such funding
will be available to it.
In late 1999, the Company hired new executive personnel with extensive
knowledge of the telecommunications industry to develop and implement plans for
future operations.
It was determined that the additional capital expenditures were needed to
implement a plan for growth in 2000.
Approximately $280,000 was spent in the first quarter of 2000 to expand
capacity in the Company's switching equipment and prepare it for increased
revenue. This was financed with long-term debt of $350,000. As a result of the
increase in capacity, revenue increased in the first quarter of 2000 to
$1,278,000 from $222,000 in the same quarter of 1999. This increase resulted in
an increase in gross profit of $144,000 from the same quarter in 1999. The loss
for the quarter was $112,000; however, if the gain from settlement of old debts
is taken out of the 1999 profit, the decrease in loss was $212,000 in 2000 as
compared to the same quarter in 1999.
The Company knows of no significant capital expenditures which will need to
be made to continue its current operations. It is believed that any capital
expenditures needed will be funded out of current cash flows.
There are no known trends or uncertainties which would have a material
impact on sales or income from continuing operations.
During 1998, the Company sold off the asset of its long-distance provider
operation for $6,616,000 and was able to reduce its operating expenditures in
1999 significantly as a result of this sale.
The Company successfully completed the change in operations in 1999 and
reduced operating expenditures by approximately $2,000,000 from 1998, which was
primarily a reduction in payroll, rent and administrative expenses as a result
of changing from a long-distance to an IVR provider. The Company also reduced
its depreciation expense from 1998 to 1999 by approximately $200,000 as a result
of the sale of its long-distance provider operation.
The current increase in sales is the result of one major customer which
provides approximately 80% of the Company's revenue base. However, the Company
has identified other potential customers and is negotiating contracts which may,
if successful, reduce this concentration of business.
Looking forward as a result of the change in operations, the Company had
sales in the second quarter of 2000 of $2,300,000 as compared to the whole in
1999 of $1,183,000. The net profit for the second quarter has not yet been
determined but net income before taxes for that quarter is in excess of
$150,000.
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Security Ownership of Certain Beneficial Owners and Management
As of July 12, 2000, there were 35,885,790 shares of the Company's common
stock issued and outstanding. The following table sets forth the name and
address of each shareholder of the Company who is an officer, a director, or, to
the knowledge of the Company, beneficially owns more than 5% of the Company's
common stock as of July 12, 2000. To the extent of changes resulting from the
acquisition of Zenex, the following information supplements "Item 11. Security
Ownership of Certain Beneficial Owners and Management" in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999 and filed with the
Commission on March 30, 2000 (as amended by Form 10-KSB/A filed with the
Commission on April 24, 2000), and "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement filed with the
Commission on May 26, 2000.
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<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Title Beneficial Owner Ownership Class
<S> <C> <C> <C> <C>
Common Marc W. Newman (1) President, CEO, 5,256,498 (2) 14.6%
5400 NW Grand, #510 Director
Oklahoma City, OK 73112
Common Douglas A. Newman (1) Vice President, 1,610,000 4.5%
5400 NW Grand, #510 CFO, Secretary,
Oklahoma City, OK 73112 Director
Common Timothy P. Apgood (1) Director 1,000,000 2.7%
598 Villager Ln.
Midvale, UT 84047
Common Debra G. Morehead (1) Vice President of 407,935 1.1%
5400 NW Grand, #510 Lone Wolf and of
Oklahoma City, OK 74112 Zenex
Communications,
Inc.
Common Brian Gustas (1) President and CEO 100,000 0.3%
201 Robert S. Kerr of Zenex
Suite 510 Communications,
Oklahoma City, OK 73102 Inc.
Common Joey Alfred (1) Vice President of 250,000 0.7%
201 Robert S. Kerr Operations of
Suite 510 Zenex
Oklahoma City, OK 73102 Communications,
Inc.
Common Naylor Concrete Construction 7,400,000 20.6%
Co., Inc. (1) (3)
Common Fireball Enterprises, L.L.C. 7,400,000 (4) 20.6%
(1) (4)
Common Ensynq, Inc. 2,250,000 6.3%
Common All Officers and Directors as 9,524,433 26.5%
a group (6 persons)
</TABLE>
(1) Pursuant to the Zenex Merger Agreement, Debra G. Morehead, Joey Alfred,
Brian Gustas, Naylor Concrete Construction Co., Inc. and Fireball
Enterprises, L.L.C. have the right to name two of the five persons
recommended by the management of Lone Wolf to stand for election to the
Board of Directors. Marc W. Newman, Douglas A. Newman and Timothy P. Apgood
have the right to name the remaining three nominees.
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(2) Includes 551,064 shares held indirectly through Mr. Newman's spouse and
205,434 shares held indirectly through Newboy, Inc., a corporation
controlled by Mr. Newman.
(3) Ricky A. Naylor owns all of the issued and outstanding capital stock of
Naylor Concrete Construction Co., Inc.
(4) Rick Spradlin and Tim Aduddell own all of the issued and outstanding equity
interests of Fireball Enterprises, L.L.C. Each person disclaims beneficial
ownership of Lone Wolf's common stock held by Fireball Enterprises, L.L.C.,
except to the extent of his pecuniary interest therein.
Directors and Officers
The following table sets forth the name, age, and brief history of each
officer and director of the Company and of significant employees, as of July 5,
2000, following the closing of the Zenex acquisition. To the extent of changes
resulting from the acquisition of Zenex, the following information supplements
"Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act" in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999 and filed with the
Commission on March 30, 2000 (as amended by Form 10-KSB/A filed with the
Commission on April 24, 2000), and "Executive Compensation and Other
Information" in the Company's Proxy Statement filed with the Commission on May
26, 2000.
<TABLE>
<CAPTION>
Name Age Office Experience
<S> <C> <C> <C>
Marc W. Newman 30 President and From July 1998 to November 1998 Mr. Newman was a private
Director since investment consultant. From 1992 to July 1998 Mr. Newman was
November 1998 a registered investment broker. Prior to that time Mr.
Newman was a full time student.
Douglas A. Newman 52 Vice President, From 1991 to 1998 Mr. Newman was Chairman, Vice President
Secretary, and and Secretary of Hospital Rehabilitation Services, Inc. a
Director since privately held company he co-founded, which provided
November 1998 contract Physical Therapy services to hospitals in
Tennessee, Alabama, Illinois and North Carolina. From 1985
to 1990, Mr. Newman was Chairman, CFO, Secretary and a
Director of Wedding Information Network, Inc., a NASDAQ
listed company, a franchisor and operator of "The Wedding
Pages," a publication for bridal planning and direct
marketing to brides to be. Prior to his employment with
Wedding Information Network, Inc., Mr. Newman was a partner
in the CPA firm of Newman and Nanfito in Omaha, Nebraska.
Timothy P. Apgood 50 Director since Mr. Apgood also serves the Company as manager of the
February 2000 Company's EP Distributing division, a division engaged in
selling and brokering sales of nutritional products and
medical supplies. From 1994 to March 2000 Mr. Apgood
developed EP Distributing Company, a company engaged in
selling nutritional products. In March 2000, the Company
acquired the assets of EP Distributing Company.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Debra G. Morehead 39 Vice President of Ms. Morehead has served as Vice President of Lone Wolf since
Lone Wolf and of July 2000. Ms. Morehead has served as controller of The
Zenex; an executive Naylor Companies since May of 1998. From June 1993 to May
officer of Lone 1998, Ms. Morehead was a partner at the accounting firm of
Wolf since July 2000 Olson & Potter, CPA's. Ms. Morehead is a Certified Pubic
Accountant and received an accounting degree from the
University of Central Oklahoma.
Brian Gustas 37 President and CEO Mr. Gustas entered the telecommunications industry in 1987.
of Zenex; an Mr. Gustas joined Zenex in September 1999 from ComSource,
executive officer Inc., a wholesaler of telecommunication services, where he
of Lone Wolf since operated as president. Previous to ComSource, Mr. Gustas,
July, 2000 spent seven years with Westel Long Distance, a facility
based communications provider. Mr. Gustas' last position
with Westel was Regional Sales Manager. Mr. Gustas graduated
from Oklahoma State University in 1985 with a B.A. in
Business Administration, and a Minor in Economics
Joey Alfred 29 Vice President of Mr. Alfred was promoted from within Zenex to the position of Vice
Operations of President of Operations on December 1, 1998. He joined Zenex in
Zenex; an executive 1995 soon after graduating from the University of Oklahoma. Mr.
officer of Lone Alfred has been promoted repeatedly during his tenure at Zenex,
Wolf since July, which reflects his strong knowledge of the telecommunications
2000 industry. He plays a key role in developing and maintaining the
Zenex proprietary platform, which runs the switching facility.
</TABLE>
Douglas A. Newman is the father of Marc Newman, President of the Company.
Pursuant to the Zenex Merger Agreement, the Bylaws of the Company, Prestige
Investment and Zenex were amended by the directors of each such corporation to
provide that the number of directors of each of the Company, Prestige
Investments and Zenex would be five and
14
<PAGE>
that the former shareholders of Prestige Investments, namely, Naylor Concrete
Construction Co., Inc., Fireball Enterprises, L.L.C., Debra Morehead, Brian
Gustas and Joey Alfred, would have the right to name two of the persons
nominated by management of Lone Wolf to stand for election to the Board of
Directors of Lone Wolf. The two persons to be so named have not been named or
elected. Marc W. Newman, Douglas A. Newman and Timothy P. Apgood have the right
to name the other three persons .
During 1999, Zenex paid Brian Gustas and Joey Alfred an aggregate of
$28,172 (three months) and $59,507, respectively, in salaries.
Item 7. Financial Statements and Exhibits
Financial Statements
15
<PAGE>
Prestige Investments, Inc.
Consolidated Financial Statements
December 31, 1999
And
Independent Auditor's Report
<PAGE>
Contents
Page
Independent Auditor's Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-12
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Prestige Investments, Inc.
We have audited the accompanying consolidated balance sheet of Prestige
Investments, Inc. as December 31, 1999, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentations. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Prestige
Investments, Inc. as December 31, 1999, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Henderson Sutton & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
May 26, 2000
1
<PAGE>
Prestige Investments, Inc.
Consolidated Balance Sheet
December 31, 1999
ASSETS
Current Assets
Cash $ 449
Accounts receivable 130,704
Current portion of notes receivable 60,000
Inventory 7,000
-----------
198,153
-----------
Property and Equipment 1,324,425
Less accumulated depreciation (389,317)
-----------
935,108
-----------
Other
Notes receivable-net of Current Portion 280,000
Goodwill (net) 457,502
Organization costs (net) 34,988
Deferred tax asset 130,000
-----------
902,490
-----------
Total Assets $ 2,035,751
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable 675,549
Accounts payable-officers 165,829
Accrued expenses 96,150
Prepayments and customer deposits 79,310
Current portion of long-term debt 27,001
-----------
1,043,839
-----------
Stockholder's Equity
Common stock (50,000 shares $1.00 par value
authorized, 10,000 shares issued) 10,000
Paid-in capital 1,161,227
Retained earnings (deficit) (179,315)
-----------
991,912
-----------
Total Liabilities and Stockholders' Equity $ 2,035,751
===========
See Accompanying Notes to Consolidated Financial Statements 2
<PAGE>
Prestige Investments, Inc.
Consolidated Statement of Operations
For the Year Ended December 31, 1999
Service Revenues $ 1,183,087
-----------
Operating expenses
Carrier and related charges 947,578
Selling, general and administrative 1,404,951
Depreciation and amortization 222,758
-----------
2,575,287
-----------
Operating Loss (1,392,200)
-----------
Other
Interest 566
Loss on sale of equipment (86,462)
Other non-recurring income 984,781
-----------
898,885
-----------
Net Loss Before Income Taxes (493,315)
Provision for Income Taxes
Current --
Deferred tax benefit 314,000
-----------
Net Income (Loss) $ (179,315)
===========
Earnings (Loss) Per Share $ (17.93)
===========
See Accompanying Notes to Consolidated Financial Statements 3
<PAGE>
Prestige Investments, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Paid-In Retained
Shares Amount Capital Deficit Total
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 -- $ -- $ -- $ -- $ --
Stock issued to initial shareholders
July 31, 1998 for cash 500 500 $ 500
Net Income for the period 83,876 $ 83,876
----------- ----------- ------------ ----------- -----------
Balance, December 31, 1998 500 $ 500 $ -- $ 83,876 $ 84,376
Quasi-reorganization January 1, 1999 5,006 (83,876) (78,870)
Stock issued for cash 9,500 9,500 1,156,221 1,165,721
Net loss for the year (179,315) (179,315)
----------- ----------- ------------ ----------- -----------
Balance December 31, 1999 10,000 $ 10,000 $ 1,161,227 $ (179,315) $ 991,912
=========== =========== ============ =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements 4
<PAGE>
Prestige Investments, Inc.
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1999
Cash Flows From Operating Activities
Net Loss $ (179,315)
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization 222,758
Gain (loss) on sale of property and equipment 86,462
(Increase) decrease from changes in:
Deferred taxes (314,000)
Accounts receivable 34,749
Inventory 23,706
Increase (Decrease) from changes in:
Accounts payable (418,602)
Accrued liabilities (126,879)
Prepayments and customer deposits (99,903)
-----------
(771,024)
-----------
Cash Flows from Investing Activities
Cash received for property and equipment sold 11,215
Purchase of property and equipment (28,865)
-----------
(17,650)
-----------
Cash Flows from Financing Activities
Issuance of common stock 10,000
Purchase of Zenex stock (6,353)
Increases in paid in capital 1,345,227
Increase in notes receivable (340,000)
Payment on long-term debt (307,226)
-----------
701,648
-----------
Net Decrease in Cash (87,026)
Cash at Beginning of Year 87,475
-----------
Cash at End of Year $ 449
===========
See Accompanying Notes to Consolidated Financial Statements 5
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Organization
Prestige Investments, Inc. (the "company" or "Prestige") and its wholly owned
subsidiary, Zenex Long Distance, Inc. ("Zenex") are engaged primarily in the
wholesale of long distance minutes for prepaid calling cards. Zenex does
business as Zenex Communications, Inc. and primarily markets its product to
distributors and switchless resellers who in-turn market the products to
retailers.
Prestge was incorporated in Oklahoma on July 31, 1998. Zenex was incorporated on
January 27,1994 in Oklahoma. Prestige was formed solely for the purpose of
business acquisitions and investments, and had minimal activities prior to the
acquisition of the Zenex. Prestige's current operations are only those of its
wholly owned subsidiary, Zenex. Prestige acquired Zenex in accordance with a
letter of intent dated January 27, 1999 and a subsequent Stock Purchase
Agreement (" The Agreement") dated February 19, 1999. The business combination
was accounted for as a purchase. The consolidated financial statements include
the Company and its wholly-owned subsidiary, Zenex for the year ended December
31, 1999.
Cash and Cash Equivalents
The Company considers all highly liquid debt or equity instruments purchased
with an original maturity at the date of purchase of 90 days or less to be cash
equivalents.
Inventory
Inventory of prepaid long-distance calling cards is stated at the lower of cost
or fair market value.
Fair Value of Financial Instruments
The Company's financial instruments include cash, receivables, short-term
payables, and notes payable. The carrying amounts of cash, receivables, and
short-term payables approximate fair value due to their short-term nature. The
carrying amounts of notes payable approximate fair value based on borrowing
terms currently available to the Company.
Advertising Cost
Advertising costs are expensed as incurred as selling, general and
administrative expenses in the accompanying statement of operations.
6
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - (continued)
Income Taxes
The company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the liability
method whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and measured at tax rates that will be in effect when the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets when it is more likely than not that the deferred tax
asset will not be realized.
Revenue Recognition
The Company earns service revenues by providing access to and usage of long
distance networks. Revenue is recognized in the month the service is provided.
The Company records deferred revenue for calling cards sold and recognize
revenue as the customer utilizes the calling time.
Net Loss Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, Earnings per Share and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98 basic net income (loss) per
share is calculated by dividing net income (loss) available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period.
Concentrations
In connection with providing long distance service to customers, the Company has
contractual agreements with certain carriers, which provide access to and usage
of their long distance network. The contracts include an agreed-upon billing
rate and a term for these services. During 1999 two vendors carried
approximately 99% of the Company's long-distance traffic. Although other
carriers are available to provide access and usage of their long distance
network, there are a limited number of such sources. Additionally the time
required to efficiently transfer system connections makes the Company vulnerable
to a risk of a near-term significant impact in the event of a natural disaster
or any other termination of the carrier's service. However the Company has the
ability to utilize back up systems in the event of the carriers termination of
services.
The Company's receivables are from a small number of companies in the same
industry, which are subject to business cycle variations. This concentration
subjects the Company to a credit risk if the general industry or the companies
fail to perform.
7
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - (continued)
Regulation
The company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions. The
Company's management and regulatory legal counsel believe the Company is in
compliance with regulations in all states.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the 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.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Company
identifies its operating segments based upon business activities, management
responsibilities and geographical location. During the year ended December 31,
1999 the Company operated in a single business segment engaged in the marketing
of long distance calling cards with Interactive Voice Response (IVR) services.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current period presentation.
Note 2 - Notes Receivable
At December 31, 1999, the Company had a note receivable of $340,000 due from an
unrelated corporation. The note bears interest at 4.42% and is payable in
minimum monthly installments of $5,000 with the remaining unpaid principal and
interest due on December 10, 2002.
Note 3 - Property and Equipment, Accumulated Depreciation and Amortization
Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to operations when incurred. Major improvements and
renewals that extend the useful life of the related asset are capitalized and
depreciated over the remaining useful life.
8
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 3 - (continued)
Depreciation and amortization are computed for financial and income tax
reporting purposes using straight-line and accelerated methods over estimated
useful lives ranging from three years to ten years. Depreciation charged to
operation for the period was $168,883. The following table summarizes the
classifications of property and equipment; total accumulated depreciation and
the related estimated useful lives:
Property and Equipment Cost Years
------------------------------- ---------- -----
Switching equipment $1,140,660 5-10
Dedicated line equipment 8,291 5
Office software and equipment 151,538 3-7
Leasehold improvements 21,936 5
----------
Total 1,324,425
Less accumulated depreciation 389,317
----------
Net Property and Equipment $ 935,108
==========
Note 4 - Intangible Assets
Goodwill represents the excess of the cost of assets acquired over the fair
value at date of acquisition. Goodwill is being amortized on the straight-line
method over fifteen years. Accumulated amortization at December 31, 1999 totaled
$106,362, and amortization expense of $33,693 was charged to operations in 1999.
Organization costs primarily include legal and professional fees associated with
organizing operations. These costs are deferred and amortized using the
straight-line method over five years. Accumulated amortization at December 31,
1999, totaled $70,506 and amortization expense of $20,182 was charged to
operations in 1999.
Note 5 - Long-Term Debt
The Company has a 12.5% capital lease obligation secured by switch equipment,
due in monthly installments of $3,557, including interest, through June 2000.
Note 6 - Related Party Transactions
Certain officers of the Company advanced cash to the Company through out the
year. Accounts payable Officers was transferred to paid-in capital upon the
issuance af addition stock and the Purchase of Zenex. There remains a balance of
$ 165, 829 that was paid to the officer in the period ending June 30, 2000.
9
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 7 - Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $1,732,604 available to reduce future federal and state taxable
income. Unless utilized, the carryforwards will begin to expire in 2012. For
federal and state tax purposes, the Company's net operating loss carryforwards
are subject to an annual limitation due to a greater than 50% change in stock
ownership, as defined by federal and state tax law.
Under the provisions of FAS-109, Accounting for Income Taxes, deferred tax
liabilities and assets are measured using the applicable tax rate based on the
taxable and deductible temporary differences and operating loss carryforwards.
Taxable temporary differences result principally from the excess of depreciation
for tax purposes over the amount deducted for financial reporting purposes.
Deductible temporary differences and operating loss carryforwards, giving rise
to deferred tax assets, are reduced by a valuation allowance if it is more
likely than not that some or all of the deferred tax assets will not be
realized.
The following are components of the net deferred tax asset:
Deferred tax liability on depreciation $(103,000)
Deferred tax assets for loss carryforwards 693,000
---------
Deferred tax asset 590,000
Less valuation allowance (460,000)
---------
Net deferred tax asset $ 130,000
=========
The Company has established a valuation allowance for a portion of its net
deferred tax assets because of limitations on the use of loss carryforwards due
to ownership changes.
Note 8 - Commitments and Contingencies
Carrier Service Agreements
Effective October 14, 1999, the Company entered into a thirty-six (36) month
long-distance carrier service agreement. Under the terms of the agreement, the
Company agreed to purchase a minimum monthly amount of carrier service of
$26,500 for thirty-six (36) months, with a total cumulative commitment of
$954,000, which ever first should occur. As of the report date the total
commitment has been satisfied.
Effective February 24, 1999, the Company entered into a carrier service
agreement extending for a period of twelve (12) months. Under the terms of the
agreement, the Company has usage-based rates predicated on $100,000 of monthly
service.
10
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Note 8 - (continued)
Effective September 9, 1999, the Company entered into a carrier service
agreement extending for a period of twelve (12) months. Under the terms of the
agreement, the Company agreed to minimum monthly usage of 100,000 minutes per
circuit. The contract may be canceled if the Company falls below the minimum
usage amount.
The penalty for not fullfilling thes agreements would be possible cancellation
of the contracts. The Company could be subject to increased carrier rates in the
event satisfactory contract could not be negotiated.
Customer Billing Service
On June 1, 1999, the Company entered into a billing service agreement with a
third party outsource service provider. The agreement extends for a period of
forty-two (42) months. Under the terms of the agreement the Company's service
fee is $2,750 per month for recording up to 750,000 detail call records per
month. The additional monthly fee for call records in excess of 750,000 is on a
declining scale of .00395(cent) to .00310(cent) per record.
Operating Leases
The Company leases its facilities under operating leases, which expire at
various intervals through June 30, 2002. Under the terms of the leases the
Company is responsible for its
share of common area maintenance and operating expenses. Rent expense under
operating leases for the year ended December 31, 1999, totaled $51,565.
As of December 31, 1999, the future minimum lease commitments under the leases
were as follows:
Year Amount
2000 $38,220
2001 19,500
2002 10,050
-------
$67,770
=======
Acquisition of Zenex Long Distance, Inc
Prestige Investments, Inc., an Oklahoma corporation, acquired the Zenex Long
Distance, Inc. in accordance with a letter of intent dated January 27, 1999 and
a subsequent Stock Purchase Agreement (" The Agreement") dated February 19,
1999. The business combination was accounted for as a purchase. In accordance
with the terms of the
11
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
Agreement, the initial purchase price was $6,352.95 for 100% of the 635,295
outstanding common shares. The Agreements includes a provision whereby the
sellers may earn Note 8 - (continued)
additional amounts if the cumulative collected gross sales revenue reach certain
levels, (the "Earn Out Rights"), as follows:
(a) When collected gross sales revenue reach Ten Million ($10,000,000),
the sellers will be paid an additional Fifty Cents ($0.50) per share
totaling $317,647.50.
(b) When collected gross sales revenue reach Twenty Million ($20,000,000),
the sellers will be paid and additional One Dollar ($1.00) per share
totaling $635,295.00.
(c) When collected gross sales revenue reach thirty-six Million
($36,000,000), the sellers will be paid an additional One-Dollar
($1.00) per share totaling $635,590.45.
(d) In no event will the Purchase Price exceed the amount of Two Dollars
and fifty-one Cents per share totaling $1,594,590.45.
Collected gross sales revenues through the report date are approximately $
4,000,000. Management expects the $ 10,000,000 gross sales revenue to be
achieved in the year 2001
12
<PAGE>
Zenex Long Distance, Inc.
Financial Statements
December 31, 1998
And
Independent Auditor's Report
<PAGE>
Contents
Page
Independent Auditor's Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to financial Statements 7-11
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Zenex Long Distance, Inc.
We have audited the accompanying balance sheet of Zenex Long Distance, Inc. as
December 31, 1998, and the related statement of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financials are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
the disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentations. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Zenex Long Distance, Inc. as
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Henderson Sutton & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
May 26, 2000
1
<PAGE>
Zenex Long Distance, Inc.
Balance Sheet
December 31, 1998
ASSETS
Current Assets
Cash $ 87,475.00
Accounts receivable 165,453
Inventory 30,706
-----------
283,634
-----------
Property and Equipment 1,461,169
Less accumulated depreciation (292,542)
-----------
Net Property and Equipment 1,168,627
-----------
Intangible Assets
Goodwill (net) 432,734
Organization costs (net) 55,170
-----------
487,904
-----------
Total Assets $ 1,940,165
===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,259,980
Accrued expenses 223,029
Current portion of long-term debt 32,610
Note payable stockholder 105,000
Prepayments and customer deposits 179,213
-----------
1,799,832
-----------
Long-term Debt -Net of Current Portion 196,617
-----------
Stockholders' Equity
Common stock (1,000,000 shares $0.01 par value
authorized, 665,000 shares issued) 6,650
Preferred stock (3,000,000 shares $0.01 par value
authorized, none outstanding --
Additional paid in capital 1,131,912
Treasury stock at cost (29,705 shares) (111,862)
Retained earnings(deficit) (1,082,984)
-----------
(56,284)
-----------
Total Liabilities & Stockholders' Equity $ 1,940,165
===========
See Accompanying Notes to Financial Statements 2
<PAGE>
Zenex Long Distance, Inc.
Statement of Operations
For the Year Ended December 31, 1998
Service Revenues $ 1,151,497
-----------
Operating expenses
Carrier and related charges 981,531
Selling, general and administrative 3,404,991
Depreciation and amortization 418,728
-----------
4,805,250
-----------
Loss from Operations (3,653,753)
Interest expense (net) (27,824)
-----------
Net Loss Before Discontinued Business Operations,
Sale of Discontinued Business and Income Tax (3,681,577)
-----------
Discontinued Business Operations
Sales 2,876,857
Cost of sales 2,085,923
-----------
Gross Profit from Discontinued Business Operations 790,934
Less operating expenses 1,303,524
-----------
Net Operating Loss from Discontinued Business Operations (512,590)
Gain on Sale of Portion of Business 6,616,435
Income Taxes (50,000)
-----------
6,053,845
-----------
Net income $ 2,372,268
===========
See Accompanying Notes to Financial Statements 3
<PAGE>
Zenex Long Distance, Inc.
Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Treasury Retained
Shares Amount Capital Stock Deficit Total
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 500,000 $ 5,000 $ 1,145,000 $ (20,000) $ (3,455,252) $(2,325,252)
Stock Split 150,000 1,500 (1,500)
Stock Issued 15,000 150 199,800 199,950
Treasury Stock Issued (211,388) 211,388
Treasury Stock Sold (303,250) (303,250)
Net Income 2,372,268 2,372,268
----------- ----------- ----------- ------------ ------------ -----------
Balance, December 31, 1998 665,000 $ 6,650 $ 1,131,912 $ (111,862) $ (1,082,984) $ (56,284)
=========== =========== =========== ============ ============ ===========
</TABLE>
See Accompanying Notes to Financial Statements 4
<PAGE>
Zenex Long Distance, Inc.
Statement of Cash Flows
For the Year Ended December 31, 1998
Cash Flows From Operating Activities
Net income $ 2,372,268
Reconciliation of net income to net cash provided
(used) by operating activities:
Depreciation and amortization 418,728
Gain (loss) on sale of property and equipment (6,616,438)
(Increase) decrease from changes in:
Accounts receivable 3,072,734
Inventory (23,442)
Other assets 26,440
Increase (Decrease) from changes in:
Accounts payable (3,995,088)
Accrued liabilities (35,053)
Deferred revenue 76,752
-----------
(4,703,099)
Cash Flows from Investing Activities
Proceeds from sale of segment of business 7,945,345
Purchase of property and equipment (60,060)
Decrease in deposits 15139.00
-----------
7,900,424
-----------
Cash Flow From Financing Activities
Issuance of common stock 199,950
Purchase of treasury stock (303,250)
Payments on long-term debt (3,310,426)
-----------
(3,413,726)
-----------
Net Decrease in Cash (216,401)
Cash at Beginning of Year 303,876
-----------
Cash at End of Year $ 87,475
===========
See Accompanying Notes to Financial Statements 5
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Organization
Zenex Long Distance, Inc. (the "Company" or "Zenex") is engaged primarily in the
wholesale of long distance minutes for prepaid calling cards. The Company does
business as Zenex Communications, Inc. and primarily markets its product to
distributors and switchless resellers who in-turn market the products to
retailers.
The Company was incorporated in Oklahoma on January 27, 1994.
Cash and Cash Equivalents
The Company considers all highly liquid debt or equity instruments purchased
with an original maturity at the date of purchase of 90 days or less to be cash
equivalents.
Inventory
Inventory of prepaid long-distance calling cards is stated at the lower of cost
or fair market value.
Fair Value of Financial Instruments
The Company's financial instruments include cash, receivables, short-term
payables, and notes payable. The carrying amounts of cash, receivables, and
short-term payables approximate fair value due to their short-term nature. The
carrying amounts of notes payable approximate fair value based on borrowing
terms currently available to the Company.
Advertising Cost
Advertising costs are expensed as incurred as selling, general and
administrative expense in the accompanying statement of operations.
Income Taxes
The company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the liability
method whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax basis of assets and liabilities
and measured at tax rates that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred
6
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 1 - (continued)
tax assets where it is more likely than not that the deferred tax asset will not
be realized.
Revenue Recognition
The Company earns service revenues by providing access to and usage of long
distance networks. Revenue is recognized in the month the service is provided.
The Company records deferred revenue for calling cards sold and recognize
revenue as the customer utilizes the calling time.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding for the
period.
Concentrations
In connection with providing long distance service to customers, the Company has
contractual agreements with certain carriers, which provide access to and usage
of their long distance network and charge agreed-upon billing rates for these
services. During 1998 two carriers carried approximately 99% of the Company's
long-distance traffic. Although other carriers are available to provide access
and usage of their long distance network, the limited number of such sources and
the time it takes to transfer system connections makes the Company vulnerable to
risk of a near-term significant impact. The Company has the ability to use back
up systems if needed.
The Company's receivables are from a small number of companies in the same
industry, which are subject to business cycle variations. This concentration
subjects the Company to a credit risk if the companies fail to perform.
Regulation
The company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions. The
Company's management and regulatory legal counsel believe the Company is in
compliance with regulations in all states.
7
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 1 - (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported 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.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Company
identifies its operating segments based upon business activities, management
responsibilities and geographical location. During the year ended December 31,
1998 the Company operated in a single business engaged in the marketing of long
distance calling cards with Interactive Voice Response (IVR) services.
Note 2 - Property and Equipment and Accumulated Depreciation
Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to operations when incurred. Major betterments and
renewals that extend the useful life of the related asset are capitalized and
depreciated over the remaining useful life.
Depreciation and amortization are computed for financial and income tax
reporting purposes using straight-line and accelerated methods over their
estimated useful lives ranging from three to ten years. Depreciation charged to
operations for the period was $ 393,853.
Property and Equipment Cost Years
------------------------------ ---------- -----
Switching equipment $1,058,169 5-10
Dedicated line equipment 8,291 5
Office software and equipment 372,773 3-7
Leasehold improvements 21,936 5
----------
Total 1,461,169
Less accumulated depreciation 292,542
----------
Net property and equipment $1,168,627
==========
8
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 3 - Intangible Assets
Goodwill represents the excess of the cost of assets acquired over the fair
value at date of acquisition. Goodwill is being amortized on the straight-line
method over fifteen years. Accumulated amortization at December 31, 1998 totaled
$ 72,669, and amortization expense of $33,693 was charged to operations in 1998.
Organization costs primarily include legal and professional fees associated with
organizing operations. These costs are deferred and amortized using the
straight-line method over five years. Accumulated amortization at December 31,
1998, totaled $ 50,324 and amortization expense of $20,182 was charged to
operations in 1998.
Note 4 - Long-Term Debt
The Company has a 12.5% capital lease obligation for $ 62,560 of which $ 32,610
is included as current portion of long-term debt. The lease is secured by switch
equipment, due in monthly installments of $3,557, including interest, through
June 2000.
The Company has a 10% convertible promissory note dated October 28, 1996 to
Access Communications Services, Inc. The note is convertible to common stock at
$ 5.00 per share if not paid by October 27, 1998. The note was retired by
payment in 1999.
Note 5 - Income Taxes
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $1,148,607 available to reduce future federal and state taxable
income. Unless utilized, the carryforwards will begin to expire in 2013. For
federal and state tax purposes, the Company's net operating loss carryforwards
will be subject to an annual limitation due to a greater than 50% change in
stock ownership occurring in 1999 and, as defined by federal and state tax law.
Under the provisions of FAS-109, Accounting for Income Taxes, deferred tax
liabilities and assets are measured using the applicable tax rate based on the
taxable and deductible temporary differences and operating loss carryforwards.
Taxable temporary differences result principally from the excess of depreciation
for tax purposes over the amount deducted for financial reporting purposes.
Deductible temporary differences and operating loss carryforwards, giving rise
to deferred tax assets, are reduced by a valuation allowance if it is more
likely than not that some or all of the deferred tax assets will not be
realized.
9
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 5 - (continued) The following components of the net deferred tax liability
or assets recognized are:
Deferred tax liability on taxable temporary
differences $(184,000)
Deferred tax assets for deductible temporary
differences and loss carryforwards 459,000
---------
275,000
Valuation allowance (459,000)
---------
Net deferred tax liability $ 184,000
=========
The Company has established a valuation allowance for a portion of its net
deferred tax assets because of limitations on the use of loss carryforwards due
to an ownership change in 1999.
Note 6 - Commitments and Contingencies
The Company leases its facilities under operating leases, which expire at
various intervals through June 30, 2002. Under the terms of the leases the
Company is responsible for its share of common area and operating expenses.
As of December 31, 1998, the future minimum lease commitments under all leases
were as follows:
Year Amount
---- --------
1999 $ 60,430
2000 38,220
2001 19,500
2002 10,050
--------
$128,200
========
Rent expense from continuing operations under operating leases for the year
ended December 31, 1998, totaled $79,994.
Note 7 - Subsequent Events
Prestige Investments, Inc., an Oklahoma corporation, acquired the Company in
accordance with a letter of intent dated January 27, 1999 and a subsequent Stock
Purchase Agreement (" The Agreement") dated February 19, 1999. The business
combination was accounted for as a purchase. In accordance with the terms of the
Agreement, the initial purchase price is $6,352.95 for 100% of the 635,295
outstanding common shares. The Agreements includes a provision whereby the
10
<PAGE>
Zenex Long Distance, Inc.
Notes to Financial Statements
December 31, 1998
Note 7 - (continued)
sellers may earn additional amounts if the cumulative collected gross sales
revenue reach certain levels, (the "Earn Out Rights"), as follows:
(a) When collected gross sales revenue reach Ten Million ($10,000,000),
the sellers will be paid an additional Fifty Cents ($0.50) per share
totaling $317,647.50.
(b) When collected gross sales revenue reach Twenty Million ($20,000,000),
the sellers will be paid and additional One Dollar ($1.00) per share
totaling $635,295.00.
(c) When collected gross sales revenue reach thirty-six Million
($36,000,000), the sellers will be paid an additional One-Dollar
($1.00) per share totaling $635,590.45.
(d) In no event will the Purchase Price exceed the amount of Two Dollars
and fifty-one Cents per share totaling $1,594,590.45.
Additionally, Prestige agreed to contribute One Hundred Thousand Dollars
($100,000.00) as working capital to Zenex.
11
<PAGE>
Prestige Investments, Inc.
Consolidated Financial Statements
March 31, 2000
And
Accountant's Review Report
<PAGE>
Contents
Page
Accountant's Review Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-12
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Prestige Investments, Inc.
We have reviewed the accompanying consolidated balance sheet of Prestige
Investments, Inc. as March 31, 2000, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the three months
then ended. In accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Prestige Investments, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit 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 pinion.
Based on our review we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for Prestige Investments, Inc. was audited by us and we
expressed an unqualified opinion in our reports dated May 26, 2000, but we have
not performed any auditing procedures since that date.
Henderson Sutton & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
July 28, 2000
<PAGE>
Prestige Investments, Inc.
Consolidated Balance Sheet
March 31, 2000 and December 31, 1999
March 31, December 31,
ASSETS 2000 1999
----------- -----------
Current Assets
Cash $ 187,640 $ 449
Accounts receivable 521,900 130,704
Current portion of notes receivable 60,000 60,000
Inventory 7,000 7,000
----------- -----------
776,540 198,153
----------- -----------
Property and Equipment 1,505,100 1,324,425
Less accumulated depreciation (449,317) (389,317)
----------- -----------
1,055,783 935,108
----------- -----------
Other
Goodwill (net) 454,732 457,502
Notes receivable-net of Current Portion 265,000 280,000
Organization costs (net) 33,603 34,988
Deferred tax asset 193,000 130,000
----------- -----------
946,335 902,490
----------- -----------
$ 2,778,658 $ 2,035,751
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 60,200 $ 27,001
Accounts payable 658,479 841,378
Accrued expenses 848,321 96,150
Prepayments and customer deposits 29,279 79,310
----------- -----------
1,596,279 1,043,839
----------- -----------
Long-term Debt -Net of Current Portion 285,944 --
----------- -----------
Stockholder's Equity
Common stock ($1.00 par value, 50,000 shares
authorized, 10,000 shares issued) 10,000 10,000
Paid-in capital 1,161,227 1,161,227
Retained earnings (deficit) (274,792) (179,315)
----------- -----------
896,435 991,912
----------- -----------
$ 2,778,658 $ 2,035,751
=========== ===========
See Accompanying Notes to Consolidated Financial Statements 2
<PAGE>
Prestige Investments, Inc.
Consolidated Statement of Operations
For the Three Months Ended
March 31, 2000 and 1999
March 31, March,31
2000 1999
----------- -----------
Service Revenues $ 1,278,555 $ 222,134
----------- -----------
Operating expenses
Carrier and related charges 1,092,967 179,495
Selling, general and administrative 287,958 377,352
Depreciation and amortization 64,155 50,000
----------- -----------
1,445,080 606,847
----------- -----------
Operating Loss (166,525) (384,713)
----------- -----------
Other Income (Expense)
Interest expense (8,452) (676)
Gain (Loss) on sale of equipment 5,000 --
Other income 11,500 114,580
----------- -----------
8,048 113,904
----------- -----------
Net Loss before income taxes $ (158,477) $ (270,809)
Provision for income taxes:
Current
Deferred tax benefit 63,000 108,000
----------- -----------
Net Loss $ (95,477) $ (162,809)
=========== ===========
Loss Per Share $ 9.54 $ 16.28
=========== ===========
See Accompanying Notes to Consolidated Financial Statements 3
<PAGE>
Prestige Investments, Inc.
Consolidated Statement of Stockholders' Equity
December 31, 1998 to March 31, 2000
<TABLE>
<CAPTION>
Additional
Paid-In Retained
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 -- $ -- $ -- $ -- $ --
Stock issued to initial shareholders
July 31, 1998 for cash 500 500 $ 500
Net Income for the period 83,876 $ 83,876
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 500 $ 500 $ -- $ 83,876 $ 84,376
Quasi-reorganization January 1, 1999 5,006 (83,876) (78,870)
Stock issued for cash 9,500 9,500 1,156,221 1,165,721
Net loss for the year (179,315) (179,315)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 10,000 $ 10,000 $ 1,161,227 $ (179,315) $ 991,912
Net Loss for the Period -- -- -- (95,477) (95,477)
----------- ----------- ----------- ----------- -----------
Balance March 31, 2000 10,000 $ 10,000 $ 1,161,227 $ (274,792) $ 896,435
=========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements 4
<PAGE>
Prestige Investments, Inc.
Consolidated Statement of Cash Flows
For the Three Months Ended
March 31, 2000 and 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (95,477) $(162,809)
Reconciliation of net income to net cash provided by
operating activities
Depreciation and amortization 64,155 50,000
Gain (loss) on sale of property and equipment 5,000 --
(Increase) decrease from changes in:
Deferred Taxes (63,000) (108,000)
Accounts receivable (391,196) 87,620
Inventory
Increase (Decrease) from changes in:
Accounts payable (182,899) (534,444)
Accrued liabilities 752,171 158,944
Prepayments and customer deposits (50,031) 20,738
--------- ---------
38,723 (487,951)
--------- ---------
Cash Flows from Investing Activities
Cash received for property and equipment sold 5,000 37,550
Purchase of property and equipment (175,676) (5,730)
--------- ---------
(170,676) 31,820
--------- ---------
Cash Flows from Financing Activities
Issuance of common stock -- 10,000
Purchase of Zenex stock -- (6,353)
Increases in paid in capital -- 671,552
Change in notes receivable 319,144 (282,336)
--------- ---------
319,144 392,863
--------- ---------
Net Increase (Decrease) in Cash 187,191 (63,268)
Cash at Beginning of Period 449 87,475
--------- ---------
Cash at End of Period $ 187,640 $ 24,207
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements 5
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Organization
Prestige Investments, Inc. (the "company" or "Prestige") and its wholly owned
subsidiary, Zenex Long Distance, Inc. ("Zenex") are engaged primarily in the
wholesale of long distance minutes for prepaid calling cards. Zenex does
business as Zenex Communications, Inc. and primarily markets its product to
distributors and switchless resellers who in-turn market the products to
retailers. Prestige was incorporated in Oklahoma on July 31, 1998. Zenex was
incorporated on January 27,1994 in Oklahoma. Prestige was formed solely for the
purpose of business acquisitions and investments, and had minimal activities
prior to the acquisition of the Zenex. Prestige's current operations are only
those of its wholly owned subsidiary, Zenex. Prestige acquired Zenex in
accordance with a letter of intent dated January 27, 1999 and a subsequent Stock
Purchase Agreement (" The Agreement") dated February 19, 1999. The business
combination was accounted for as a purchase. The consolidated financial
statements include the Company and its wholly-owned subsidiary, Zenex for the
period ended March 31, 2000 and 1999.
Cash and Cash Equivalents
The Company considers all highly liquid debt or equity instruments purchased
with an original maturity at the date of purchase of 90 days or less to be cash
equivalents.
Inventory
Inventory of prepaid long-distance calling cards is stated at the lower of cost
or fair market value.
Fair Value of Financial Instruments
The Company's financial instruments include cash, receivables, short-term
payables, and notes payable. The carrying amounts of cash, receivables, and
short-term payables approximate fair value due to their short-term nature. The
carrying amounts of notes payable approximate fair value based on borrowing
terms currently available to the Company.
Advertising Cost
Advertising costs are expensed as incurred as selling, general and
administrative expenses in the accompanying statement of operations.
Page 6 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 1 - (continued)
Income Taxes
The company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the liability
method whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and measured at tax rates that will be in effect when the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets when it is more likely than not that the deferred tax
asset will not be realized.
Revenue Recognition
The Company earns service revenues by providing access to and usage of long
distance networks. Revenue is recognized in the month the service is provided.
The Company records deferred revenue for calling cards sold and recognize
revenue as the customer utilizes the calling time.
Net Loss Per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, Earnings per Share and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98 basic net income (loss) per
share is calculated by dividing net income (loss) available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period.
Concentrations
In connection with providing long distance service to customers, the Company has
contractual agreements with certain carriers, which provide access to and usage
of their long distance network. The contracts include an agreed-upon billing
rate and a term for these services. During the period two vendors carried
approximately 99% of the Company's long-distance traffic. Although other
carriers are available to provide access and usage of their long distance
network, there are a limited number of such sources. Additionally the time
required to efficiently transfer system connections makes the Company vulnerable
to a risk of a near-term significant impact in the event of a natural disaster
or any other termination of the carrier's service. However the Company has the
ability to utilize back up systems in the event of the carriers termination of
services.
Although the company has a significant number of customers, one customer
accounts for approximately eighty percent (80%) of the Company's revenue. The
loss of this customer would have a materially adverse impact on the company's
revenues and operations.
Page 7 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 1 - (continued)
The Company's receivables are from a small number of companies in the same
industry, which are subject to business cycle variations. This concentration
subjects the Company to a credit risk if the general industry or the companies
fail to perform.
Regulation
The company is subject to regulation by the Federal Communications Commission
and by various state public service and public utility commissions. The
Company's management and regulatory legal counsel believe the Company is in
compliance with regulations in all states.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the 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.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Company
identifies its operating segments based upon business activities, management
responsibilities and geographical location. During the year ended December 31,
1999 the Company operated in a single business segment engaged in the marketing
of long distance calling cards with Interactive Voice Response (IVR) services.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current period presentation.
Note 2 - Notes Receivable
At December 31, 1999, the Company had a note receivable of $325,000 due from an
unrelated corporation. The note bears interest at 4.42% and is payable in
minimum monthly installments of $5,000 with the remaining unpaid principal and
interest due on December 10, 2002.
Page 8 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 3 - Property and Equipment, Accumulated Depreciation and Amortization
Property and equipment are recorded at cost. Expenditures for repairs and
maintenance are charged to operations when incurred. Major improvements and
renewals that extend the useful life of the related asset are capitalized and
depreciated over the remaining useful life. Depreciation and amortization are
computed for financial and income tax reporting purposes using straight-line and
accelerated methods over estimated useful lives ranging from three years to ten
years. Depreciation charged to operation for the period was $60,000. The
following table summarizes the classifications of property and equipment; total
accumulated depreciation and the related estimated useful lives:
Property and Equipment Cost Years
------------------------------- ---------- -----
Switching equipment $1,315,507 5-10
Dedicated line equipment 8,291 5
Office software and equipment 159,366 3-7
Leasehold improvements 21,936 5
---------
Total 1,505,100
Less accumulated depreciation 449,317
---------
Net Property and Equipment $1,055,783
==========
Note 4 - Intangible Assets
Goodwill represents the excess of the cost of assets acquired over the fair
value at date of acquisition. Goodwill is being amortized on the straight-line
method over fifteen years. Accumulated amortization at March 31, 2000 totaled
$109,132, and amortization expense of $2,770 was charged to operations in the
period.
Organization costs primarily include legal and professional fees associated with
organizing operations. These costs are deferred and amortized using the
straight-line method over five years. Accumulated amortization at March 31,
2000, totaled $71,891 and amortization expense of $1,385 was charged to
operations in 1in the period.
Page 9 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 5 - Long-Term Debt
The company has notes payable as follows:
First National Bank of Midwest City, 9.5% note secured By
all equipment and Zenex common stock, due in monthly
Installments of $5,227, including interest through January
2005 $ 246,144
First National Bank of Midwest City, 9.75% note secured By
equipment and Zenex common stock, due in monthly
Installments of $ 2,124 including interest through March
2005 100,000
---------
Total 346,144
Less Current Portion 60,200
---------
Long-term debt $ 285,944
=========
Note 6 - Income Taxes
At March 31, 2000, the Company had net operating loss carryforwards of
approximately $1,891,081 available to reduce future federal and state taxable
income. Unless utilized, the carryforwards will begin to expire in 2012. For
federal and state tax purposes, the Company's net operating loss carryforwards
are subject to an annual limitation due to a greater than 50% change in stock
ownership, as defined by federal and state tax law.
Under the provisions of FAS-109, Accounting for Income Taxes, deferred tax
liabilities and assets are measured using the applicable tax rate based on the
taxable and deductible temporary differences and operating loss carryforwards.
Taxable temporary differences result principally from the excess of depreciation
for tax purposes over the amount deducted for financial reporting purposes.
Deductible temporary differences and operating loss carryforwards, giving rise
to deferred tax assets, are reduced by a valuation allowance if it is more
likely than not that some or all of the deferred tax assets will not be
realized.
The following are components of the net deferred tax asset:
Deferred tax liability on depreciation $(103,000)
Deferred tax assets for loss carryforwards 756,000
---------
Deferred tax asset 653,000
Less valuation allowance (460,000)
---------
Net deferred tax asset $ 193,000
=========
The Company has established a valuation allowance for a portion of its net
deferred tax assets because of limitations on the use of loss carryforwards due
to ownership changes.
Page 10 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 8 - Commitments and Contingencies
Carrier Service Agreements
Effective October 14, 1999, the Company entered into a thirty-six (36) month
long-distance carrier service agreement. Under the terms of the agreement, the
Company agreed to purchase a minimum monthly amount of carrier service of
$26,500 for thirty-six (36) months, with a total cumulative commitment of
$954,000, which ever first should occur. As of the report date the total
commitment has been satisfied.
Effective February 24, 1999, the Company entered into a carrier service
agreement extending for a period of twelve (12) months. Under the terms of the
agreement, the Company has usage-based rates predicated on $100,000 of monthly
service.
Effective September 9, 1999, the Company entered into a carrier service
agreement extending for a period of twelve (12) months. Under the terms of the
agreement, the Company agreed to minimum monthly usage of 100,000 minutes per
circuit. The contract may be canceled if the Company falls below the minimum
usage amount.
The penalty for not fulfilling these agreements would be possible cancellation
of the contracts. The Company could be subject to increased carrier rates in the
event satisfactory contract could not be negotiated.
Customer Billing Service
On June 1, 1999, the Company entered into a billing service agreement with a
third party outsource service provider. The agreement extends for a period of
forty-two (42) months. Under the terms of the agreement the Company's service
fee is $2,750 per month for recording up to 750,000 detail call records per
month. The additional monthly fee for call records in excess of 750,000 is on a
declining scale of .00395(cent) to .00310(cent) per record.
Operating Leases
The Company leases its facilities under operating leases, which expire at
various intervals through June 30, 2002. Under the terms of the leases the
Company is responsible for its
share of common area maintenance and operating expenses. Rent expense under
operating leases for the period ended March 31, 2000, totaled $9,271.
Page 11 of 12
<PAGE>
Prestige Investments, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 8 - (continued)
As of March 31, 2000, the future minimum lease commitments under the leases were
as follows:
Year Amount
2000 $28,449
2001 19,500
2002 10,050
-------
$57,999
=======
Acquisition of Zenex Long Distance, Inc
Prestige Investments, Inc., an Oklahoma corporation, acquired the Zenex Long
Distance, Inc. in accordance with a letter of intent dated January 27, 1999 and
a subsequent Stock Purchase Agreement (" The Agreement") dated February 19,
1999. The business combination was accounted for as a purchase. In accordance
with the terms of the Agreement, the initial purchase price was $6,352.95 for
100% of the 635,295 outstanding common shares. The Agreements includes a
provision whereby the sellers may earn additional amounts if the cumulative
collected gross sales revenue reach certain levels, (the "Earn Out Rights"), as
follows:
(a) When collected gross sales revenue reach Ten Million ($10,000,000),
the sellers will be paid an additional Fifty Cents ($0.50) per share
totaling $317,647.50.
(b) When collected gross sales revenue reach Twenty Million ($20,000,000),
the sellers will be paid and additional One Dollar ($1.00) per share
totaling $635,295.00.
(c) When collected gross sales revenue reach thirty-six Million
($36,000,000), the sellers will be paid an additional One-Dollar
($1.00) per share totaling $635,590.45.
(d) In no event will the Purchase Price exceed the amount of Two Dollars
and fifty-one Cents per share totaling $1,594,590.45.
Collected gross sales revenues through the report date are approximately $
4,000,000. Management expects the $ 10,000,000 gross sales revenue to be
achieved in the year 2001
Page 12 of 12
<PAGE>
LONE WOLF ENERGY, INC.
And
PRESTIGE INVESTMENTS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 1999 and 1998
And
THE THREE MONTHS ENDED
MARCH 31, 2000 and 1999
<PAGE>
LONE WOLF ENERGY, INC
TABLE OF CONTENTS
Page
Report of Independent Public Accountants on Pro Forma Adjustments 1
Financial Statements:
Pro Forma Combined Balance Sheet as of
March 31, 2000 2
Pro Forma Combined Statement of Operations for the
Three Months Ended March 31, 2000 and 1999 3
Pro Forma Combined Balance Sheet as of December 31, 1999 4
Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1999 5
Pro Forma Combined Statement of Operation for the
Year Ended December 31, 1998 6
Notes to Pro Forma Combined Financial Statements 7-8
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Report of Independent Public Accountant's on
Examination of Pro Forma Financial Information
To the Board of Directors and Stockholders of Lone Wolf Energy, Inc.
We have examined the pro forma adjustments reflecting the transactions
reflecting the business combination to be accounted for as a pooling of interest
described in Note 1 and the application of those adjustments to the historical
amounts in the accompanying pro forma combined balance sheets of Lone Wolf
Energy, Inc. as of December 31, 1999,and March 31, 2000, and the pro forma
consolidated statements of operations for the years ended December 31, 1999 and
1998, and the three months ended March 31, 2000 and 1999. The December 31, 1999
historical consolidated financial statements included herein are derived from
the historical financial statements of Lone Wolf Energy, Inc., and Prestige
Investments, Inc., which were audited by us. The historical statement of
operations for the three months ended March 31, 2000 is derived from the
historical financial statements, which were reviewed by us. The reviewed
financial statements are included in the March 31, 2000 lO-Q filing and are
included herein by this reference. Such pro forma adjustments are based upon
management's assumptions described in Notes if 1, and 2. Our examination was
made in accordance with standards established by the American Institute of
Certified Public Accountants and, accordingly, included such procedures as we
considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transactions occurred at March 31, 2000, January 1, 2000, 1999, 1998 and
December 31, 1999. However, the pro forma consolidated financial statements are
not necessarily indicative of the results of Operations or related effects on
financial position that would have been attained had the above-mentioned
transaction actually occurred earlier.
In our opinion, the accompanying pro forma combined financial statements of Lone
Wolf Energy, Inc. as of December 31, 1998, 1999 and March 31, 2000 give
appropriate effect to the pro forma adjustments necessary to reflect the
business combination on a pooling of interest basis as described in Note 1 and
the pro forma column reflects the proper application of those adjustments to the
historical financial statements.
Henderson Sutton & Co., P.C.
Certified Public Accountants
July 28, 2000 Tulsa, Oklahoma
1
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Lone Wolf Energy, Inc.
Pro forma Combined Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
Historical
---------------------------
Lone Wolf Prestige
Energy Investments Pro Forma Pro Forma
Inc. Inc. Transaction Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets 1,303,397 776,540 2,079,937
Property and Equipment (net) 1,055,783 1,055,783
Long Term Assets 24,375 265,000 289,375
Goodwill (net) 454,732 454,732
Deferred Tax Asset 193,000 (63,000) 130,000
Organization Costs (net) 33,603 33,603
----------- ----------- ----------- -----------
Total Assets $ 1,327,772 $ 2,778,658 $ (63,000) $ 4,043,430
=========== =========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities 852,534 1,596,279 100,000
(168,000) 2,380,813
Long-Term Debt 285,944 285,944
----------- ----------- ----------- -----------
Total Liabilities 852,534 1,882,223 (68,000) 2,666,757
----------- ----------- ----------- -----------
Stockholders' Equity
Preferred Stock
Common Stock 15,670 10,000 5,550 32,220
1,000
Additional Paid in Capital 81,941 1,161,227 (5,550) 1,409,118
171,500
Unrealized Gain (Loss) on Available for
Sale Securities (7,969) (7,969)
Retained Earnings (Deficit) 385,596 (274,792) (272,500) (56,696)
105,000
----------- ----------- ----------- -----------
Total Stockholders' Equity 475,238 896,435 5,000 1,376,673
----------- ----------- ----------- -----------
Total Liabilities & Stockholders' Equity $ 1,327,772 $ 2,778,658 $ (63,000) $ 4,043,430
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
2
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Lone Wolf Energy, Inc.
Pro Forma Combined Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
----------------------------------------------------- ---------------------------------------
Historical Historical
-------------------------- ---------------------------
Prestige Prestige
Lone Wolf Investments, Pro Forma Pro Forma Lone Wolf Investments, Pro Forma
Energy, Inc. Inc. Adjustments Combined Energy, Inc. Inc. Combined
----------- ------------ ----------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $ 40,088 1,278,555 $ 1,318,643 $ 222,134 $ 222,134
Operating Expenses 83,850 1,445,080 272,500 1,801,430 26,132 606,847 632,979
----------- ---------- --------- ----------- ----------- ---------- ----------
Operating Loss (43,762) (166,525) (272,500) (482,787) (26,132) (384,713) (410,845)
----------- ---------- --------- ----------- ----------- ---------- ----------
Other Income (Expense)
Interest (net) (8,451) (8,451) (676) (676)
Gain (Loss) on Sale of Equipment 5,000 5,000 114,580 114,580
Gain on Disposition of
Financing Business 730,479 733,479
Other Income 11,500 11,500
----------- ---------- --------- ----------- ----------- ---------- ----------
730,479 8,049 -- 741,528 -- 113,904 113,904
----------- ---------- --------- ----------- ----------- ---------- ----------
Net Income (Loss) Before
Provision for Income Taxes 686,717 (158,476) (272,500) 258,741 (26,132) (270,809) (296,941)
Provision for income Taxes
Current (271,000) 168,000 (103,000)
Deferred 63,000 (63,000) -- -- 108,000 108,000
----------- ---------- --------- ----------- ----------- ---------- ----------
Net Income $ 418,717 $ (95,476) $(167,500) $ 155,741 $ (26,132) $ (162,809) $ (188,941)
=========== ========== ========= =========== =========== ========== ==========
Weighted Average
Shares Outstanding 13,170,000 29,720,000 11,170,000 27,720,000
=========== =========== =========== ==========
Earnings (Loss) per Share $ 0.03 $ 0.01 nil $ (0.01)
=========== =========== =========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
3
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Lone Wolf Energy, Inc.
Pro Forma Combined Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Historical
------------------------------
Lone Wolf Prestige Pro Forma Pro Forma
Energy Inc. Investments Inc. Transaction Combined
----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets $ 185,322 $ 198,153 $ 383,475
Property and Equipment (net) 935,108 935,108
Long Term Assets 588,523 280,000 868,523
Goodwill (net) 457,502 457,502
Deferred Tax Asset 130,000 130,000
Organization Costs (net) 34,988 34,988
----------- ----------- ----------- -----------
Total Assets $ 773,845 $ 2,035,751 -- $ 2,809,596
=========== =========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities $ 163,242 $ 1,043,839 $ 100,000 $ 1,307,081
Long-Term Debt 409,633 409,633
Other Liabilities 184,449 184,449
----------- ----------- ----------- -----------
Total Liabilities 757,324 1,043,839 100,000 1,901,163
----------- ----------- ----------- -----------
Stockholders' Equity
Preferred Stock
Common Stock 11,670 10,000 5,550 28,220
1,000
Additional Paid in Capital 45,941 1,161,227 (5,550) 1,373,118
171,500
Unrealized Gain (Loss) on Available for
Sale Securities (7,969) (7,969)
Retained Earnings (Deficit) (33,121) (179,315) (272,500) (484,936)
----------- ----------- ----------- -----------
Total Stockholders' Equity 16,521 991,912 (100,000) 908,433
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 773,845 $ 2,035,751 $ -- $ 2,809,596
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
4
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Lone Wolf Energy, Inc.
Pro Forma Combined Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Historical
------------------------------
Lone Wolf Prestige Pro Forma
Energy Inc. Investments Inc. Combined
------------ ---------------- ------------
<S> <C> <C> <C>
Service Revenues $ 120,893 $ 1,183,087 $ 1,303,980
Operating Expenses 97,185 2,575,287 2,672,472
------------ ------------ ------------
Operating Loss 23,708 (1,392,200) (1,368,492)
Other 898,885 898,885
------------ ------------ ------------
Net Income (Loss) before Income Taxes 23,708 (493,315) (469,607)
Provision for Income Taxes:
Current -- -- --
Deferred -- 314,000 314,000
------------ ------------ ------------
Net Income $ 23,708 $ (179,315) $ (155,607)
============ ============ ============
Weighted Average Shares Outstanding 11,420,000 n/a 27,970,000
------------
Income (Loss) Per Share nil n/a $ (0.01)
============ ============
Net Income (Loss) $ 23,708 $ (179,315) $ (155,607)
Other Comprehensive Income:
Unrealized Holding Losses (7,969) -- (7,969)
------------ ------------ ------------
Comprehensive Income $ 15,739 $ (179,315) $ (163,576)
============ ============ ============
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
5
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Lone Wolf Energy, Inc.
Pro Forma Combined Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Historical
--------------------------------
Lone Wolf Zenex Long Pro Forma
Energy Inc. Distance, Inc Combined
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue $ -- $ 1,151,497 $ 1,151,497
Operating Expenses 26,442 4,805,250 4,831,692
-------------- -------------- --------------
Operating Loss (26,442) (3,653,753) (3,680,195)
Interest expense -- (27,824) (27,824)
-------------- -------------- --------------
Net Loss Before, Discontinued Operations,
Sale of Discontinued Business and Income Taxes (26,442) (3,681,577) (3,708,019)
Provision for Income Taxes on continuing Operations:
Current -- -- --
Deferred -- 1,413,000 1,413,000
-------------- -------------- --------------
Net Loss From continuing Operations (26,442) (2,268,577) (2,295,019)
Discontinued Operation
Net Operating Loss from Discontinued Operations -- (512,590) (512,590)
Gain on Sale of Discontinued Operation (net of
Income Taxes-Deferred) -- 4,174,435 4,174,435
-------------- -------------- --------------
Income from Discontinued Operations -- 3,661,845 3,661,845
-------------- -------------- --------------
Net Income (Loss) $ (26,442) $ (19,732) $ (46,174)
============== ============== ==============
Weighted Average Shares Outstanding 4,516,154 21,066,154
============== ==============
Loss Per Share from Continuing Operations $ -- $ 0.11
============== ==============
Income per Share from Discontinued Operations $ -- $ 0.17
============== ==============
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
6
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LONE WOLF ENERGY, INC.
Notes to Pro Forma Combined
Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Pro Forma Transactions - The March 31, 2000 and the December 31,
1999 pro forma combined balance sheets of the Company have been prepared
assuming the Company consummated the acquisition of Prestige Investments,
Inc. on March 31, 2000 and December 31, 1999 along with other related
transactions as described in Note 2. The pro forma combined statements of
operations for the years ended December 31, 1999, 1998 and the three months
ended March 31, 2000 and 1999 have been prepared assuming the Company
consummated the transaction on January 1, 1998, 1999 and January 1, 2000.
2. ACQUISITION OF Prestige Investments, Inc.
These adjustments give effect to the business combination as a pooling of
interest of Prestige Investments, Inc. at the beginning of the periods presented
for the statements of operations and at the respective year ends for the balance
sheets presented.
Acquisition of Prestige Investments, Inc. - On June 21, 2000, Lone Wolf
Energy, Inc. (the "Company") completed the acquisition of Zenex Long
Distance, Inc. (d/b/a Zenex Communications, Inc.), ("Zenex") through a
merger of a wholly-owned subsidiary of the company, Prestige Acquisition,
Corp. ("Prestige Acquisition"), with and into the parent of Zenex, Prestige
Investments, Inc., an Oklahoma corporation ("Prestige Investments").
Prestige Investments was the surviving corporation in the merger. The
merger was pursuant to an agreement and Plan of Reorganization dated May 4,
2000, by and among the company, Prestige Acquisition, Prestige Investments
and the five shareholders of Prestige Investments (the "Zenex Merger
Agreement"). Pursuant to the Zenex Merger Agreement, the company issued
15,550,000 of the Company's common stock to the shareholders of Prestige
Investments in return for their surrender to the company of all of their
shares of common stock of Prestige Investments.
Following the merger, Prestige Investments became a wholly owned subsidiary
of the Company, and Zenex became and is currently operated as a wholly
owned subsidiary of Prestige Investments. The business combination was
accounted for as a pooling of interest.
7
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LONE WOLF ENERGY, INC.
Notes to Pro Forma Combined
Financial Statements
2. ACQUISITION OF PRESTIGE INVESTMENTS, INC. (continued)
The purpose of the Merger was to effect the acquisition by the Company of
Prestige Investment, Inc. and its wholly-owned subsidiary, Zenex Long
Distance, Inc., d/b/a Zenex Communications, Inc.
The preceding statements with respect to the Merger Agreement are a brief
summary thereof. While the summary is accurate, it does not purport to be
complete and reference is made to the Zenex Merger Agreement for a complete
statement of the Merger. A copy of the Zenex Merger Agreement is filed as
an Exhibit to the Current Report on Form 8-K and is incorporated herein by
this reference.
The historical results of operations of Lone Wolf Energy, Inc. Zenex Long
Distance, Inc. and Prestige Investments, Inc. for the years ended December 31,
1999 and 1998 are derived from the audited financial statements of Lone Wolf
Energy, Inc. Zenex Long Distance, Inc. and Prestige Investments, Inc. The three
months ended March 31, 2000 are derived from the reviewed financial statements
of the companies ending March 31, 2000 and from the compiled statements for the
three months ended March 31, 1999.
8
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Exhibits
The following are filed as Exhibits to this Report:
Exhibit 2.1* Agreement and Plan of Reorganization dated May 4, 2000, by
and among Lone Wolf Energy, Inc., Prestige Investments,
Inc., Zenex Long Distance, Inc., and others. The following
exhibits to the Agreement and Plan of Reorganization are
omitted and will be provided to the Securities and Exchange
Commission upon request:
Exhibit 1.9 List of All Employees of Zenex
Exhibit 3.2 List of Shareholders and Common Stock
Exhibit 3.5 Liabilities
Exhibit 3.6 List of Tax Liabilities
Exhibit 3.7 List of All Real Estate Property
Exhibit 3.8 Pending Litigation and Proceedings
Exhibit 3.9 Authority
Exhibit 3.10 Change in Financial Condition
Exhibit 3.11 Employee Benefit Plans
Exhibit 3.12 Material Adverse Events
Exhibit 3.15 Significant Agreements
Exhibit 3.16 Insurance
Exhibit 3.17 Transactions with Affiliated Persons
Exhibit 3.20 Environmental Matters
Exhibit 3.24 Tariffs
Exhibit 4.1 Bylaws as amended
Exhibit 5.1 New Zenex Employee Bonus Plan
Exhibit 3.1 Bylaws of the Company as amended June 21, 2000
Exhibit 27.1 Financial Data Schedule
*Previously filed as Exhibit 2.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on May 19, 2000 and incorporated herein
by reference.
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LONE WOLF ENERGY, INC.
Date: August 1, 2000 By: /s/ Marc W. Newman
-------------------------
Marc W. Newman, President
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