UNITED STATES 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 March 31, 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 registrant as specified in its charter) Delaware 56-2086188 - -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17 Glenwood Avenue Raleigh, North Carolina 27603 - ----------------------- ----- (Address of principal executive offices) (Zip Code) (919) 831-1351 (Registrant's telephone number, including area code) -------------- Check whether the Registrant (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, and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | As of May 11, 2001, there were 19,152,570 shares of the registrant's common stock, par value $0.001 issued and outstanding. 1 WOLFPACK CORPORATION MARCH 31, 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 of Financial Condition and Results of Operations............................................ 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................................. 12 Item 2. Changes in Securities and Use of Proceeds.......................... 12 Item 3. Defaults Upon Senior Securities.................................... 12 Item 4. Submission of Matters to a Vote of Security Holders................ 12 Item 5. Other Information.................................................. 12 Item 6. Exhibits and Reports on Form 8-K................................... 13 2 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 March 31, 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 of Financial Condition and Results of Operations". 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. 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Page Number Consolidated Balance Sheet as of March 31, 2001.................... 5 Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000............... 6 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000............... 7 Notes to Consolidated Financial Statements......................... 8 4 WOLFPACK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 2001 2000 ---------- ------------ ASSETS ------ Current assets Cash and cash equivalents $ 80,213 $ 94,537 Accounts receivable 3,760 - Inventory 25,399 18,431 Prepaid expenses 14,148 8,050 Other current assets 5,849 5,121 ---------- ---------- Total current assets 129,369 126,139 Property, equipment and software, net 840,677 885,874 Other assets Acquired customer base, net of accumulated amortization of $238,384 (unaudited) and $136,902 at March 31, 2001 and December 31, 2000, respectively 170,877 267,359 Goodwill, net of accumulated amortization of $42,176 (unaudited) and $30,673 at March 31, 2001 and December 31, 2000, respectively 3,834 15,337 Other assets 35,103 32,923 ---------- ---------- Total other assets 209,814 315,619 ---------- ---------- Total assets $1,179,860 $1,327,632 ========== ========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY ---------------------------------------------- Current liabilities Accounts payable $ 736,451 $ 428,205 Payroll tax obligation 221,183 189,984 Current portion of capital lease obligations 150,000 152,037 Advances from related parties 79,700 96,000 Deferred revenue 93,908 66,029 ---------- ---------- Total current liabilities 1,281,242 932,255 Capital lease obligations, less current portion 101,110 133,424 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, 19,222,570 (unaudited) and 19,147,570 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 19,223 19,148 Additional paid-in capital 1,738,254 1,663,329 Accumulated deficit (1,959,969) (1,420,524) ---------- ---------- Total stockholders' (deficit) equity (202,492) 261,953 ---------- ---------- Total liabilities and stockholders' (deficit) equity $1,179,860 $1,327,632 ========== ========== The accompanying notes are an integral part of these consolidated financial statement. 5 WOLFPACK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Three months ended months ended March 31, March 31, 2001 2000 ----------- ---------- Revenue $ 455,601 $ 55,819 Cost of revenues 317,730 92,667 ----------- ---------- Gross profit 137,871 (36,848) General and administrative expense 664,077 116,607 ----------- ---------- Operating loss (526,206) (153,455) Other income (expense) Interest expense (6,289) - Other, net (6,950) - ----------- ---------- (13,239) - ----------- ---------- Net loss $ (539,445) $ (153,455) =========== ========== Net loss per share - basic and diluted $(.03) $(.01) =========== ========== Weighted-average number of shares outstanding - basic and diluted 19,167,405 10,241,170 =========== ========== The accompanying notes are an integral part of these consolidated financial statement. 6 WOLFPACK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Three months ended months ended March 31, March 31, 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(539,445) $(153,455) Adjustments to reconcile net loss to cash provided by (used in) operating activities Depreciation and amortization 197,089 34,017 Loss on disposal of asset 7,292 - Change in operating assets and liabilities Accounts receivable (3,760) 72,382 Inventory (6,968) - Prepaid expenses (6,098) (828) Other current assets (728) - Other assets (2,180) (5,237) Accounts payable 308,246 (25,086) Payroll tax obligation 31,199 13,529 Deferred revenue 27,879 - --------- --------- TOTAL CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,526 (64,678) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, equipment and software (46,199) (7,984) Purchase of customer bases (5,000) (36,208) --------- --------- TOTAL CASH USED IN INVESTING ACTIVITIES (51,199) (44,192) CASH FLOWS FROM FINANCING ACTIVITIES Common stock issued for cash 75,000 - Principal payments on capital leases (34,351) - Wolfpack purchases of Jetco stock prior to reverse acquisition - 400,000 Payments to related parties (16,300) - --------- --------- TOTAL CASH PROVIDED BY FINANCING ACTIVITIES 24,349 400,000 --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,324) 291,130 CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 94,537 13,518 --------- --------- CASH AND CASH EQUIVALENTS END OF PERIOD $ 80,213 $ 304,648 ========= ========= The accompanying notes are an integral part of these consolidated financial statement. 7 WOLFPACK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 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 10-KSB 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 three month period ended March 31, 2001. The results for the three month period ended March 31, 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 name 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). The historical financial statements included for the period ended March 31, 2000 are those of JetCo and its subsidiaries. 8 Through its' subsidiaries, JetCo provides prepaid local and cellular phone service to approximately 4,500 customers in several states. JetCo 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. NOTE C - 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 $539,445 for the three months ended March 31, 2001 and at March 31, 2001 current liabilities exceeded current assets by $1,151,873. The Company has taken steps in 2001 to increase profitability and cash flow, and is currently attempting to raise additional capital. 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 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 D - 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 three months ended March 31, 2001. The Company has determined 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% penalty and interest accrual. The total obligation associated with these delinquent amounts at March 31, 2001 is $221,183 and has been reflected in the accompanying consolidated financial statements as Payroll Tax Obligation. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 5,000 customers in Texas. 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 proprietary Integrated Communications Provider Software (the "Software") , which JetCo anticipates will be completed during the second 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, and the acquisition of customer bases from 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. E-Z FON is anticipating an enhanced service offering to our existing customer base at the end of the second 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 for personnel 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 March 31, 2001 as compared to the quarter ended March 31, 2000. Currently, all of the Company's operations are conducted through its 10 subsidiaries: E-Z FON and E-Z WIRELESS. For the quarter ended March 31, 2001, the Company generated revenues of $455,601 as compared to $55,819 for the quarter ended March 31, 2000, representing an increase of $399,782 or approximately 716%. The Company's cost of revenues for the quarter ended March 31, 2001 was $317,730, or 70% of revenues, as compared to $92,667, or 1.67% of revenues, for the quarter ended March 31, 2000. The Company's gross profit was $137,871, or 30% of revenues, for the quarter ended March 31, 2001, as compared to $(36,848), or (67)% for the quarter ended March 31, 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 first quarter of 2000 to the first 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 March 31, 2000 to 6,000 at March 31, 2001. The Company's general and administrative costs aggregated $664,077, or 146% of net sales, for the quarter ended March 31, 2001 as compared to $116,607, or 209% of net sales, for the quarter ended March 31, 2000, representing an increase of $547,470. The increase in general and administrative costs are primarily from increases in depreciation and amortization expense of $165,000, payroll costs of $150,000, advertising and promotion costs of $40,000, professional fees of $25,000 and occupancy expenses of $40,000. Liquidity and Capital Resources The Company's cash decreased from $304,648 at March 31, 2000 to $80,213 at March 31, 2001, a decrease of $224,435. Cash provided by operations was $12,526 for the quarter ended March 31, 2001, and consisted primarily of a net loss of $539,445, net of depreciation and amortization expense of $197,089, an increase in accounts payable of $308,246, an increase in deferred revenue of $27,879 and an increase in payroll tax obligation of $31,199. Cash used in investing activities was $51,199 for the quarter ended March 31, 2001 and consisted of purchases of property and equipment amounting to $46,199 and purchases of customer bases amounting to $5,000. Cash provided by financing activities was $24,349 for the quarter ended March 31, 2001 and consisted of common stock issued for cash of $75,000, less $34,351 in principal payments on capital leases and $16,300 in payments to related parties. Cash used in operations for the quarter ended March 31, 2000 was $64,678 and consisted primarily of the Company's net loss for the quarter of $153,455 and the increase in accounts payable of $25,086 reduced by depreciation and amortization of $34,017 and a decrease in accounts receivable of $72,382. Cash used in investing activities for the first quarter of 2000 totaled $44,192 and resulted from the purchase of fixed assets and customer bases. During the first quarter of 2000, the Company had cash provided by investing activities of $400,000 from Wolfpack's purchase of JetCo stock prior to the acquisition by Wolfpack. In April, 2001, we sold $500,000 in principal amount of convertible debentures (the "Debentures") to Joseph F. Compagna, a Director of the Company. Such sale was made pursuant to Rule 506 of the Securities Act. The Debentures are convertible into the common stock of the Company and also include a total of 200,000 warrants to purchase common stock. All proceeds from the sale of Debentures 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 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 11 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In April 2001, we issued 321,453 shares of our common stock to Basic Phone, Inc. pursuant to a covenant in our Stock Purchase Agreement with Basic Phone, Inc., et. al., dated January 29, 2001 and filed as Exhibit 10.7 to Form 10-KSB/A dated May 11, 2001. Such issuance was made pursuant to Rule 506 of the Securities Act of 1933, as amended (the "Securities Act"). Also, in April, 2001, we sold $500,000 in principal amount of convertible debentures (the "Debentures") to Joseph F. Compagna, a Director of the Company. Such sale was made pursuant to Rule 506 of the Securities Act. The Debentures are convertible into the common stock of the Company and also include a total of 200,000 warrants to purchase common stock. All proceeds from the sale of Debentures went to the Company and shall be used for working capital. ITEM 3. DEFAULTS IN SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. (b) Reports on Form 8-K. On February 5, 2001, we filed a Current Report on Form 8-K concerning a change in accounting firms which took place on January 29, 2001. 13 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: May 23, 2001 By: /s/ PETER L. COKER, SR. ------------------------- Peter L. Coker, Sr. Chief Executive Officer and Treasurer 14