SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarter ended June 30, 2000
Commission File No. 0-24684
LONE WOLF ENERGY, INC.
(Name of small business issuer in its charter)
Colorado
(State or other jurisdiction of Incorporation or Organization)
73-1587867
(IRS Employer Identification Number )
5400 NW Grand, suite 510
0klahoma City, Oklahoma 73112
(405) 943-4615
(Address, including zip code and telephone number, including area
Code of registrant's executive offices)
K&S VENTURES, INC.
(Former Name of Registrant)
Securities registered under Section 12 (b) of the Exchange Act: none
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $0.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 10, 2000 there were
36,885,790 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: None
<PAGE>
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
a. The following financial statements include all adjustments , which in the
opinion of management are necessary to make the financial statements not
misleading.
Independent Review Report
Board of Directors and Stockholders
Lone Wolf Energy, Inc.
We have reviewed the accompanying consolidated balance sheet of Lone Wolf
Energy, Inc. as June 30, 2000, and the related consolidated statements of
income, and cash flows for the three months and six 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 Lone Wolf Energy, 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 opinion.
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 December 31, 1999 financial statements for Lone Wolf Energy, Inc. were
audited by us and we expressed an unqualified opinion in our reports dated March
28, 2000, but we have not performed any auditing procedures since that date.
Henderson Sutton & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
August 14, 2000
2
<PAGE>
LONE WOLF ENERGY, INC.
BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Unaudited)
JUNE 30, December 31,
ASSETS 2000 1999
----------- -----------
Current Assets
Cash $ 740,447 $ 108,921
Accounts receivable 934,257 135,385
Current portion of notes receivable 1,060,000 132,169
Deposits 135,500 --
Inventory 137,339 7,000
----------- -----------
3,007,543 383,475
----------- -----------
Property and Equipment 1,630,413 1,324,425
Less accumulated depreciation (494,924) (389,317)
----------- -----------
1,135,489 935,108
----------- -----------
Other
Goodwill (net) 537,209 457,502
Notes receivable-net of Current Portion 265,000 844,148
Organization costs (net) 44,912 34,988
Investments 24,375 24,375
Deferred tax asset 95,000 130,000
----------- -----------
966,496 1,491,013
----------- -----------
$ 5,109,528 $ 2,809,596
=========== ===========
See Accompanying Notes to Financial Statements
See Accountants Review Report
3
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
Current Liabilities
<S> <C> <C>
Current portion of long-term debt $ 290,000 $ 183,465
Accounts payable 1,691,123 848,156
Accrued expenses 947,466 96,150
Accrued income taxes 97,000 --
Prepayments and customer deposits 23,660 79,310
----------- -----------
3,049,249 1,207,081
----------- -----------
Other Liabilities
Long-term debt -net of current portion 549,323 409,633
Deposits -- 24,000
-- 160,449
----------- -----------
549,323 594,082
----------- -----------
Total Liabilities 3,598,572 1,801,163
----------- -----------
Stockholder's Equity
Preferred stock ($0.001 par value, 20,000,000 shares
authorized, no shares issued and outstanding) -- --
Common stock ($0.001 par value, 100,000,000 shares
authorized, 34,570,000 shares issued and outstanding at
June 30, 2000 and 27,220,000 issued and outstanding at
June, 30 1999 34,570 27,220
Paid-in capital 1,499,778 1,201,618
Unrealized Gain (Loss) on Available for Sale Securities (7,969) (7,969)
Retained earnings (deficit) (15,423) (212,436)
----------- -----------
1,510,956 1,008,433
----------- -----------
$ 5,109,528 $ 2,809,596
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
See Accountants Review Report
4
<PAGE>
Lone Wolf Energy, Inc.
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June,30 June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 2,418,940 $ 332,378 $ 3,737,583 $ 554,512
Cost of sales 1,821,873 218,552 2,935,637 398,047
Selling, general and administrative 416,133 357,361 767,144 760,845
Depreciation and amortization 60,640 50,000 124,795 100,000
----------- ----------- ----------- -----------
2,298,646 625,913 3,827,576 1,258,892
----------- ----------- ----------- -----------
120,294 (293,535) (89,993) (704,380)
----------- ----------- ----------- -----------
Interest income 30,033 30,033 --
Interest expense (18,437) (1,991) (26,889) (2,667)
Gain (Loss) on sale of equipment -- -- 160,278 --
Gain on sale of financing contract -- -- 578,201 --
Merger related costs (283,988) -- (283,988) --
Research and development (50,768) -- (50,768) --
Other income 639 -- 12,139 114,580
----------- ----------- ----------- -----------
(322,521) (1,991) 419,006 111,913
Net Income (Loss) before income taxes $ (202,227) $ (295,526) $ 329,013 $ (592,467)
Current (2,000)
Deferred tax benefit (expense) 81,000 137,000 (130,000) 245,000
----------- ----------- ----------- -----------
$ (121,227) $ (158,526) $ 197,013 $ (347,467)
=========== =========== =========== ===========
Primary Earnings(Loss) per Share $ (0.003) $ (0.006) $ 0.006 $ (0.013)
=========== =========== =========== ===========
Fully Diluted Earnings (Loss) per Share $ (0.003) $ (0.006) $ 0.006 $ (0.013)
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
See Accountants Review Report
5
<PAGE>
Lone Wolf Energy, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, June 30,
Cash Flows From Operating Activities 2000 1999
--------- ---------
<S> <C> <C>
Net Income (Loss) $ 197,013 $(347,467)
Reconciliation of net income to net cash provided by
operating activities
Depreciation and amortization
125,062 100,000
Gain (loss) on sale of property and equipment
(5,000) --
(Increase) decrease from changes in:
Deferred Taxes -- (245,000)
Accounts receivable (798,872) 127,531
Deposits (135,500) --
Inventory (130,339) --
Increase (Decrease) from changes in:
Accounts payable 842,966 (37,076)
Accrued liabilities 851,316 (132,797)
Taxes payable 132,000 --
Deferred revenue (160,449) 173,283
Prepayments and customer deposits (79,650) (48,043)
--------- ---------
838,547 (409,569)
--------- ---------
Cash Flows from Investing Activities
Goodwill in businesses acquired
(94,075) --
Cash received for property and equipment sold
5,000 75,529
Increase in investments -- (32,344)
Purchase of property and equipment
(305,988) (43,444)
--------- ---------
(395,063) (259)
--------- ---------
Cash Flows from Financing Activities
Issuance of common stock for services
7,350 10,000
Purchase of Zenex stock
-- (6,353)
Increases (decreases) in paid in capital
298,150 822,819
Change in notes receivable
(363,683) (662,377)
Change in notes payable
246,225 194,643
--------- ---------
188,042 358,732
--------- ---------
Net Increase (Decrease) in Cash (51,096)
631,526
Cash at Beginning of Period 108,921 87,757
--------- ---------
Cash at End of Period $ 740,447 $ 36,661
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
See Accountants Review Report
6
<PAGE>
LONE WOLF ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Businesses
Lone Wolf Energy, Inc. (formerly K&S Ventures was incorporated on March 4, 1991
in the state of Colorado. In February 1999 the Company signed a Master Sales
Agreement with Eagle Capital, Inc. (OTCBB:ECIC) to sell specialized equipment
used in producing patented IMSI blocks for mortarless dry stack construction.
The agreement called for the Company to provide fifteen pieces of equipment over
the next three years. In February 2000 the Company terminated the Master Sales
Agreement and sold the equipment it was financing under that agreement. Under
the terms of the termination and sale of the equipment being financed the
Company is to receive $1,625,000 of which $550,000 had been received as of June
30, 2000. The Company will no longer be in the equipment leasing business.
In March 2000 the Company purchased the assets of EP Distributing Company
("EPD") for $100,000 in cash and 1,000,000 shares of common stock valued at
$40,000. EPD is currently operated as a division of the Company. The division
sells nutritional products (with its primary line being Earth', Pharmacy
products) and also brokers medical supplies. The acquisition was accounted for
as a purchase.
On May 11, 2000, the Company acquired ChurchLink.com, Inc., ("Churchlink").
ChurchLink. is operating as a subsidiary of the Company. It is an online
communications hub for churches and their members. ChurchLink is currently in
the beta test stage with selected churches and is updating its software. After
completion of the beta tests a national rollout is planned for October 2000. The
purchase price was 100,000 shares of the Company's Common Stock. Up to an
additional 400,000 shares of the Company's Common Stock will be issued as
Churches subscribe to the service offered as follows:
20,000 shares for each block of 100 churches up to 1,000 churches - 200,000
shares
20,000 shares for each block of 300 churches from 1,000 to 2500 churches -
100,000 shares
20,000 shares for each block of 500 churches from 2,500 to 5,000 churches -
100,000 shares
The fair market value of the shares issued was $28,000. The acquisition was
accounted for as a purchase.
On June 21, 2000 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 is currently operated as a wholly owned subsidiary of
Prestige Investments. The business combination was accounted for as a pooling of
interest and therefore the accompanying financial statements include the
operations of Prestige and its wholly owned subsidiary Zenex from the date of
Prestige incorporation.
Prestige Investments, Inc. 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
of Prestige and Zenex was accounted for as a purchase.
The Company's June 30, 2000 consolidated balance sheet includes the wholly owned
subsidiary, Prestige and Prestige's wholly owned subsidiary, Zenex, EPD and
Churchlink. The December 31, 1999 consolidated balance sheet includes the wholly
owned subsidiary, Prestige and its wholly owned subsidiary Zenex Long Distance,
Inc. The
7
<PAGE>
Company's consolidated statement of operations for the three months and six
months ended June 30, 2000 includes the pooled entity of Prestige and its wholly
owned subsidiary Zenex for the complete periods. The purchased entities of EPD
and Churchlink are included from their respective dates of purchase. All
significant inter-company accounts have been eliminated in the consolidated
financial statements.
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 and nutritional products are
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.
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 revenues by providing access to and usage of long distance
networks and the sale of nutritional products. 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.
8
<PAGE>
Concentrations
In connection with providing long distance service to customers, Zenex 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 95% 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 Zenex has a significant number of customers, one customer accounts for
approximately eighty percent (80%) of the Zenex's revenue. The loss of this
customer would have a materially adverse impact on the company's revenues and
operations.
Regulation
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.
Zenex Long Distance, Inc. 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. Following is a summary of operations
of the Company by segment for the six months ended June 30, 2000:
Lone
Wolf Zenex EPD Churchlink
-----------------------------------------------------
Revenue $ 25,173 $3,663,577 $ 48,833 $ --
Operating expenses 158,231 3,595,813 73,532
-----------------------------------------------------
Operating income (133,058) 67,764 (24,699) 0
Other income (expense) 538,361 67,678 (909) (50,768)
-----------------------------------------------------
Income before taxes $ 405,303 $ 86 $ (25,608) $ (50,768)
=====================================================
9
<PAGE>
Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
Note 2 - Notes Receivable
At June 30, 2000, the Company had notes receivable as follows:
<TABLE>
<S> <C>
Due from an unrelated corporation, payable in minimum monthly installments
of $5,000, including interest at 4.42%, with remaining unpaid principal
and interest due on December 10, 2002 $ 325,000
Due from an unrelated corporation on July 30, 2000 with interest
payable monthly at 12% per annum 1,000,000.00
-------------
Total 1,325,000.00
Less current portion 1,060,000.00
-------------
Notes receivable-net of current portion $ 265,000
=============
</TABLE>
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 six month period was $104,256.
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 $1,390,357 5-10
Dedicated line equipment 8,291 5
Office software and equipment 177,304 3-7
Autos 32,525 5
Leasehold improvements 21,936 5
----------
Total 1,630,413
Less accumulated depreciation 494,924
----------
Net Property and Equipment $1,135,489
==========
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 June30, 2000 totaled
$122,370, and amortization expense of $9,062 was charged to operations in the
six-month period ended June 30, 2000.
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 June 30, 2000,
10
<PAGE>
totaled $78,129 and amortization expense of $6,974 was charged to operations in
the six-month period ended June 30, 2000.
Note 5 - Long-Term Debt
The company has notes payable at June 30,2000 as follows:
<TABLE>
<S> <C> <C>
First National Bank of Midwest City, 9.5% note secured by all Zenex
equipment and Zenex common stock, due in monthly installments of $5,227,
including interest through
January 2005 $236,294
First National Bank of Midwest City, 9.75% note secured by all Zenex
equipment and Zenex common stock, due in monthly installments of $2,124,
including interest through
March 2005 96,142
Tim Apgood, a director of the Company, for the balance of
the purchase price of EP Distributing assets, non-interest
bearing, due September 30, 2000 50,000
Federal Bank Centre, Tulsa, Oklahoma, 9.75% note secured by auto, due in
monthly installments of $688
including interest, due May 30, 2000 31,887
Federal Bank Centre, Tulsa, Oklahoma, $300,000 line line of credit note
with interest payable monthly at 1.5% over Wall Street Journal prime
(currently 11.5%), secured by all assets of Wolf Energy, Inc. and the
personal
guarantee of certain directors 175,000
An unrelated corporation, 10% note, secured by the note receivable from
Eagle Capital, Inc., interest only payable quarterly, due July 2001,
convertible at any time until paid into common stock of the Company at the
lesser of the closing price the day before conversion or $0.40 per
share 250,000
------------
Total 839,323
Less Current Portion 290,000
------------
Long-Term Debt $549,323
============
</TABLE>
In July 2000 the $250,000 note payable to the unrelated corporation was
converted to common stock of the Company. One million three hundred fifteen
thousand seven hundred (1,315,790) shares were issued at a value of $0.19 per
share.
Note 6 - Income Taxes
At June 30, 2000, the Company had net operating loss carryforwards of
approximately $1,5660,000 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.
11
<PAGE>
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 at June 30, 2000:
Deferred tax liability on depreciation $(103,000)
Deferred tax assets for loss carryforwards 624,000
---------
Deferred tax asset 521,000
Less valuation allowance (426,000)
---------
Net deferred tax asset $ 95,000
=========
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, Zenex entered into a thirty-six (36) month
long-distance carrier service agreement. Under the terms of the agreement, the
Zenex 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 Zenex entered into a carrier service agreement
extending for a period of twelve (12) months. Under the terms of the agreement,
the Zenex has usage-based rates predicated on $100,000 of monthly service.
Effective September 9, 1999, the Zenex entered into a carrier service agreement
extending for a period of twelve (12) months. Under the terms of the agreement,
the Zenex agreed to minimum monthly usage of 100,000 minutes per circuit. The
contract may be canceled if the Zenex 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 Zenex 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 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.
12
<PAGE>
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 six months period ended June 30, 2000, totaled $9,483.
As of June 30, 2000, the future minimum lease commitments under the leases were
as follows:
Year Amount
---- ------
2000 $18,996
2001 19,500
2002 10,050
-------
$48,516
=======
Acquisition of Zenex Long Distance, Inc.
Prestige Investments, Inc., a wholly owned subsidiary, acquired 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 Agreement 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 June 30, 2000 are approximately $ 4,600,000.
Management expects the $ 10,000,000 gross sales revenue to be achieved
in the year 2001
Note 9 - Restated Financial Statements - Business Combination of Prestige
Investments, Inc.
On June 21, 2000 the Company acquired Prestige Investments, Inc. and its wholly
owned subsidiary, Zenex Long Distance, Inc. in a business combination which was
accounted for as a pooling of interest. Condensed consolidated financial
information included in the restated December 31, 1999 consolidated balance
sheet and the three months ending March 31, 2000, which is included in the six
months ending June 30, 2000 statement of operations is as follows:
December 31, 1999 Balance Sheet
Current assets $ 198,153
Property and equipment (net) 935,108
Other assets 902,490
----------
Total assets $2,035,751
==========
Current liabilities $1,043,839
Stockholders' equity 991,912
----------
Total liabilities and stockholders' equity $2,035,751
==========
13
<PAGE>
Lone
Prestige Wolf
----------- -----------
March 31, 2000 Statements of Operations
Revenue $ 1,295,054 $ 1,195,366
Cost of sales 1,092,966 442,596
----------- -----------
Gross profit 202,088 752,770
Operating expenses 360,565 63,053
----------- -----------
Net income (loss) before taxes (158,477) 689,717
Provision for income taxes -- 271,000
----------- -----------
Net income (loss) $ (158,477) $ 418,717
=========== ===========
The December 31, 1999 balance sheet has been restated to reflect the inclusion
of Prestige Investments, Inc. under the pooling of interest basis of accounting.
Additionally the three month period ended March 31, 2000 of Prestige is included
in the six month period ended June 30, 2000 as reflected above.
Note 10 - Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- ------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Common shares outstanding 34,570,000 27,220,000 34,570,000 27,220,000
========================== =========================
Weighted average shares outstanding 32,220,000 27,220,000 30,033,000 27,220,000
========================== =========================
Earnings per share $ (0.003) $ (0.006) $ 0.006 $ (0.013)
========================== =========================
Fully Dilluted Earnings Per Share:
Common shares outstanding 34,570,000 27,220,000 34,570,000 27,220,000
========================== =========================
Weighted average shares outstanding 33,039,000 27,820,000 30,839,000 27,420,000
========================== =========================
Earnings per share $ (0.003) $ (0.006) $ 0.006 $ (0.013)
========================== =========================
</TABLE>
Note 11 -Stock Options
In April 1999 an five year option was granted to Federal Bank center to
purchase 500,000 shares of the Companys' common stock.
At the same time 600,000 shares of stock were offered to an outside
shareholder in return for guaranteeing the Companys' bank note. Those share were
issued in July 2000 and are included in the Companys' fully diluted shares
outstanding.
14
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
accompanying financial statements.
Equipment Sales; Discontinuation of Equipment Sales. During 1999 and
through February 2000, the Company's only business activity was pursuant to a
Master Equipment Sales Agreement between the Company, as seller, and Eagle
Capital, Inc. (OTCBB:ECIC). The Master Equipment Sales Agreement, signed in
February 1999, obligated the Company to sell ten mobile block plants and five
portable Q-Bond plants (used in producing patented IMSI blocks for mortarless
dry stack construction) over the following three years. In April 1999 Eagle
ordered the first plant and made payments on the first plant through March 2000.
Payments during 1999 in connection with the first plant were $120,893.
In February 2000, the Company and Eagle Capital agreed to terminate the
Master Equipment Sales Agreement. Pursuant to the agreement to terminate, Eagle
Capital executed and delivered a promissory note for termination charges in the
amount of $1 million. The principal of the note is payable on July 30, 2000.
Operating revenues in the Lone Wolf segment of the Company through June 30,
2000 were $25,173 with costs directly related to this operation of $12,089. The
company also had gross profits from the termination of the Master Sales
Agreement of in the first quarter of $733,479. All of this revenue reported for
the six months ended June 30, from the Lone Wolf segment of the business is from
the first quarter of 2000. In addition, the Company has terminated this line of
business and will not receive revenue or income from this line of business in
the future The Company had interest revenue of $30,000 in this segment of the
business in the June 30, 2000 quarter from the sale of the Master Agreement. The
other major item in the quarter was for merger related costs which were $222,500
in connection with the merger of Zenex and the acquisition of ChurchLink.com.
Acquisitions; New Lines of Business. Since March 2000, the Company has
entered into agreements for various acquisitions for new lines of business. Each
acquisition is operated as a separate subsidiary or business unit, as follows:
EP Distributing Co. In March 2000 the Company purchased the assets of EP
Distributing Company for. The assets are currently operated as a division of the
Company.
The division sells nutritional products (with its primary line being
Earths' Pharmacy products) brokers sales of medical supplies. Revenues and cost
of sales for the division are separately shown in the accompanying financial
statements. The division had minimal revenues and costs during the current
period. The Company has identified products which it believes will significantly
increase revenues and has placed orders for over $100,000 in product which
should be arriving in late August.
The ability of the division to become profitable will depend on marketing
its nutritional products and medical supplies to a broad base of customers. The
Company believes it has sufficient internal funds to finance the operations of
the division for the next twelve months. The Company does not currently plan any
material research and development expenses or any material purchases of plant
and equipment for the division in the next twelve months. Currently, there is
one employee assigned to the division. Additional employees will be added as
needed.
Zenex Communications, Inc. On June 21, 2000, the Company completed its'
acquisition of Zenex Communications, Inc. The Company will issued 15,550,000
shares of its Common Stock as the purchase price for this acquisition. The
acquisition has been treated as a pooling of interest and as such its' results
of operations are consolidated with the Companys' as if it had always been a
part of Lone Wolf.
Revenues for the three months ended June 30, 2000 were $2,385,000 and
$3,681,000 for the six months ended June 30, 2000 as compared to $263,000 and
$486,000 for the same three and six month periods in 1999. General and
administrative expenses were decreased from $395,000 and $772,000 in the three
and six months ended June 30, 1999 to $300,000 and $573,000 in the same periods
ended June 30, 2000. The quarter ended June 30, 2000 also included in other
expense a cost of $68,000 for merger related costs. The increases in revenues
resulted from increase in capacity at the Companys' switch resulting from
approximately $300,000 spent on capital improvements and new management put in
place in September 1999 who put an aggressive marketing plan in place. The
reduction in general and administrative costs is from cost cutting measures put
in place by the new management. Costs have been paired as much as is practical
and further cuts are not expected. All this resulted in net income for the six
months ended June 30, 2000 being essentially a breakeven as compared to a loss
of ($368,000) for the same period in 1999.
15
<PAGE>
Zenex currently has a working capital deficit of approximately $400,000 but
the Company believes it can manage the deficit through management of its'
receivables and payables and currently carries a cash balance to meet one months
operation. The Company does not currently plan any material research and
development expenses or any material purchases of plant and equipment in the
next twelve months. Zenex has 11 full-time employees. Additional employees will
be added if needed.
Churchlink.com, Inc. On May 11, 2000, the Company acquired Churchlink.com,
Inc .Churchlink is operating as a subsidiary of the Company. Churchlink is an
online communications hub for churches and their members. Churchlink is
currently conducting beta tests with selected churches and updating its software
and plans a national rollout of its product before the end of October 2000. The
Company projects that Churchlink will need approximately $500,000 to $1,000,000
to test and launch its product. The Company is currently negotiating financing
for such costs with external sources. Included in this estimate is a minimal
amount of costs for additional research and development and additional equipment
Through June 30, 2000 the Company has spent $50,768 on this project which are
included as research and development in the financial statements. Churchlink has
three full-time employees. It is anticipated an undetermined number of full time
employees will be added in the near future
Other. The Company's immediate plan of operation is to focus on the
operations of the foregoing acquisitions and assimilate them into the Company's
operations. Except as discussed above, the Company has no current plans for
capital expenditures or research and development. The Company currently has two
full-time employees (other than those noted above) and has no plans to add
additional employees except as noted above.
Forward Looking Statements. The discussion in this Item 2 contains a number
of forward-looking statements, all of which are based on current expectations.
These statements are not intended to be forecasts of future financial or other
performance. Actual results and operations may differ materially from those in
the forward-looking statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Change in Securities
The following securities were issued in the three month period ended June
30, 2000.
16
<PAGE>
<TABLE>
<CAPTION>
Number
Date of
Security Issued Issued Issued To Shares Purpose
------------------ ----------- ------------------------------ ---------- ------------------------------------
<S> <C> <C> <C> <C>
Common stock 4/1/00 Tim Apgood 1,000,000 Purchase of EP Distributing assets
Common stock 5/11/00 SRS Inc. 100,000 Purchase of ChurchLink.com
Common stock 6/21/00 Shareholders of Prestige, Inc. 15,550,000 Purchase of Prestige, Inc.
Common stock 6/30/00 Ensynq, Inc. 1,000,000 Commission on Prestige, Inc.
Common stock 6/30/00 Ensynq, Inc. 1,250,000 Consulting on business plan
----------
18,900,000
==========
</TABLE>
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
None
Reports on Form 8-K
The Company filed an 8-K on May 19, 2000 announcing the binding definitive
agreement to acquire Zenex Communications, Inc. through the acquisition of its'
parent, Prestige Investments, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LONE WOLF ENERGY, INC.
/s/ Douglas A. Newman
---------------------
By: Douglas A. Newman, Sec,y
Date: August 14, 2000
