1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________
Commission file number 0-26479
WOLFPACK CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 56-2086188
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Europa Drive
Suite 455
Chapel Hill, NC 27514
- ----------------------- -----
(Address of principal executive offices) (Zip Code)
(919) 933-2720
--------------
(Issuer's telephone number)
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No | |
As of August 17, 2001 there were 19,986,113 shares of the registrant's
common stock, par value $0.001 issued and outstanding.
Transitional Small Business Disclosure Formats (check one), Yes No X
--- ---
The accompanying notes are an integral part of these consolidated financial
statement.
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WOLFPACK CORPORATION
JUNE 30, 2001 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page Number
-----------
Special Note Regarding Forward Looking Information ..........3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ........................................4
Item 2. Management's Discussion and Analysis........................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................15
Item 2. Changes in Securities and Use of Proceeds...................15
Item 3. Defaults Upon Senior Securities.............................15
Item 4. Submission of Matters to a Vote of Security Holders.........15
Item 5. Other Information...........................................15
Item 6. Exhibits and Reports on Form 8-K............................16
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report
on Form 10-QSB for the quarter ended June 30, 2001 discusses financial
projections, information or expectations about our products or markets, or
otherwise makes statements about future events, such statements are
forward-looking. We are making these forward-looking statements in reliance on
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These risks and uncertainties
are described, among other places in this Quarterly Report, in "Management's
Discussion and Analysis".
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
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4
WOLFPACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2001 2000
----------- -----------
Current assets
Cash and cash equivalents $ 286,332 $ 94,537
Inventory 9,928 18,431
Advances to employees 21,278 --
Prepaid expenses 2,097 8,050
Other current assets 6,974 5,121
----------- -----------
Total current assets 326,609 126,139
Property, equipment and software, net 869,783 885,874
Other assets
Acquired customer base, net of accumulated amortization of
$347,488 (unaudited) and $136,902 at June 30, 2001
and December 31, 2000, respectively 61,773 267,359
Goodwill, net of accumulated amortization of $46,010 (unaudited)
and $30,673 at June 30, 2001 and December 31, 2000, respectively -- 15,337
Other assets 33,589 32,923
----------- -----------
Total other assets 95,362 315,619
----------- -----------
Total assets $ 1,291,754 $ 1,327,632
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable $ 562,219 $ 428,205
Note payable to shareholder, net of debt discount of $44,652 455,348 --
Pending stock subscriptions 267,525 --
Payroll tax obligation 271,275 189,984
Current portion of capital lease obligations 151,968 152,037
Advances from related parties 71,000 96,000
Deferred revenue 81,546 66,029
Accrued interest 17,500 --
----------- -----------
Total current liabilities 1,878,381 932,255
Capital lease obligations, less current portion 63,683 133,424
Commitments and Contingencies
Stockholders' (deficit) equity
Preferred stock - authorized 5,000,000 shares, $.001 par value,
no shares issued or outstanding -- --
Common stock - authorized 20,000,000 shares, $.001 par value,
19,986,113 (unaudited) and 19,147,570 shares issued and outstanding
at June 30, 2001 and December 31, 2000, respectively 19,986 19,148
Additional paid-in capital 2,009,734 1,663,329
Accumulated deficit (2,680,030) (1,420,524)
----------- -----------
Total stockholders' (deficit) equity (650,310) 261,953
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 1,291,754 $ 1,327,632
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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5
WOLFPACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Three
months ended months ended
June 30, June 30,
2001 2000
------------ ------------
Revenue $ 589,723 $ 415,487
Cost of revenues 379,584 136,066
------------ ------------
Gross profit 210,139 279,421
General and administrative expense 735,790 387,480
------------ ------------
Operating loss (525,651) (108,059)
Other income (expense)
Agreement termination costs (146,617) --
Interest expense (23,873) 56
Amortization of debt discount (12,534) --
Other, net (11,386) (52)
------------ ------------
(194,410) 4
------------ ------------
Net loss from continuing operations (720,061) (108,055)
Income from discontinued operations (net of income taxes of $0) -- 983
------------ ------------
Net loss $ (720,061) $ (107,072)
============ ============
Net loss per share from continuing operations - basic and diluted $ (.04) $ (.01)
Net income per share from discontinued operations - basic and diluted -- --
------------ ------------
Net loss per share - basic and diluted $ (.04) $ (.01)
============ ============
Weighted-average number of shares outstanding - basic and diluted 19,769,475 10,966,950
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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6
WOLFPACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Six
months ended months ended
June 30, June 30,
2001 2000
------------ ------------
Revenue $ 1,045,324 $ 471,306
Cost of revenues 697,314 228,733
------------ ------------
Gross profit 348,010 242,573
General and administrative expense 1,399,867 504,087
------------ ------------
Operating loss (1,051,857) (261,514)
Other income (expense)
Agreement termination costs (146,617) --
Interest expense (30,162) 56
Amortization of debt discount (12,534) --
Other, net (18,336) (52)
------------ ------------
(207,649) 4
------------ ------------
Net loss from continuing operations (1,259,506) (261,510)
Income from discontinued operations (net of income taxes of $0) -- 983
------------ ------------
Net loss $ (1,259,506) $ (260,527)
============ ============
Net loss per share from continuing operations - basic and diluted $ (.06) $ (.02)
Net income per share from discontinued operations - basic and diluted -- --
------------ ------------
Net loss per share - basic and diluted $ (.06) $ (.02)
============ ============
Weighted-average number of shares outstanding - basic and diluted 19,495,446 10,604,060
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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7
WOLFPACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Six
months ended months ended
June 30, 2001 June 30, 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,259,506) $ (260,527)
Income from discontinued operations -- (983)
Adjustments to reconcile net loss to cash used in continuing
operations
Depreciation and amortization 405,656 103,208
Common stock issued for agreement termination 146,617 --
Amortization of debt discount 12,534 --
Change in operating assets and liabilities
Accounts receivable -- 72,382
Inventory 8,503 (66,007)
Advances to employees (21,278) --
Prepaid expenses 5,953 (13,575)
Other current assets (1,853) --
Other assets (666) (77,057)
Accounts payable 134,014 (40,402)
Accrued interest 17,500 --
Payroll tax obligation 81,291 63,748
Deferred revenue 15,517 --
----------- -----------
TOTAL CASH USED IN CONTINUING OPERATIONS (455,718) (219,213)
TOTAL CASH PROVIDED BY DISCONTINUED OPERATIONS -- 983
----------- -----------
TOTAL CASH USED IN OPERATING ACTIVITIES (455,718) (218,230)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and software (85,202) (125,235)
Purchase of customer bases (5,000) (477,421)
----------- -----------
TOTAL CASH FLOWS USED IN INVESTING ACTIVITIES (90,202) (602,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 65,000 700,000
Proceeds from note payable to shareholder 500,000 --
Principal payments on capital leases (69,810) --
Cash received on pending stock subscriptions 267,525 --
Wolfpack purchases of Jetco stock prior to reverse acquisition -- 400,000
Repayments of advances from related parties (25,000) --
----------- -----------
TOTAL CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 737,715 1,100,000
----------- -----------
NET INCREASE IN CASH 191,795 279,114
CASH BEGINNING OF PERIOD 94,537 13,518
----------- -----------
CASH END OF PERIOD $ 286,332 $ 292,632
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired through issuance of common stock $ 78,440 $ --
=========== ===========
Common stock issued in connection with termination of agreement $ 146,617 $ --
=========== ===========
Issuance of warrants recorded as debt discount $ 57,186 $ --
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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WOLFPACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions per Item 310(b) of Regulation SB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
It is suggested that these statements be read in conjunction with the Company's
audited financial statements and notes thereto included in the Company's Form
10KSB for the year ended December 31, 2000.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included for
the six month period ended June 30, 2001. The results for the six month period
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001.
NOTE B - ORGANIZATION
Wolfpack Corporation ("Wolfpack" or the "Company") was formed under the laws of
Delaware on March 16, 1998. Wolfpack was formed as a holding company for the
acquisition of Wolfpack Subsidiary, Corp. ("Subsidiary Corp."), which had two
subsidiaries, Dina Porter, Inc. (Dina Porter) and AAM Investment Council, Inc.
(AAM). Dina Porter is a retail store which specializes in contemporary clothing,
jewelry and fine crafts. AAM is an investment adviser that offers portfolio
management designed to achieve unique investment objectives. On January 4, 1999,
the Company issued 1,000,000 shares of common stock each to Susan Coker and
Peter Coker (the "Cokers") in consideration for all of the issued and
outstanding shares of common stock of Subsidiary Corp. and its subsidiaries.
Effective March 31, 2000, Wolfpack acquired all of the issued and outstanding
capital stock of JetCo Communications Corporation("JetCo"), a Texas corporation,
including its subsidiaries, which do business under the names E-Z Fon Services,
Inc. ("E-Z Fon"), formerly FaithNet Telecommunications, Inc., and E-Z Wireless,
Inc. ("E-Z Wireless"). Wolfpack issued 10,241,170 shares of its common stock to
the shareholders of JetCo resulting in the JetCo shareholders owning
approximately 57% of the issued and outstanding Wolfpack shares. For accounting
purposes, the acquisition has been treated as a recapitalization of JetCo with
JetCo as the acquirer (a reverse acquisition).
Through its' subsidiaries, E-Z Fon provides prepaid local and cellular phone
service to approximately 6,000 customers. E-Z Fon is currently licensed to
provide phone service in Texas and is currently applying for a similar licenses
in 23 additional states. JetCo has developed proprietary Integrated
Communications Provider software, which along with anticipated new service
agreements will enable it to provide local phone service, long distance,
wireless, paging, internet and satellite television services to both prepaid
and conventional invoiced residential customers. JetCo is currently making
enhancements to its software which will allow customers to choose services via
the internet.
Effective September 30, 2000, the Company sold Dina Porter and AAM back to the
Cokers in exchange for 5,000 shares of the Company stock that was retired
immediately. The discontinued operations of Dina Porter and AAM have been
included in the statements of operations from March 31, 2000 (the date of the
reverse acquisition) through June 30, 2000.
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WOLFPACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" which requires
the purchase method of accounting for business combination transactions
initiated after June 30, 2001.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets".
The Statement requires that goodwill recorded on acquisitions completed prior to
July 1, 2001 be amortized through December 31, 2001. Goodwill amortization is
precluded on acquisitions completed after June 30, 2001. Effective January 1,
2002, goodwill will no longer be amortized but will be tested for impairment as
set forth in the statement.
NOTE D - GOING CONCERN UNCERTAINTY
The consolidated financial statements have been prepared on the assumption that
the Company will continue as a going concern. The Company incurred a net loss of
$1,259,506 for the six months ended June 30, 2001 and at June 30, 2001 current
liabilities exceeded current assets by $1,551,772.
The Company has taken steps in 2001 to improve profitability and cash flow, and
is currently attempting to raise additional capital, which it will need in
order to continue to fund operations until revenues can cover substantially all
operating costs. Management believes that these actions will provide sufficient
liquidity to enable the Company to meet its obligations and continue in
business. However, there is no assurance such actions, including raising
additional capital, will be successful. The consolidated financial statements do
not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or classification of liabilities
which may result from the inability of the Company to continue as a going
concern.
NOTE E - PAYROLL TAX OBLIGATION
The Company has not remitted a portion of its Federal and State employer and
employee payroll taxes for the year ended December 31, 2000 and the six months
ended June 30, 2001. The Company has estimated this obligation to be the actual
amounts of the tax withheld from employees and the employer portion of the
Social Security Federal Tax obligation in addition to a 25% estimated penalty
and interest accrual. The total obligation associated with these delinquent
amounts at June 30, 2001 is $271,275 and has been reflected in the accompanying
consolidated financial statements as Payroll Tax Obligation.
NOTE F - AGREEMENT TERMINATION COSTS
During the quarter ended June 30, 2001, the Company issued 366,543 shares of its
common stock to an entity as consideration for the termination of an acquisition
agreement and related standstill agreement. The Company has valued this
consideration at the estimated fair value of the stock issued and has recorded
an expense of $146,617 during the three months ended June 30, 2001.
NOTE G - PENDING STOCK SUBSCRIPTIONS
During the quarter ended June 30, 2001, the Company received $267,525 in cash
for 1,070,100 shares of its common stock. As of June 30 2001, the Company has
not completed the issuance of these shares and has recorded a current liability
for the cash proceeds received as pending stock subscriptions of $267,525 at
June 30, 2001.
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WOLFPACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE H - NOTE PAYABLE TO SHAREHOLDER
At June 30, 2001, the Company has an uncollateralized note payable to a
shareholder in the amount of $500,000. The note bears interest at 14% per annum
and all principal and accrued interest are due April 6, 2002. As additional
consideration, this note includes warrants to purchase 200,000 shares of the
Company's stock with an exercise price of $0.25 per share. The warrants vest
immediately and expire on April 1, 2002. The fair value of the warrants of
$57,186 has been recorded as a discount to the original note and is being
amortized over the term of the note. The fair value was estimated using the
Black-Scholes Model with the following assumptions: dividend yield of 0%;
expected volatility of 126%; risk free interest rate of 6%; and an expected life
of 1 year.
NOTE I - DISCONTINUED OPERATIONS
Effective September 30, 2000, the Company sold Dina Porter and AAM to a Wolfpack
shareholder in exchange for 5,000 shares of the Company's common stock. The
transaction was valued at $7,503. Net assets and liabilities disposed of are as
follows:
Dina Porter AAM
----------- ---
Cash $ 19,880 $1,978
Inventory 133,473 --
Property and equipment, net 49,384 --
Other assets 5,500 --
-------- ------
Total assets 208,237 1,978
Advance from shareholder 54,000 --
Accounts payable 3,860 --
-------- ------
Total liabilities 57,860 --
-------- ------
Net assets disposed of $150,377 $1,978
======== ======
The operating results of Dina Porter and AAM for the three month period ended
June 30, 2001 was as follows:
Dina Porter AAM
----------- ---
Revenues $173,581 $ --
Cost of goods sold (97,667) --
Administrative expenses (75,724) --
Other income 786 7
-------- ------
Net income $ 976 $ 7
======== ======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
Quarterly Report. Certain statements in this Quarterly Report which are not
statements of historical fact are forward-looking statements. See "Special Note
Regarding Forward-Looking Information" on Page 3.
The Company was formed on March 16, 1998, under the laws of the State
of Delaware to engage in any lawful act or activity for which corporations may
be organized under the Delaware General Corporation Law. The Company's principal
assets consist of the assets of the Company's subsidiary, JetCo Communications
Corporation and its subsidiaries, which do business under the names E-Z FON
Services, Inc. and E-Z Wireless, Inc.
We completed the acquisition of JetCo Communications Corporation, a
Texas corporation ("JetCo"), effective March 31, 2000. Pursuant to the
acquisition of JetCo, the Company acquired all of the issued and outstanding
capital stock of JetCo, including its subsidiaries, which do business under the
names E-Z FON Services, Inc. ("E-Z FON") and E-Z Wireless, Inc. ("E-Z
Wireless"). For the purchase of JetCo's capital stock, JetCo shareholders
received 10,241,170 shares of newly issued common stock of the Company. As a
result, the former JetCo shareholders own approximately 57% of the capital stock
of the Company. William W. Evans, the President of JetCo, received 8,691,170
shares of the Company's common stock, approximately 48% of the capital stock of
the Company, giving Mr. Evans effective control over matters submitted to the
shareholders. Mr. Evans is also a Director and the President of the Company.
As there was a change in control for accounting purposes the
transaction has been treated as a recapitalization of JetCo, with JetCo as the
acquiror (a reverse acquisition).
E-Z FON provides prepaid local telephone service to approximately 6,000
customers. E-Z Wireless is a prepaid cellular phone service provider operating
in Texas. During 2000, E-Z FON acquired 3,000 new customers and distribution
channels with outlets in each major city in Texas. E-Z FON is currently licensed
to provide phone service in Texas.
JetCo is developing propriatary Integrated Communications Provides
Software (the "Software"), which JetCo anticipates will be completed during the
third quarter of Fiscal Year 2001. The Software will enable E-Z FON to provide
local phone service, voice mail, long distance, and dial up internet service to
both prepaid and conventionally invoiced residential customers.
For the next 12 months, we plan to focus our efforts on expanding the
operations of E-Z FON. E-Z FON will continue to focus on the pre-paid local
service market through advertising, the acquisition of additional "Agent"
locations, the acquisition of customer bases from other CLECs and the
acquisition of other CLECs. E-Z FON is also anticipating the satisfaction of its
regulatory requirements to provide local service in 23 additional states. E-Z
FON is also working to satisfy other state regulatory requirements in order to
provide long distance service nationwide.
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E-Z FON is anticipating an enhanced service offering to our existing customer
base before the end of the fourth quarter of Fiscal Year 2001. The enhanced
services we will be offering include discount rate long distance, voice mail
and dial up internet services. By offering these enhanced services to our
existing customer base, E-Z FON is anticipating a higher level of customer
retention. Through sales and marketing efforts, in conjunction with acquisition
of customer bases from other Competitive Local Exchange Companies ("CLECs"),
E-Z FON is anticipating growth in its customer base.
E-Z FON is also anticipating the roll-out of its "Good Credit Customer"
service offering. E-Z FON will be marketing to the "good credit" customer in an
effort to expand its current customer base. The customer will complete a credit
application and upon completion our customer service department will conduct a
credit check. Qualification will be based on specific credit criteria to
determine if the customer qualifies for service on a post paid basis. Each "Good
Credit" customer will have an established credit limit.
We anticipate that our results of operations may fluctuate for the
foreseeable future due to several factors, including:
. the financing of E-Z FON's desired growth in customer base and distribution;
. the continued market acceptance of current products;
. the competitive pressures on pricing; and
. the changes in the mix of products sold.
Operating results would also be adversely affected by a downturn in the
market in general. Because we continue to increase our operating expenses
forpersonnel and other general and administrative expenses, our operating
results would be adversely affected if our sales did not correspondingly
increase. Our limited operating history makes accurate prediction of future
operating results difficult.
Results of Operations
Results of operations for the quarter ended June 30, 2001 as compared to the
quarter ended June 30, 2000.
Currently, all of the Company's operations are conducted through its subsidiary:
E-Z FON.
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For the quarter ended June 30, 2001, the Company generated revenues of $589,723
as compared to $415,487 for the quarter ended June 30, 2000, representing an
increase of $174,236 or approximately 42%. The Company's cost of revenues for
the quarter ended June 30, 2001 was $379,584, or 64% of revenues, as compared to
$136,066, or 33% of revenues, for the quarter ended June 30, 2000. The Company's
gross profit was $210,139, or 36% of revenues, for the quarter ended June 30,
2001, as compared to $279,421, or 67% for the quarter ended June 30, 2000. The
Company's increase in cost of revenues was directly related to an increase in
revenues. The Company's increase in revenue from the second quarter of 2000 to
the second quarter 2001 was directly related to an increase in the Company's
customer base through the acquisition of other CLEC customer bases and through
the Company's increased advertising. The Company's customer base has increased
from approximately 1,000 at June 30, 2000 to 6,000 at June 30, 2001.
For the six months ended June 30, 2001, the Company generated revenues of
$1,045,324 as compared to $471,306 for the six months ended June 30, 2000, an
increase of $574,018, or 122%. The Company's cost of revenues was $697,314 for
the six months ended June 30, 2001, or 54.9% of revenues, as compared to
$228,733 for the six months ended June 30, 2000, or 205% of revenues. The
Company's gross profit was $348,010, or 33% of revenues, for the six months
ended June 30, 2001, as compared to $242,573, or 51% of revenues, for the six
months ended June 30, 2000. The Company's increase in cost of revenues is
commensurate with its increase in revenues.
The Company's general and administrative costs totaled $735,790, or 125% of net
sales, for the three months ended June 30, 2001 as compared to $387,480, or 93%
of net sales, for the three months ended June 30, 2001, representing an increase
of $348,310, or 90%. The increase in general and administrative costs are
primarily due to increases in depreciation and amortization expense of $139,377,
payroll costs of $61,222, advertising and promotion costs of $15,131, and
interest expense of $17,500.
The Company's general and administrative costs aggregated $1,399,867, or 134% of
net sales, for the six months ended June 30, 2001 as compared to $504,087, or
107% of net sales, for the six months ended June 30, 2000, representing an
increase of $895,780, or 178%. The increase in general and administrative costs
are primarily due to increases in depreciation and amortization expense of
$302,448, payroll costs of $181,338, advertising and promotion costs of $58,720,
professional fees of $115,964, occupancy expenses of $40,000, consulting expense
of $27,500, and filing costs of $15,450.
During the quarter ended June 30, 2001, the Company issued 366,543 shares of
its common stock to an entity as consideration for the termination of an
acquisition agreement and related standstill agreement. The Company has valued
this consideration at the estimated fair value of the stock issued and has
recorded an expense of $146,617 during the three months ended June 30, 2001.
Liquidity and Capital Resources
The Company's cash decreased from $292,632 at June 30, 2000 to $286,332 at June
30, 2001, a decrease of $6,300.
Cash used by operations was $455,718 for the six months ended June 30, 2001,
and consisted primarily of a net loss of $1,259,506, net of depreciation and
amortization expense of $405,656, common stock issued for agreement termination
of $146,617, an increase in accounts payable of $134,014, an increase in
deferred revenue of $15,517 and an increase in payroll tax obligation of
$81,291. Cash used in investing activities was $90,202 for the six months ended
June 30, 2001 and consisted of purchases of property and equipment amounting to
$85,202 and purchases of customer bases amounting to $5,000. Cash provided by
financing activities was $737,715 for the six months ended June 30, 2001 and
consisted of proceeds from note payable to shareholders of $500,000, cash
received on pending stock subscriptions of $267,525, common stock issued for
cash of $65,000, less $69,810 in principal payments on capital leases and
$25,000 in payments to related parties.
Cash used in operations for the six months ended June 30, 2000 was $218,230 and
consisted primarily of the Company's net loss for the six months ended of
$260,527 and the increase in accounts payable of $40,402 reduced by
depreciation and amortization of $103,208 and a decrease in accounts receivable
of $72,382. Cash used in investing activities for the first six months of 2000
totaled $602,656 and resulted from the purchase of fixed assets amounting to
$125,232 and customer bases amounting to $477,421. During the first six months
of 2000, the Company had cash provided by investing activities of $1,100,000
consisting of $700,000 from common stock issued for cash and $400,000 from
Wolfpack's purchase of JetCo stock prior to the acquisition by Wolfpack.
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In April, 2001, Joseph F. Compagna, a Director of the Company, loaned the
Company $500,000 in the form of a note payable. The note bears interest at the
rate of 14% per annum, and as additional consideration, the Company issued a
total of 200,000 warrants to purchase common stock. All proceeds from the note
went to the Company and shall be used for working capital.
Management believes that it will be able to fund the operations of the Company
with the proceeds from the Company's private placement offerings until the
Company has developed the business of JetCo and is experiencing positive cash
flows.
If cash generated from operations is insufficient to satisfy the Company's
working capital and capital expenditure requirements, the Company may be
required to sell additional equity or debt securities. There can be no assurance
that such financing, if required, will be available on satisfactory terms, if at
all.
Risk Factors
Risks or uncertainties that could be reasonably likely to have a material
adverse effect on the business of E-Z FON and the Company and may thereby
materially impact the Company's short-term or long-term liquidity and/or net
sales, revenues or income from continuing operations are: (1) Federal and/or
state regulations that may effect the ability of E-Z FON to complete its market
strategy; (2) Competition from the growing number of well financed CLECs
entering the marketplace who can operate for a longer period while flooding the
market place with low prices; (3) competition from Incumbent Local Exchange
Companies ("ILECs") and (4) retention of personnel.
Risk Factors Specific to E-Z FON
Regulation. E-Z FON's business segment, the telecommunications industry, is
subject to extensive regulation at both the Federal and state levels. Failure to
comply with the laws, rules and regulations could result in fines, suspension of
operating authority and/or revocation of operating authority, which would have a
material adverse effect upon the Company.
Competition from other CLECs. E-Z FON will encounter intense competition in
all aspects of its business and will compete directly with many well financed
CLECs and new CLECs entering the market, many of which offer their customers a
broader range of telecommunication and other non-telecommunication related
services. These CLECs may have substantially greater resources and may have
greater operating efficiencies. In addition, CLECs with greater financial
resources may be able to under-cut our pricing and operate for a longer period
of time without having the concern of generating enough revenues to continue
operations.
Competition from the ILECs. The Incumbent Local Exchange Carrier currently
offers a pre-paid service to the same customers that E-Z FON actively markets.
At this time ILECs are not pursuing this market segment to the same extent that
E-Z FON and other CLECs are. However, if the ILECs should decide to actively
pursue this market, E-Z FON may not be able to compete
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because of the greater financial and other resources enjoyed by the ILECs. While
it is not possible to predict the type and extent of competitive services which
ILECs may offer to customers, E-Z FON may be adversely affected to the extent
such services are offered.
Personnel. Most aspects of E-Z FON's business will be dependent on
highly skilled and experienced individuals. E-Z FON will devote considerable
efforts to recruiting and compensating those individuals and to providing
incentives to encourage them to remain with the Company. Individuals associated
with E-Z FON may in the future leave at any time to pursue other opportunities.
An inability of E-Z FON to compete with other companies in salary and benefits
could have an adverse impact on E-Z FON's ability to attract and retain such
personnel.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2001, the Company received $267,525
in cash for 1,070,100 shares of its common stock. As of June 30 2001 the Company
has not completed the issuance of these shares and has recorded a current
liability for the cash proceeds received as pending stock subscriptions of
$267,525 at June 30, 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On June 27, 2001, the Company signed a Letter of Intent ("LOI") with equitel,
inc., a Delaware corporation ("equitel"), with the objective of executing and
implementing a definitive merger agreement ("Merger Agreement") and plan of
reorganization between Wolfpack and equitel by September 30, 2001. The parties
expect to finalize the Merger Agreement with equitel prior to the termination
date of September 30, 2001 under similar terms and conditions as those contained
in the LOI.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WOLFPACK CORPORATION
Dated: August 22, 2001 By: /s/ PETER L. COKER, SR.
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Peter L. Coker, Sr.
Chief Executive Officer and
Chief Financial Officer