SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
Harter Financial, Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-2534507
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Box 338, Village Road, New Vernon, New Jersey 07976
(Address of Principal Executive Offices Zip Code)
Issuer's telephone number, including area code: (973) 734-0100
----------------------
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
Not Applicable Not Applicable
Securities to be Registered under Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of Class)
<PAGE>
PART I
Item 1. Description of Business.
General
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Harter Financial, Inc., a New York corporation (the "Company"), has three
primary business focuses: (i) acquiring operating businesses; (ii) investing in
and providing managerial assistance to start-up and early stage development
companies, and (iii) providing diversified consulting services relating to
mergers and acquisitions, financing and reorganization. Additionally, the
Company has a non-operating, wholly-owned, subsidiary Planner's Financial, Inc.
("Planners"). Prior to the events discussed below, the Company was known as Wolf
Financial Group, Inc. ("WFG").
Company History
- ---------------
The Company was incorporated in New York on May 23, 1979 as Wright
Laboratories, Inc. ("Wright"). In December 1985, the Company acquired all of the
capital stock of F.N. Wolf & Co., Inc ("FNW") a privately held New York
corporation organized in June of 1982. By a vote of its shareholders the
Company's name was changed from Wright to Wolf Financial Group, Inc. at the time
of the FNW acquisition.
Bankruptcy Reorganization
- -------------------------
As a result of heavy losses and various pending legal proceedings, WFG and
its wholly-owned subsidiary FNW filed voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on
August 24, 1994 (the "Filing Date"). On October 23, 1996, a reorganized WFG
emerged from protection under Chapter 11 of the Bankruptcy Code pursuant to a
confirmed plan of reorganization (the "Plan"). Pending confirmation of the Plan
the Company carried out limited business activities including issuing bridge
loans to certain unrelated third parties. On November 6, 1996, by order of the
United States Bankruptcy Court (the "Court"), WFG changed its name to Harter
Financial, Inc. The New York State Banking Department approved the name change
on April 11, 1997.
Prior to the Filing Date, WFG's wholly owned subsidiary FNW was a
broker-dealer registered with the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers ("NASD").
Pursuant to the Plan, FNW was dissolved and its assets were folded into the
reorganized WFG. The Effective Date of the Plan, pursuant to the Court's order,
was January 16, 1997 (the "Effective Date").
Plan of Reorganization
- ----------------------
Under the Plan, the claims of the principal creditors of WFG and FNW have
been settled in accordance with the following classifications:
(i) Class 1, consisting of all secured claims are to receive their
collateral and any unsecured portion of such claim, if any, will be treated
as an allowed Class 3 claim. WFG and FNW believe that there are no claims
with valid security interests; and
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(ii) Class 2, consisting of all pre-petition claims entitled to priority
pursuant to Section 507 of the Bankruptcy Code, other than priority tax
claims, are to receive up to $2,000 of their claims as priority claims
pursuant to section 507(a)(3) of the Bankruptcy Code; and;
(iii) Class 3 consisting of all general unsecured claims, other than
insider claims, indemnity claims and securities claims received shares of
common stock in the reorganized Company at the rate of one (1) share for
every dollar of claim; and
(iv) Class 4 consisting of all securities Claims (claims stemming from
various legal actions) except the SEC's claim are to receive in total a
cash payment of $500,000 and common stock in the reorganized Company equal
to the number of shares of common stock issued to Class 3 (i.e. 1,605,784
shares); and
(v) Class 5, consisting of the claims of the SEC, received a cash payment
of $1,000,000; and
(vi) Class 6 consisting of all indemnity claims are to receive a pro rata
distribution of 100,000 shares of common stock in the reorganized Company;
and
(vii) Class 7 consisting of WFG's then existing equity interests were
canceled pursuant to the Plan, and holders of such interests did not
receive any payments under the Plan; and
(viii) Allowed administrative expenses are to be paid in full; and
(ix) The Internal Revenue Service in payment of its Priority Tax claims is
to receive a cash distribution of $200,000.
In accordance with the terms of the Plan 5,263,158 shares of the Company's
common stock were issued to the Plan Funder (as defined in the Company's Plan
previously filed with the SEC, the "Plan Funder") and 331,157 shares of the
Company's common stock were issued to Joshua J. Angel. The Plan Funder(s) are
Rita Angel and Spencer J. Angel who hold 3,947,368 and 1,315,790 shares of the
Company's common stock respectively.
Description of Business - Present Capital Investments
- -----------------------------------------------------
The Company is presently in the process of seeking businesses to acquire
and operate. In the interim, while the Company seeks out other potential
acquisitions, the Company is temporarily investing its capital in various bridge
loans and other investments.
Set forth below is information concerning the Company's present principal
investments ("Principal Investments"), six of which are publicly-held.
Information concerning the publicly held companies has been derived from their
respective SEC filings. Information concerning the privately - held companies
has been obtained from those Principal Investments. For further information
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concerning the Company's investments including, purchase prices and valuation at
June 30, 1996, June 30, 1997 and March 31, 1998, see Notes to Financial
Statements included herein.
The Company does not have any policies in effect which limit the percentage
of assets which may be invested in any one investment, or type of investment.
The Company may, however, implement such a policy without a vote of security
holders. Presently, the Company reviews potential acquisition or investment
opportunities and seeks to identify and select what it believes are the best
among them. Acquisition of or direct investments in businesses with operating
histories that are unprofitable or marginally profitable, that have negative net
worth or that are involved in bankruptcy or similar reorganization proceedings
may be made. Such acquisitions or investments are expected to involve businesses
which management believes to have turnaround potential through the infusion of
additional working capital and a strengthened management team. These businesses
require significant managerial assistance and the Company's investment therein
are generally high risk and speculative in nature. The Company seeks to attract
potential managers who have established track records of turning around troubled
businesses. The Company attempts to locate qualified managers on a need only
basis. To date, a significant portion of the Company's investments have been of
this nature.
The Company may in the future make additional debt and/or equity
investments in its Principal Investments ("Additional Investments") in order to
protect or enhance its initial investment. The Company, together with other
investors, may make direct investments in a number of other situations,
including attempts to rehabilitate insolvent or bankrupt companies, and/or
acquire privately-held companies. The substantial financial and management
commitment typically attendant to an investment, mandates that only a few new
investments be made in any one year.
The Company expects that it may, from time to time, make direct investments
in publicly-traded securities of relatively small, emerging companies that
management believes may have long-term growth possibilities.
1. Autoparts Warehouse, Inc. An investor group, of which the Company is a
member, formed Autoparts Warehouse, Inc. ("Autoparts Warehouse") for the
specific purpose of purchasing substantially all of the assets of Warehouse Auto
Centers, Inc., for $375,000 in cash in connection with a proceeding conducted in
the United States Bankruptcy Court Western District of New York (Case No.
95-21279). The asset purchase was concluded on August 28, 1996. Those assets
formed the base upon which Autoparts Warehouse began to operate.
In August 1996, the Company acquired 24% of the issued and outstanding
common stock in Autoparts Warehouse for $90,000. As of March 31, 1998 the
Company had a 32% equity interest in Autoparts Warehouse.
Prior to March 31, 1998 the Company loaned $185,000 ($135,000 on August 28,
1996 with interest at 8.00%, $30,000 on January 2, 1997 with interest at 8.00%
and $20,000 on February 26, 1997 with interest at 8.00%) to Autoparts Warehouse
for working capital. From April 1, 1997 to the date of the filing of this
Registration Statement the Company loaned an additional $117,345 ($41,175 on
April 1, 1997 with interest at 12.00%, $16,170 on May 30, 1997 with interest at
8.00%, $10,000 on October 1, 1997 with interest at 8.00%, $25,000 on October 20,
1997 with interest at 8.00% and $25,000 on November 6, 1997 with interest at
8.00%) to Autoparts Warehouse for working capital. In addition to the working
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capital loans the Company purchased from an unrelated party who wished to
liquidate his Autoparts Warehouse loan portfolio before its maturity date, at a
substantial discount, an additional $47,000 of Autoparts Warehouse loans all at
an interest rate of 8%. All of the loans which have been made to Autoparts
Warehouse are demand notes. On May 29, 1998 the principal balance on the $10,000
October 1, 1997, $25,000 October 20, 1997, and $25,000 November 6, 1997 notes
were repaid. To date no demand for repayment of the remaining principal or
interest due on any of the above mentioned notes has been made.
In addition to the loans enumerated above the Company loaned $30,000 to a
principal of Autoparts Warehouse. As of the date of the filing of this
Registration Statement a balance of $18,000, plus interest, remains unpaid on
this $30,000 loan to such principal. To date no further demand for repayment of
the remaining principal or interest due on this note has been made.
On April 30, 1998 the Company participated in a Private Placement in the
amount of $37,500.for the purchase of an 8% subordinated note in the principal
amount of $20,250 and warrants to purchase 22,500 common shares at an exercise
price equal to $6.00 per share, subject to adjustment.
Autoparts Warehouse is a privately held auto-parts retailer and service
center located in Rochester, New York. It operates a warehouse superstore auto
parts accessory and service center offering a selection of quality, brand name,
automotive products at discount prices, primarily to do-it-yourself customers
and professional mechanics and installers. Currently Autoparts Warehouse is
engaged in the process of raising private bridge loan financing. If the
financing is completed successfully, of which there can be no assurance,
Autoparts Warehouse has indicated that it anticipates expanding its operations
to include additional locations in the Rochester area.
Autoparts Warehouse operates in a highly competitive environment. Its
principal competitors are national and regional chains carrying automotive parts
and accessories and offering automotive services, most of which have
substantially greater marketing, financial, administrative and other resources
than Autoparts Warehouse.
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From August of 1996 through June of 1997, the Company acquired 32% of the
issued and outstanding common stock in Autoparts Warehouse for $90,000 and made
loans of $242,345 to the investee. This investment is accounted for under the
equity method of accounting (20% to 50% owned). Unaudited summarized financial
information for the Company's investment in and advances to Autoparts Warehouse
is as follows:
As of As of
March 31, 1998 and June 30, 1997 and
for the Nine For the Period From
Months Ended February 1, 1997
March 31, 1998 to June 30, 1997
------------------ -------------------
(Unaudited) (Unaudited)
Net sales $ 796,000 $ 548,000
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Gross profit on sales $ 251,000 $ 300,000
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Net loss $ (651,000) $ (87,400)
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Current assets $ 389,000 $ 608,600
Noncurrent assets 119,000 83,100
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Total assets $ 508,000 $ 691,700
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Current liabilities 1,246,000 $ 662,500
Equity (deficit) (738,000) 29,200
Total liabilities
and equity $ 508,000 $ 691,700
=========== ===========
Spencer J. Angel, President of the Company, has acted as the
Secretary/Treasurer of Autoparts Warehouse since August 28, 1996.
2. FCI Food Group, Inc. FCI Food Group, Inc ("FCI"), is a privately held
company engaged in the fast food industry. FCI has three distinct food category
franchises that it presently operates and franchises to independent operators.
FCI predominantly focuses on placing its operations and its franchised
operations in the food courts of high volume shopping malls. FCI owns and
franchises fast food restaurants throughout the United States, Puerto Rico and
the Middle East.
In November 1996, the Company loaned FCI $100,000 in exchange for a FCI
promissory note for working capital. That note was subsequently exchanged with a
replacement promissory note issued from International Financial Partners, Inc.
("IFP"), a related FCI entity. In December of 1997 IFP repaid $50,000 of the
promissory note's principal balance. On February 9, 1998 IFP repaid the
remaining principal balance of the promissory note. It is anticipated that all
accrued interest thereon will be repaid in the third quarter of 1998. None of
the transactions enumerated above resulted in the Company acquiring an equity
interest in either FCI or IFP.
3. Medical Laser Technologies, Inc. Medical Laser Technologies, Inc.
("MLTI") is a publicly held medical imaging technology company. MLTI's wholly
owned subsidiary Fidelity Medical, Inc. ("Fidelity") develops and markets
digital systems for the electronic processing, storage, review and retrieval of
X-ray images generated during certain medical procedures, particularly cardiac
angiography/angioplasty and radiographic/fluoroscopic examinations.
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MLTI's common stock is listed on the NASDAQ OTC Bulletin Board and is
traded under the symbol MLTI.
In November 1995, the Company loaned $90,000 to MLTI and Fidelity for
working capital (the "MLTI/Fidelity Loan"). In conjunction with the
MLTI/Fidelity Loan the Company was given a security interest in among other
things Fidelity's contracts, accounts, general intangibles and materials (the
"Accounts Security Interest"). The Company perfected the Accounts Security
Interest on or about March 24, 1997. In addition to the Accounts Security
Interest the Company, as consideration for various extensions of the
MLTI/Fidelity Loan, was granted 335,000 shares (the "MLTI Granted Stock") of
MLTI's common stock. As of the date of the filing of this Registration Statement
the Company has received 300,000 shares of the MLTI Granted Stock. In addition
to the Accounts Security Interest and the MLTI Granted Stock, on July 2, 1997
the Company perfected an unconditional security interest in all of the issued
and outstanding shares of Fidelity.
On June 23, 1997 the Company and other un-related investors entered into a
Stock Purchase Agreement with MLTI (the "Stock Purchase Agreement") to purchase,
for a specific period of time, up to a maximum of 16,666,667 shares of MLTI
stock at a per share price of three Cents ($.03) per share. As of the date of
the filing of this Registration Statement the Stock Purchase Agreement has
expired and the Company has purchased 3,166,667 shares pursuant to such Stock
Purchase Agreement. Presently the Company owns approximately 3,501,667 shares or
14.70% of MLTI's issued and outstanding common stock.
As of the date of the filing of this Registration Statement the Company had
loaned an additional $257,466.10 to MLTI for working capital and salary (the
"Working Capital Loans")($20,000 on September 8, 1997 with interest at 12.00%,
$11,920.10 on October 7, 1997 with interest at 12.00%, $10,300.00 on October 10,
1997 with interest at 12.00%, $14,120.47 on October 17, 1997 with interest at
12.00%, $8,520.00 on October 22, 1997 with interest at 12.00%, $10,000.00 on
October 28, 1997 with interest at 12.00%, $21,869.19 on October 31, 1997 with
interest at 12.00%, $10,509.00 on November 3, 1997 with interest at 12.00%,
$5,500.00 on November 10, 1997 with interest at 12.00%, $17,218.20 on November
14, 1997 with interest at 12.00%, $16,029.05 on November 26, 1997 with interest
at 12.00%, $3,000.00 on December 12, 1997 with interest at 12.00%, $16,473.34 on
December 29, 1997 with interest at 12.00%, $16,346.35 on January 10, 1998 with
interest at 12.00%, $14,043.98 on February 9, 1998 with interest at 12.00%,
$14,031.44 on February 20, 1998 with interest at 12.00%, $16,450.50 on March 6,
1998 with interest at 12.00%, $14,001.89 on March 20, 1998 with interest at
12.00%, $17,132.60 on April 3, 1998 with interest at 12.00%, $13,803.99 on April
17, 1998 with interest at 12.00%, $14,827.70 on May 1, 1998 with interest at
12.00% and $15,294.88 on May 30, 1998 with interest at 12.00%). All of the
Working Capital Loans which have been made to MLTI are demand notes. To date, no
demand for the payment of principal or interest has been made by the Company.
Since August 14, 1997 Spencer Angel has acted in the capacity of director
of MLTI and as of April 23, 1998 he has assumed the titles of President and
Chief Executive Officer of both MLTI and Fidelity.
4. Pan American World Airways, Inc. The Company was one of the original
investors in the Blank Check Book company that purchased the Pan Am trademark in
the Pan American World Airways, Inc. ("PanAm") bankruptcy proceeding. By October
1997 the Company had sold its entire interest in PanAm Corp., which was less
than 1% of the total shares outstanding.
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5. Ivax Corporation Ivax Corporation ("Ivax") is a publicly-held holding
company with subsidiaries engaged primarily in the research, development,
manufacturer and marketing of health care products, including generic and
branded pharmaceuticals, intravenous solutions and related products, and in
vitro diagnostics.
Ivax's common stock is listed on the American Stock Exchange and is traded
under the symbol IVX. At one time the Company owned approximately 30,000 shares
of Ivax's issued and outstanding common stock, which was less than 1% of the
total shares outstanding at that time. As of the date of the filing of this
Registration Statement the Company owns approximately 5,000 shares of Ivax's
issued and outstanding common stock.
6. Azurel Ltd. Azurel Ltd. ("Azurel") directly and through four
wholly-owned subsidiaries, manufactures, markets and sells cosmetics, fragrances
and skin care products.
Azurel's common stock is listed on the NASDAQ Small-Cap Issues and is
traded under the symbol AZUR. As of the date of the filing of this Registration
Statement the Company has sold its entire interest in Azurel which was less than
2% of the total shares outstanding.
7. ARIA Wireless Systems, Inc. The Company was one of the investors who
provided post-confirmation debt financing to ARIA Wireless Systems, Inc.
("Aria"). ARIA is a publicly-held company whose products eliminate the
dependency on local loop copper and fiber telephone lines currently required to
support transaction processing. ARIA's products provide dedicated connections at
reduced recurring costs, increased network availability, and improved service
responsiveness.
ARIA's common stock is listed on the NASDAQ OTC Bulletin Board and is
traded under the symbol AWSI. As of the date of the filing of this Registration
Statement the Company owns approximately 35,600 shares of ARIA's issued and
outstanding common Stock, which is less than 1% of the total shares outstanding.
8. Continuecare Corporation Continuecare Corporation ("Continuecare")
provides a continuum of outpatient or ancillary health care services with a
primary focus on outpatient treatment of musculo skeletal injuries and diseases
such as arthritis, osteoporosis, stroke and traumatic injuries.
Continuecare's common stock is listed on the American Stock Exchange and is
traded under the symbol CNU. As of the date of the filing of this Registration
Statement the Company owns approximately 10,000 shares of Continucare's issued
and outstanding common Stock, which is less than 1% of the total shares
outstanding.
9. The John Forsyth Company The Company was one of the investors who
participated in the bridge purchase of The John Forsyth Company (the "Forsyth
Company"). The Forsyth Company is the leading Canadian manufacturer of men's
shirts. It markets under several company-owned brands in addition to various
prominent licensed brands, including Geoffrey Beene, Pierre Cardin and Oscar de
la Renta.
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As of the date of the filing of this Registration Statement the Company has
made a $50,000 investment representing 2,500 shares of common stock which is
less than 1% of the total shares outstanding. There is currently no public
market for these shares.
Regulation
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The Company, pursuant to Section 6(a)(2) of Investment Company Act of 1940
(the "1940 Act"), believes that it is presently exempt from the provisions of
the 1940 Act. The following is a brief description of the Company's exemption
under the 1940 Act.
Section 6(a)(2) provides in relevant part:
"Sec. 6(a) The following companies are exempt from the provisions of
this title:....
(2) Any company which since the effective date of this title or within
five years prior to such date has been reorganized under the supervision of
a court of competent jurisdiction, if (A) such company was not an
investment company at the commencement of such reorganization proceedings,
(B) at the conclusion of such proceedings all outstanding securities of
such company were owned by creditors of such company or by persons to whom
such securities were issued on account of creditors claims, and (C) more
than 50 per centum of the voting securities of such company, and securities
representing more than 50 per centum of the net asset value of such
company, are currently owned beneficially by not more than twenty-five
persons, but such exemption shall terminate if any security of which such
company is the issuer is offered for sale or sold to the public after the
conclusion of such proceedings by the issuer or by or through any
underwriter. For the purposes of this paragraph, any new company organized
as part of the reorganization shall be deemed the same company as its
predecessor, and beneficial ownership shall be determined in the manner
provided in section 3(e)(1)...."
Should the foregoing exemption not be available to the Company or if it in
the future cannot avail itself of such exemption the Company would become
subject to more stringent regulations under the 1940 Act. These regulations
relate to the Company's operations including: (i) capital structure
requirements; (ii) limits on the sources of funds from which the Company may
make distributions; (iii) limits on the Company's ability to distribute and
repurchase its own securities; (iv) requirements relating to disinterested
persons; (v) restrictions on executive compensation arrangements; and (vi)
limitations on transactions with related persons.
As a result of the Company's election to utilize the exemption contained in
Section 6(a)(2) of the 1940 Act, the Company's stockholders do not have the
benefit of certain provisions of the 1940 Act which include:
Requiring a company to carry its assets at fair value rather than at cost
in financial reports; prohibiting a company from changing the nature of its
business or its fundamental investment policies without the prior approval of
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its stockholders; regulating the composition of the Board of Directors by
prohibiting affiliated persons of a company from constituting 50% or more of the
directors of a company; significantly restricting certain transactions between a
company and affiliated persons of such company, including its directors and
officers; regulating the capital structure of a company by restricting the
issuance of senior equity and debt securities; significantly restricting the
issuance of options, rights and warrants to purchase stock of a company;
providing for the custody of securities and bonding of certain employees;
restricting issuances of Common Stock of a company at a price per share less
than the current net asset value of the Common Stock; prohibiting issuance of
securities in return for services or, in certain circumstances, for property
other than cash or securities (except as a distribution to security holders or
in connection with a reorganization); restricting the manner in which
repurchases of Company stock may be effected; restricting loans by a company;
generally prohibiting certain activities including, without limitation,
purchases of securities on margin and short sales; restricting a company in
acting as a distributor of securities, or owning stock of other investment
companies, insurance companies, brokers, dealers, or underwriters; and
establishing certain remedies in the event of breaches of fiduciary duty by
various management personnel and other associates with a company.
Competition
- -----------
Numerous entities, both private and public, are engaged in the highly
competitive field of acquiring operating companies and making venture capital
loans. Many of the competitors have significantly greater experience, resources
and managerial capabilities than the Company and are therefore in a better
position than the Company to obtain access to and to consummate attractive
acquisitions and venture capital investments.
Employees
- ---------
General. As of May 31, 1998, the Company employed five people on a full
time basis.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Selected Financial Information of the Company
- ---------------------------------------------
Prior to the filing of its voluntary petition the Company was current with
all of its required SEC filings. The Company's last filings of current financial
information were its 10-K for the fiscal year ending June 30, 1993 and its 10-Q
for the period ending March 31, 1994. After the filing of its voluntary
petition, however, the Company ceased filing with the SEC during the Bankruptcy
Reorganization Period.
The financial information below takes into account the effects of
fresh-start accounting in accordance with Statement Of Position 90-7 ("SOP
90-7") of the American Institute of Certified Public Accountants. Pursuant to
SOP 90-7 if the reorganization value of the assets of the emerging entity
immediately before the date of confirmation is less than the total of all
post-petition liabilities and allowed claims, and if holders of existing voting
shares immediately before confirmation receive less than 50 percent of the
voting shares of the emerging entity, the entity should adopt fresh-start
reporting upon its emergence from Chapter 11. Adopting fresh-start reporting
results in a new reporting entity with no beginning retained earnings or
deficit. Accordingly, all financial statements for any period prior to October
23, 1996, are periods prior to the implementation of fresh-start reporting, and
are not comparable to financial statements for periods after the implementation
of fresh-start reporting. The financial information contained herein is not
indicative of future operating results or financial position of the Company.
(INTENTIONALLY LEFT BLANK)
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Selected Financial Information of the Company (Continued)
The following selected financial data for the year ended June 30, 1996 and
for the period from July 1, 1996 to October 22, 1996 and October 23, 1996 to
June 30, 1997, for the period of October 23, 1996 to March 31, 1997 and for the
nine months ended March 31, 1998 are derived from the audited and unaudited
financial statements of the Company. The data should be read in conjunction with
the financial statements, related notes and other financial information of the
Company included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
Nine July 1,
Months Ended October 23, October 23, 1996 to
March 31, 1996 to 1996 to October 22, Year Ended
1998 March 31, 1997 June 30, 1997 1996 June 30, 1996
=========================================================================
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Interest Income $ 42,316 $ 4,121 $ 10,139 $ 17,911 $ 76,246
Continuing operating expenses ($ 522,231) ($ 344,948) ($ 490,877) ($ 220,889) ($ 685,777)
Realized and unrealized gain (loss) on
marketable and not readily marketable
securities $ 57,725 ($ 80,699) ($ 20,894) ($ 45,000)
Reorganization items - expenses (Note G) ($ 84,742) ($ 157,247) ($ 248,914) ($ 298,266)
Loss from operations ($ 422,190) ($ 506,268) ($ 658,879) ($ 496,892) ($ 907,797)
Loss from investee - net of related
expenses (Note J) ($ 162,345) ($ 40,000) ($ 40,000) ($ 190,000)
Loss before taxes, discontinued
operations, and extraordinary item ($ 584,535) ($ 546,268) ($ 698,879) ($ 686,892) ($ 907,797)
Income (loss) from discontinued
operations (Note H) $ 2,420 $ 2,420 ($ 42,460) $ 62,702
Loss before taxes and extraordinary item ($ 584,535) ($ 543,848) ($ 696,459) ($ 729,352) ($ 845,095)
Extraordinary item: Forgiveness of
debt(Note B) $ 13,066,541
Net Income (Loss) ($ 584,535) ($ 543,848) ($ 696,459) $ 12,337,189 ($ 845,095)
------------ ------------ ------------ ------------ ------------
Net loss per common share (Note c[8]) ($ 0.07) ($ 0.06) ($ 0.08)
------------ ------------ ------------
Weighted average number of common shares
outstanding 8,905,833 8,905,833 8,905,833
------------ ------------ ------------
Balance Sheet Data:
Total assets $ 893,605 $ 2,411,611 $ 3,080,886
Total liabilities $ 1,112,136 $ 2,150,236 $ 15,421,239
Shareholder's equity (deficiency) ($ 218,531) $ 261,375 ($12,340,353)
</TABLE>
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Results of Operations
- ---------------------
The Company's Plan of Reorganization was confirmed on October 23, 1996. In
accordance with the requirements of fresh-start accounting, pursuant to SOP
90-7, the results for the period of October 23, 1996 to March 31, 1998 (the
"Period") have been prepared under a new basis of accounting and therefore are
not comparable to the year ended June 30, 1996.
It must be noted in the following discussions that the Company's results
are dependent upon many factors, including the quality and financial condition
of the investments that have been made in private and public companies.
Additionally, when these companies trade in public markets wide fluctuations in
valuations can occur from time to time, resulting in possible realized and
unrealized gains and losses. The Company's operating expenses are primarily
fixed in nature, the majority of which are related to salaries, rent, health,
and liability insurance and other related items.
RESULTS OF COMPANY OPERATIONS FOR THE PERIOD OF JULY 1 TO MARCH 31, 1998
During the period from July 1, 1997 to March 31, 1998, the Company had
realized and unrealized gains on marketable and non marketable securities of
$57,725, interest income of $42,316, continuing operating expenses of $522,231,
loss from investee in the amount of $162,345 and a net loss of $584,535 or $.07
per common share.
RESULTS OF COMPANY OPERATIONS FOR THE PERIOD OF OCTOBER 23, 1996 TO JUNE
30, 1997
During the period from October 23, 1996 to June 30, 1997 the Company had a
realized loss on marketable securities of $20,894, an unrealized loss of
$20,915, net of taxes, (refer to the Statement of Stockholders Equity), interest
income of $10,139 and reorganization costs totaling $157,247, resulting in a
loss from operations of $658,879, continuing operating expenses of $490,877, a
loss from investee, Autoparts Warehouse, in the amount of $40,000 and income
from discontinued operations of $2,420, all of which resulted in a net loss for
the period of $696,459 or $.08 per common share.
RESULTS OF COMPANY OPERATIONS FOR THE PERIOD OF JULY 1, 1996 TO OCTOBER 22,
1996
During the period from July 1, 1996 to October 22, 1996 the Company had an
unrealized loss on marketable securities of $45,000, and an unrealized gain in
the amount of $341,343, net of taxes, the largest component being a $547,000
gain, less accrued taxes, on holdings in Pan American World Airways (refer to
the Statement of Stockholders Equity), interest income of $17,911, continuing
operating expenses of $220,889 and a reorganization expense of $248,914.
Additionally, a loss in the amount of $190,000 from an investee, Autoparts
Warehouse, was incurred during the period which resulted in a loss before taxes
and extraordinary item of $729,352. The extraordinary item in the amount of
$13,066,541 was recorded for Forgiveness of Debt pursuant to the Plan of
Reorganization.
RESULTS OF COMPANY OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 1996.
For the year ended June 30, 1996, the Company had interest income of
$76,246, continued operating expenses of $685,777, and a reorganization expense
in the amount of $298,266 which related to legal fees and mailing costs for
13
<PAGE>
bankruptcy matters. This resulted in a loss from operation in the amount of
$907,797. In addition there was income on discontinued operations in the amount
of $62,702 which reduced the net loss for the year to $845,095. No per share
information is applicable for this period which preceded the confirmation of the
Plan Of Reorganization.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's assets consists primarily of cash, receivables from brokerage
accounts, marketable securities, and loans and investments in public and
non-public companies. As the Company may draw upon these assets in order to
satisfy its Chapter 11 reorganization obligations, assets may decrease from time
to time.
On March 31, 1998 the Company had cash, cash equivalents and marketable
securities totaling $506,175 or 57% of total assets compared to $2,015,694 or
88% of total assets for the period ended June 30, 1997. The reduction in the
balance for the latter periods reflects a $1 million payment having been made on
a reorganization obligation in July of 1997. It is estimated that the Company
has $1 million remaining in Chapter 11 reorganization obligations. At the
present time while the Company's total assets are greater than its total
obligations it does not have readily available funds to meet its Chapter 11
reorganization obligations.
The Company will, from time to time, make loans and investments in public
and non-public companies and may also receive securities, options, and/or
warrants that are not readily marketable. On March 31, 1998 such loans totaled
$461,178 or 44% of total assets compared to $362,844 or 15% of total assets.
(The prior period included an accrual for Chapter 11 obligations for the amount
of $1 million that was paid in July 1997.)
Furniture, fixtures, and equipment decreased to $3,419 on March 31, 1998
compared to $1,103 on June 30, 1997 and $60,628 on June 30, 1996. The reduction
in value for the two prior periods is due to depreciation and the disposal of
assets no longer used in the company's operations. The increase in the last
period is for the purchase of new office equipment.
In conjunction with the Confirmation Order certain pre-petition liabilities
were discharged or revalued. On March 31, 1998 pre-petition liabilities totaled
$927,841 compared to $1,927,841 on June 30, 1997. Such reduction reflected the
payment of certain liabilities in the latter period. Post-petition liabilities
are $184,295 on March 31, 1998 compared to $222,395 on June 30, 1997. These
liabilities included accounts payable related to current operating expenses
items, including post-petition professional fees.
The Company has received a going concern opinion from its accountants. The
ability of the Company to meet its future objectives and pay its existing
obligations is subject to the viability of the Principal Investments. The
Company anticipates that it will be able to meet its obligations until such time
as its principal investments become profitable. In addition there can be no
assurance that the Company will be successful in its attempts, if any, to raise
additional funds. The Company has no material commitments for capital
expenditures.
14
<PAGE>
Year 2000 Compliance
- --------------------
Although the Company's evaluation of its systems is still in process, there
has been no indication that the Year 2000 Compliance issue, as it relates to
internal systems, will have a material adverse impact on future earnings.
Item 3. Description of Property.
The Company's principal executive office is maintained at The Barn
Building, Village Road, New Vernon, New Jersey. The Company currently pays
approximately $3,600 per month in rent and associated costs for such offices
pursuant to a lease.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 31, 1998, (i) the number of
shares of Common Stock beneficially owned by (x) owners of more than five
percent (5%) of the outstanding Common Stock who are known to the Company, and
(y) the Directors and certain executive officers of the Company, individually,
and the executive officers and Directors of the Company, as a group, and (iii)
the percentage of ownership of the outstanding Common Stock represented by such
shares. All share numbers are provided based upon information supplied to
management of the Company. To the best of managements knowledge all of the
persons named in the table has sole voting and investment power with respect to
all shares shown as beneficially owned by such person, except as otherwise set
forth in the notes to the tables.
Name and Address No. of Shares Percentage
Of Beneficial Owner (1) Beneficially Owned of Class
- ------------------------------- ------------------ ----------
Joshua J. Angel (2) 4,278,525 48.00%
9 East 79th Street
New York, New York 10021
Class 4 Security Claimants (3) 1,605,784 18.00%
c/o Wolf, Popper, Ross,
Wolf & Jones, Esq
845 Third Avenue
New York, New York 10022
Spencer J. Angel 1,315,790 14.80%
181 East 73rd Street
New York, New York 10021
Bolzano Investments, Inc. 1,030,278 11.60%
c/o Platzer, Fineberg & Swergold
150 East 52nd Street
New York, New York 10022
Officers and Directors, as a group (4) 5,594,315 62.80%
- --------------------------
1. Beneficial ownership, as reported in the above table, has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Unless
otherwise indicated, beneficial ownership includes both sole voting and sole
dispositive power.
15
<PAGE>
2. Includes 3,947,368 shares owned of record by Rita Angel, his wife, for which
Mr. Angel disclaims any beneficial interest.
3. These shares were issued to Class 4 Security Claimants in settlement of
claims against the estates of WFG and FNW. The firm of Wolf, Popper et al. is
holding the shares on behalf of the class members. A tentative agreement has
been reached with Wolf, Popper et al. whereby Joshua J. Angel or his assigns
will purchase these shares from Class 4 Security Claimants for $20,000. A date
has not been set for the conclusion of this transaction.
4. The group consists of the two persons listed in Item 5 below.
Ownership by Management
- -----------------------
The following table sets forth, as of March 31, 1998, the beneficial
ownership of the Common Stock of the Company of (i) each director (including the
Named Executives) of the Company, and (ii) all directors and executive officers
of the Company as a group (based upon information furnished by such persons).
Under the rules of the Commission, a person is deemed to be a beneficial owner
of a security if he has or shares the power to vote or direct the voting of such
security or the power to dispose or direct the disposition of such security.
Accordingly, more than one person may be deemed to be a beneficial owner of the
same securities. A person is also deemed to be a beneficial owner of any
securities of which that person has the right to acquire beneficial ownership
within 60 days.
Name and Address No. Of Shares Percentage
Of Beneficial Owner (1) Beneficially Owned (2) of Class
- ----------------------- ---------------------- --------
Joshua J. Angel (3) 4,278,525 48.00%
Spencer J. Angel 1,315,790 14.80%
All Directors and executive
officers as a group (2 5,594,315 62.80%
people)
- ---------------------
(1) The business address, for purposes hereof, of all of the Company's directors
and executive officers is in care of the Company.
(2) Unless otherwise noted, the Company believes that all persons in the table
have sole voting and disposition power with respect to all shares of Common
Stock beneficially owned by them.
(3) Includes 3,947,368 shares owned of record by Rita Angel, his wife, for
which Mr. Angel disclaims any beneficial interest.
(INTENTIONALLY LEFT BLANK)
16
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following is a list (along with certain biographical information)
of the executive officers and directors of the Company. All directors of the
Company are serving a current term of office which continues until the next
annul meeting of stockholders, and all officers are serving a current term of
office which continues until the next annual meeting of directors:
Year of Election
Name and Age as Director Position
================================================================================
(AS of 12/31/97)
Joshua J. Angel (62) 1994 Chairman of the Board
Spencer J. Angel (32) 1996 Director, Chief Executive Officer,
President and Treasurer
Joshua J. Angel has been Chairman of the Company since August 1994, and was
principally responsible for its successful reorganization. Mr. Angel has been a
practicing attorney for over 35 years in the field of corporate reorganizations.
Currently Mr. Angel does not act as a Director of any other public company. Mr.
Angel is the father of Spencer J. Angel.
Spencer J. Angel has been Chief Executive Officer, President, Treasurer and a
Director of the Company since October 16, 1996. Mr. Angel serves as Secretary,
Treasurer and Director of Autoparts Warehouse, Inc., President and CEO of
Fidelity Medical, Inc. and Director, President and CEO of Medical Laser
Technologies, Inc. From December 1994 through August 1996 Mr. Angel was
President of 5 East 41 Check Cashing Corp. a company engaged in the payroll
service business. Mr. Angel sold his interest in this business in August 1996.
From July 1994 to December 1994 Mr. Angel was a consultant to Zion Financial
Group, Inc. a venture capital company. From November 1991 to July 1994 Mr. Angel
was an associate with Platzer, Fineberg & Swergold, a law firm specializing in
bankruptcy related matters. Mr. Angel graduated from Hofstra Law School in June
1991.
Item 6. Executive Compensation.
Summary Compensation Table
- --------------------------
The following table sets forth information for the fiscal years ended June
30, 1995, June 30, 1996, June 30, 1997 and for the nine months ended March 31,
1998, representing compensation earned by the executive officers of the Company.
(INTENTIONALLY LEFT BLANK)
17
<PAGE>
Long Term
Compensation
Annual Compensation Awards
--------------------------------- ------------
Other
Name and Principal Year Annual
Position Ending Salary Bonus Compensation Options
================================================================================
Joshua J. Angel 1995 $ 0.00 $0.00 $0.00 0
Chairman 1996 $ 0.00 $0.00 * $0.00 0
1997 $ 0.00 $0.00 $0.00 0
Spencer J. Angel 1996 $ 52,000 $0.00 $0.00 0
President, Treasurer 1997 $ 52,000 $0.00 $0.00 0
and Chief Executive 1998 $ 39,000 $0.00 $0.00 0
Officer
- -------------------------
* In connection with his efforts to reorganize the Company, the Confirmation
Order of October 23, 1996 required the Company to issue 331,157 of its shares to
Mr. Angel. Pursuant to the Plan, Mr. Angel received "Stock equal to 10% of the
shares [of Stock] issued to Classes 3, 4 and 6...", in consideration for the
services rendered to the Company without charge, during the Chapter 11 period.
Options, Annuities and Plans
- ----------------------------
The Company does not have any annuity, retirement, pension, deferred or
incentive compensation plans, stock option plans or arrangements under which any
executive officer is entitled to benefits, nor does the Company have any
long-term incentive plan pursuant to which performance units or other forms of
compensation are paid.
Compensation of Directors
- -------------------------
The Company does not compensate its directors for their services. The
Company, however, may institute some procedure in the future by which their
directors may receive a nominal compensation for their services.
Employment Arrangements
- -----------------------
The Company has not entered into and does not intend to enter into any
employment agreements in the near future.
Item 7. Certain Relationships and Related Transactions.
Mr. Joshua J. Angel, Chairman of the Board of the Company, is the father of
Spencer J. Angel, Chief Executive Officer, President, Treasurer and a Director
of the Company. No agreement has been entered into between Mr. Joshua Angel and
Mr. Spencer Angel with respect to the voting of the Common Stock beneficially
owned by either party.
18
<PAGE>
Item 8. Description of Securities.
General
- -------
The summary of the terms of the Common Stock set forth below contains all
the material terms of the Common Stock, including those contained in the Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation")
and the By-Laws of the Company (the "By-Laws"), however, such summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Certificate of Incorporation and the By-Laws.
The Certificate of Incorporation provides that the Company may issue up to
30,000,000 shares of Common Stock with a $.01 par value per share. There are no
options, warrants or other derivative securities which are currently issued or
otherwise outstanding.
All Common Stock issued and outstanding is duly authorized, fully paid and
nonassessable. Holders of Common Stock are entitled to receive dividends if, and
when authorized and declared by the Board of Directors of the Company out of
assets legally available therefore and to share ratably in the assets of the
Company legally available for distribution to its stockholders in the event of
its liquidation, dissolution or winding up after payment of, or adequate
provisions for, all known debts and liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of Common Stock,
or less if a duly convened stockholder meeting is held, can elect all of the
directors then standing for election.
Holders of Common Stock have no conversion, sinking fund, redemption, or
preferential rights to subscribe for any securities of the Company.
Shares of Common Stock have equal dividend, distribution, liquidation and
other rights, and have no preference, exchange or, except as expressly required
by New York law, appraisal rights.
Pursuant to New York law, a corporation generally cannot dissolve, amend
its certificate of incorporation or merge, unless approved by the affirmative
vote of stockholders holding at least a majority of the shares entitled to vote
on the matter unless a greater percentage is set forth in the corporation's
articles of incorporation. The Certificate Of Incorporation does not provide for
a greater percentage in such situation.
Effect of Reorganization on the Common Stock
- --------------------------------------------
Pursuant to the Plan, any interest represented by any of the equity
securities issued by WFG prior to the Filing Date were canceled and new shares
of common stock in the reorganized Company were to be issued.
The Common Stock being issued under the Plan will be fully paid and
non-assessable. Holders of Common Stock are entitled to receive dividends if,
when and as declared by the Company's Board of Directors, out of funds legally
available therefore, subject to any superior rights of holders of the Company's
19
<PAGE>
preferred stock. Upon liquidation, dissolution or winding up of the Company,
holders of such Common Stock are entitled to share ratably in assets available
for distribution, subject to any superior rights.
Holders of Common Stock are entitled to one vote per share with respect to
all matters submitted to a vote of the stockholders. The Certificate of
Incorporation and By-laws contain no restriction on the repurchase or redemption
of the Common Stock. Holders of Common Stock have no preemptive rights.
Changes in Control
- ------------------
As further set forth hereinabove in Item 1 the Plan provided for the
reservation or issuance of shares of Common Stock as follows: (i) 1,605,784
shares of Common Stock to the Class 3 general unsecured creditors ("Class 3");
(ii) 1,605,784 shares of Common Stock to the Class 4 securities law claimants
("Class 4"); 100,000 shares to the Class 6 indemnity claim holders; and (iii)
5,263,158 shares to the Plan Funder; and (iv) 331,157 shares to Joshua J. Angel.
As provided by the Plan, each member of Classes 3, 4 and 6 are entitled to
receive as of the Effective Date of the Plan such claim holders' pro rata
portion of the shares of Common Stock to be issued in satisfaction of their
Class' Claims. As of the date of this Registration Statement a majority of the
shares listed above have been issued.
(INTENTIONALLY LEFT BLANK)
20
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.
The common stock of WFG, which traded previously on the NASDAQ Stock Market
until February 24, 1994, is not currently traded on any national securities
exchange or on any over the counter market. WFG's shares, however, continued to
be quoted during the bankruptcy reorganization through the OTC Bulletin Board.
Bid Price Bid Price
Quarter Ended High Low
================================================================================
June 30, 1994 $ 0.560 $ 0.070
September 30, 1994 $ 0.150 $ 0.010
December 31, 1994 $ 0.010 $ 0.005
March 31, 1995 $ 0.020 $ 0.005
June 30, 1995 $ 0.030 $ 0.020
September 30, 1995 $ 0.020 $ 0.020
December 31, 1995 $ 0.020 $ 0.005
March 31, 1996 $ 0.005 $ 0.001
June 30, 1996 $ 0.001 $ 0.001
September 30, 1996 $ 0.001 $ 0.001
Pursuant to the Plan, WFG's shares were canceled and the new shares of the
Company were issued to creditors and the Plan Funder. As of March 31, 1998,
there were approximately 120 holders of record of the Company's Common Stock
with 8,905,883 shares of Common Stock outstanding. The Company's shares do not
currently trade on any national securities exchange or on any over the counter
market.
Potential Effects of Penny Stock Rules on Liquidity of Shares
- -------------------------------------------------------------
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system. If the
Company's securities were subject to the existing or proposed regulations on
penny stocks, the market liquidity for the Company's securities could be
severely and adversely affected by limiting the ability of broker-dealers to
sell the Company's securities.
Dividends
- ---------
The Company has paid no cash dividend since its inception and it is
unlikely that any cash dividend will be paid in the future. The declaration in
21
<PAGE>
the future of any cash or stock dividend will be at the discretion of the Board
of Directors depending upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. The Company has never made, nor adopted any policies with respect to,
in-kind distributions, and has no present intention of adopting any such
policies or of making any such distributions.
Item 2. Legal Proceedings.
In connection with its activities as a broker-dealer, the Company was a
defendant (along with the Company's previous president) in various civil actions
and an administrative proceeding brought by the SEC alleging violations of
various sections of the anti-fraud provisions of the federal securities laws.
Additionally the Company and certain of its previous officers were the subject
of NASD proceedings alleging violations of certain Exchange Act rules and NASD
rules which resulted in an adverse ruling against the Company and certain of the
Company's previous officers. The Company appealed the ruling and as a result of
a consent decree no longer operates as a broker-dealer.
The Bureau of securities for the State of New Jersey (the "Bureau") filed
an administrative complaint against the Company and certain of its officers
alleging violations of certain provisions of New Jersey securities laws.
Pursuant to a settlement with the Bureau, the registration of the Company as a
broker-dealer in the State of New Jersey was revoked and the State of New Jersey
was paid a monetary penalty of $5,000.
The Company was a defendant in two class action lawsuits, In re Hibbard
Brown & Co., et al. (the "Hibbard Brown Litigation") and Jerry W. Kapp, Joe
Basile and Norman C. Miller, individually and on behalf of all other persons
similarly situated v. F.N. Wolf & Company, Inc., Wolf Financial Group, Inc.,
Franklin N. Wolf, et al. (the "Kapp Litigation") (collectively the "Class Action
Lawsuits"). The Class Action Lawsuits alleged among other things, violations of
various sections of the anti-fraud provisions of the federal securities laws.
Claims under the Class Action Lawsuits aggregated in excess of $100 million.
The Company was also a party to a number of other litigations,
arbitrations, investigations and inquiries which arose in the ordinary course of
business.
As a result of the various legal proceedings pending against WFG and its
wholly owned subsidiary FNW, WFG and FNW filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code was filed
on August 24, 1994. A Second Amended Joint Plan of Reorganization, dated July 2,
1996, was confirmed by order of the United States Bankruptcy Court for the
Southern District of New York and entered on October 23, 1996. The Effective
Date of the Plan, pursuant to the Confirmation Order, was January 16, 1997.
Pursuant to the Plan, FNW was dissolved and its assets were absorbed into the
reorganized WFG.
In conjunction with the Plan, the Company entered into various settlement
agreements. FNW and the SEC executed a Consent and Stipulation agreement (the
"SEC Consent Agreement") in which FNW voluntarily consented to the entry of a
Final Order of Permanent Injunction against it. The SEC Consent Agreement
further provided that the SEC would be allowed to file an unsecured non-priority
claim, in the Bankruptcy Proceeding, for $8,814,235 and that such claim would be
22
<PAGE>
settled and discharged in full for $1,000,000. Additionally, as a result of the
bankruptcy filing the company was voluntarily released from the Kapp Litigation
and its class members were joined with the class members of the Hibbard Brown
Litigation. Pursuant to the Plan, the class members of the Hibbard Brown
Litigation were classified as Class 4 claims and are to receive $500,000 and
1,605,784 shares of common stock in the reorganized company.
The Company was also a party to a number of other litigations,
arbitrations, investigations and inquiries which arose in the ordinary course of
business. In accordance with the Bankruptcy Code, such matters may not be
continued.
An Order of the United States Bankruptcy Court for the Southern District of
New York was entered on November 6, 1996, modifying the Confirmation Order
solely with respect to the name of the reorganized WFG. Pursuant to the November
Order the name of the reorganized WFG was changed to Harter Financial, Inc., a
New York Corporation. The New York State Banking Department approved the use of
the word financial in the Company's name on April 11, 1997.
Item 3. Changes in and Disagreements With Accountants.
Prior to the filing of WFG's petition for reorganization under Chapter 11
of Title 11 of the United States Code Ernst & Young, LLP. ("Ernst & Young") was
engaged as the principal accountant to audit WFG's financial statements. The
last audit that Ernst & Young performed for WFG was for the fiscal year ending
June 1993.
As of the filing date, August 24, 1994, Ernst & Young was a creditor of the
WFG estate. Ernst & Young has not performed any audits for WFG subsequent to
audit for the fiscal year ending June 1993.
In connection with the audits of WFG's financial statements for each of the
two fiscal years ended June 30, 1993, and in the subsequent unaudited interim
period through December 31, 1993, there were no disagreements with Ernst & Young
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Ernst & Young would have caused Ernst & Young to make reference
to the matter in their report. From the period of December 31, 1993 until
January 31, 1997 Ernst & Young did not perform any work for WFG. There were no
disagreements with Ernst & Young, during the December 31, 1993 to January 31,
1997 period, on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Ernst & Young would have caused Ernst & Young to make
reference to the matter in their report.
Ernst & Young has provided a letter addressed to the Commission stating
that it agrees with the statements contained in proceeding paragraph.
Pursuant to an Order of the Bankruptcy Court for the Southern District of
New York, entered June 27, 1995, WFG was authorized to employ and appoint the
firm of Richard A. Eisner & Company, LLP as their auditors. Richard A. Eisner &
Company, LLP has agreed to continue to perform the audit for the reorganized
Company and has agreed to stand for re-election for the audit of the fiscal year
ending June 1998.
23
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
In the past three years, other than the securities that were issued to the
Plan Funder, the Company has not sold any securities which were not registered
under the Securities Act.
Item 5. Indemnification of Directors and Officers.
For time periods after the Filing Date, the Company's By-Laws include a
provision that obligates the Company to indemnify to the fullest extent not
prohibited by law any person who was or is party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that such person is or was a director, officer or employee of
the company or a constituent corporation absorbed in a consolidation or merger,
or is or was serving at the request of the company or a constituent corporation
absorbed in a consolidation or a merger, as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or is or was
a director or officer of the company serving at its request as an administrator,
trustee or other fiduciary of one or more of the employee benefit plans of the
company or other enterprise, against expenses (including attorneys' fees),
liability and loss actually and reasonably incurred or suffered by such person
in connection with such Proceeding, whether or not the indemnified liability
arises from any threatened, pending or completed Proceeding by or in the right
of the company, except to the extent that (i) such person is not otherwise
indemnified and (ii) such indemnification is not prohibited by applicable law.
(INTENTIONALLY LEFT BLANK)
24
<PAGE>
PART F/S
Financial Statements and Supplementary Data
- -------------------------------------------
See Financial Statements of the Registrant Commencing on Page F-1 herein.
Financial Statements and Exhibits
- ---------------------------------
Harter Financial, Inc.
Report on Audit of Financial Statements
for the Years Ended June 30, 1996 and June 30, 1997
And for the Nine Months Ended March 31, 1998 (Unaudited)
Table of Contents
PAGE
Report of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets as at
June 30, 1996, June 30, 1997 and
March 31, 1998 (Unaudited) F-2
Consolidated Statements of Operations
For the Year Ended June 30, 1996,
and For The Periods of July 1, 1996
to October 22, 1996, October 23,
1996 to June 30, 1997, October 23,
1996 to March 31, 1997 (Unaudited)
and For The Nine Months Ended March
31, 1998 (Unaudited) F-3
Consolidated Statements of
Stockholders' Equity (Capital
Deficiency) For The Periods Ended
July 1, 1995 to June 30, 1996, July
1, 1996 to October 22, 1996, October
23, 1996 to June 30, 1997 and July
1, 1997 to March 31, 1998
(Unaudited) F-4
Consolidated Statements of Cash Flows
For the Year Ended June 30, 1996,
and For The Periods of July 1, 1996
to October 22, 1996, October 23,
1996 to June 30, 1997, October 23,
1996 to December 31, 1996
(Unaudited) and For The Nine Months
Ended March 31, 1998 (Unaudited) F-5
Notes to Financial Statements F-6
25
<PAGE>
PART III
Item 1. Index to Exhibits.
Exhibits Page
- -------- ----
2 Plan of Reorganization dated July 2, 1996, as confirmed by
the Bankruptcy Court. A
3(i) Articles of Incorporation of Harter Financial, Inc.,
as amended. B
3(ii) Bylaws of Harter Financial, Inc. B
16 Letter to Ernst & Young, LLP. in accordance with
Regulation S-K, Item 304(a)(3) dated January 31,
1997 and letter from Ernst & Young, LLP.
dated June 3, 1997 regarding change in
certifying accountant. C
99 Order authorizing the retention of Richard A.
Eisner & Company, LLP.
as auditors dated June 27, 1995. A
99 Form of specimen certificate for Harter Financial,
Inc.'s common stock, $0.01 par value. B
99 Response letter of Harter Financial, Inc. to
comment letter of Securities and Exchange
Commission dated June 29, 1998 28
A. Previously filed with the Securities and Exchange Commission under
File Number 0-12221 as an exhibit to a Form 8-K filing. This filing was
made on March 6, 1997 and was amended by a subsequent Form 8-K/A filing
on March 15, 1997.
B. Previously filed with the Securities and Exchange Commission under
File Number 0-12221 as an exhibit to a Form 8-K filing. This filing was
made on April 11, 1997
C. Previously filed with the Securities and Exchange Commission under
File Number 0-12221 as an exhibit to a Form 8-K filing. This filing was
made on March 6, 1997 and was amended by a subsequent Form 8-K/A filing
on March 15, 1997. At the request of the Securities and Exchange
Commission the Company re-submitted Ernst & Young, LLP's letter in a
Form 8-K filing on June 4, 1997.
(INTENTIONALLY LEFT BLANK)
26
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
HARTER FINANCIAL, INC.
(Registrant)
By:/s/ Spencer J. Angel
Dated: July 10, 1998 --------------------------
Spencer J. Angel
Its: President, Treasurer
and Chief Executive Officer
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Harter Financial, Inc.
New Vernon, New Jersey
We have audited the accompanying consolidated balance sheets of Harter
Financial, Inc. and subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity (capital deficiency)
and cash flows for the period from July 1, 1996 to October 22, 1996 (the date of
confirmation of the Company's plan of reorganization in bankruptcy) and October
23, 1996 to June 30, 1997 and for the year ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Harter Financial, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for the period from July 1,
1996 to October 22, 1996 and October 23, 1996 to June 30, 1997 and for the year
ended June 30, 1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Harter Financial, Inc. will continue as a going concern. As discussed in
Note A to the consolidated financial statements, Harter Financial, Inc. and one
of its subsidiaries filed voluntary petitions seeking reorganization under
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on
August 24, 1994. In October 1996, the Company's plan of reorganization was
confirmed. To date the Company has incurred operating losses, which raise
substantial doubt about the Company's ability to continue as a going concern.
Richard A. Eisner & Company, LLP
New York, New York
September 26, 1997
F-1
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
March 31, ---------------------------
1998 1997 1996
---------- ------------ ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents (Note C[5]) $ 35,069 $ 1,063,458 $ 2,326,708
Receivable from brokers 119,052 49,669 5,122
Securities owned, at market value (Note C[3]) 352,054 902,567 18,512
Securities not readily marketable,
at estimated fair value (Notes C[3] and D):
Equity securities 200 200 401,575
Loan receivable (net of allowance for
losses of $45,000 in 1997) 285,334 145,000 237,500
Investment in net assets of and advances
to equity investee (Note K) - 0 - 142,345
------------ ------------ ------------
791,709 2,303,239 2,989,417
Furniture, fixtures, equipment and leasehold
improvements at cost (less accumulated
depreciation and amortization of $852,363
in 1996) (Note C[4]) 3,419 1,103 60,628
Other assets 66,329 31,770 30,841
Loans receivable - others 32,148 75,499
------------ ------------ ------------
$ 893,605 $ 2,411,611 $ 3,080,886
============ ============ ============
LIABILITIES
Post-petition liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 184,295 $ 117,395 $ 228,163
Deferred tax attributed to pre-
reorganization appreciation of securities 105,000
------------ ------------ ------------
184,295 222,395 228,163
------------ ------------ ------------
Pre-petition liabilities (Notes C[1] and E):
Accounts payable and accrued expenses 925,446 1,925,446
Priority tax claims 2,395 2,395 2,395
Subject to compromise 15,190,681
------------ ------------ ------------
927,841 1,927,841 15,193,076
------------ ------------ ------------
Total liabilities 1,112,136 2,150,236 15,421,239
Commitments and contingencies (Notes B and J)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Notes A, B and I)
Common stock - $.01 par value; authorized
30,000,000 shares, 8,905,883 shares
issued and outstanding in 1997;
15,000,000 shares authorized in 1996
and 6,738,300 issued and outstanding 89,059 89,059 67,383
Additional paid-in capital 994,690 889,690 7,079,899
Accumulated deficit (19,487,635)
Unrealized loss on marketable securities
net of taxes (21,286) (20,915)
Deficit from October 23, 1996 (1,280,994) (696,459)
------------ ------------ ------------
Total stockholders' equity (capital
deficiency) (218,531) 261,375 (12,340,353)
------------ ------------ ------------
$ 893,605 $ 2,411,611 $ 3,080,886
============ ============ ============
</TABLE>
See independent auditors' report and notes to financial statements F-2
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
formerly Wolf Financial Group, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months October 23, October 23, July 1,
Ended 1996 to 1996 to 1996 to Year Ended
March 31, March 31, June 30, October 22, June 30,
1998 1997 1997 1996 1996
------------- ------------ ---------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income $ 42,316 $ 4,121 $ 10,139 $ 17,911 $ 76,246
Continuing operating expenses (522,231) (344,948) (490,877) (220,889) (685,777)
Realized and unrealized gain
(loss) on marketable and not
readily marketable securities 57,725 (80,699) (20,894) (45,000)
Reorganization items - expenses
(Note G) (84,742) (157,247) (248,914) (298,266)
------------ --------- --------- ------------ ---------
Loss from operations (422,190) (506,268) (658,879) (496,892) (907,797)
Equity in loss from investee
- net of related expenses
(Note K) (162,345) (40,000) (40,000) (190,000)
------------ --------- --------- ------------ ---------
Loss before taxes, discontinued
operations, and extraordinary
item (584,535) (546,268) (698,879) (686,892) (907,797)
Income (loss) from discontinued
operations (Note H) 2,420 2,420 (42,460) 62,702
Loss before extraordinary item (584,535) (543,848) (696,459) (729,352) (845,095)
Extraordinary item:
Forgiveness of debt (Note B) 13,066,541
------------ --------- --------- ------------ ---------
Net (loss) income $ (584,535) $(543,848) $(696,459) $ 12,337,189 $(845,095)
------------ --------- --------- ------------ ---------
Net loss per common share
(Note C[8]) $ (.07) $ (.06) $ (.08)
============ ========= =========
Weighted average number of
common shares outstanding 8,905,833 8,905,833 8,905,833
------------ --------- ---------
</TABLE>
See independent auditors' report and notes to financial statements F-3
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Consolidated Statements of Stockholders' Equity (Capital Deficiency) to
October 22, 1996
<TABLE>
<CAPTION>
Common Stock
Par Value $.01
--------------
Number
of Shares Retained
Issued Additional Earnings Unrealized
and Paid-in (Accumulated Gain on
Outstanding Amount Capital Deficit) Investment Total
----------- ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1995 6,738,300 $ 67,383 $ 7,079,899 $(18,642,540) $(11,495,258)
Net loss for the year ended
June 30, 1996 (845,095) (845,095)
---------- ------------ ----------- ------------ --------- ------------
Balance - June 30, 1996 6,738,300 67,383 7,079,899 (19,487,635) (12,340,353)
Net income for the period July 1,
1996 to October 22, 1996 12,337,189 12,337,189
Change in market value of securities
available-for-sale, net of taxes $ 341,343 341,343
Chapter 11 Reorganization can-
cellation of old stock (including
sale of 5,263,158 shares of
common stock to plan funder for
subscription receivable of
$300,000) (6,738,300) (67,383) (6,741,720) 7,150,446 (341,343) 0
Issuance of stock in Chapter 11
Reorganization 8,905,883 89,059 428,511 517,570
---------- ------------ ----------- ------------ --------- ------------
Balance - October 22, 1996 8,905,883 $ 89,059 $ 766,690 $ 0 $ 0 $ 855,749
========== ============ =========== ============ ========= ============
=========================================================================================================================
Consolidated Statements of Stockholders' Equity (Capital Deficiency) From
October 23, 1996
Balance - October 23, 1996 8,905,883 $ 89,059 $ 766,690 $ 0 $ 0 $ 855,749
Net loss for the period October 23,
1996 to June 30, 1997 (696,459) (696,459)
Net unrealized securities loss, net
of taxes (20,915) (20,915)
Tax attributable to pre-reorganziation
appreciation of securities
realized in current period 123,000 123,000
---------- ------------ ----------- ------------ --------- ------------
Balance - June 30, 1997 8,905,883 89,059 889,690 (696,459) (20,915) 261,375
Net loss for the nine months
ended March 31, 1998 (unaudited) (584,535) (584,535)
Change in market value of securities
available-for-sale, net of taxes (371) (371)
Tax attributable to pre-
reorganziation appreciation of
securities realized in current
period 105,000 105,000
---------- ------------ ----------- ------------ --------- ------------
Balance - March 31, 1998 (unaudited) 8,905,883 $ 89,059 $ 994,690 $ (1,280,994) $ (21,286) $ (218,531)
========== ============ =========== ============ ========= ============
</TABLE>
See independent auditors' report and notes to financial statements F-4
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months October 23, October 23, July 1,
Ended 1996 to 1996 to 1996 to Year Ended
March 31, March 31, June 30, October 22, June 30,
1997 1997 1997 1996 1996
------------- ------------ ---------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income $ (584,535) $ (543,848) $ (696,459) $ 12,337,189 $ (845,095)
------------ ----------- ----------- ------------ -----------
Adjustments to reconcile net
(loss) income to net cash
provided by (used in)
operating activities:
Depreciation and amorti-
zation 460 4,285 6,856 10,006 44,287
Deferred interest income (39,719)
Equity in loss from
investee 162,345 40,000 40,000 190,000
Realized (gain) loss on
sale of available-
for-sale securities (57,724) 80,699 20,894 45,000 (4,116)
Forgiveness of debt (13,066,541)
Changes in:
Due to/from brokers (net) (69,383) (261,887) (49,669) 5,122 2,151,199
Securities not readily
marketable, at
estimated fair value 401,375 (353,000)
Other assets (34,559) (1,252) (10,842) 9,915 (3,170)
Loans receivable-others 43,351 25,000 (499) (75,000)
(Increase) decrease in
loans receivables (160,334) (175,000) (247,345) (77,500) 12,500
Accounts payable and
accrued expenses:
Pre-petition (1,000,000) (6,731)
Post-petition 66,900 (233,970) (208,844) 116,950 66,239
------------ ----------- ----------- ------------ -----------
Net cash provided by
(used in) continu-
ing operations (1,633,479) (1,065,973) (1,145,908) (103,484) 1,022,394
------------ ----------- ----------- ------------ -----------
Net cash provided by discon-
tinued operations 42,663
------------ ----------- ----------- ------------ -----------
Net cash provided by
(used in)
operating activities (1,633,479) (1,065,973) (1,145,908) 1,022,394 (60,821)
Cash flows from investing
activities:
Purchase of equipment (2,776)
Purchases of available-
for-sale securities (257,034) (218,293) (480,752) (652,376)
Proceeds from the sale of
available-for-sale
securities 864,900 473,628 776,607 556,447
------------ ----------- ----------- ------------ -----------
Net cash provided by
(used in) invest-
ing activities 605,090 255,335 295,855 (652,376) 556,447
</TABLE>
F-5A
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
Nine Months October 23, October 23, July 1,
Ended 1996 to 1996 to 1996 to Year Ended
March 31, March 31, June 30, October 22, June 30,
1997 1997 1997 1996 1996
------------- ------------ ---------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance of stock 300,000
-----------
Net increase (decrease) in cash
and cash equivalents (1,028,389) (810,638) (550,053) (713,197) 1,578,841
Cash and cash equivalents at
beginning of period 1,063,458 1,613,511 1,613,511 2,326,708 747,867
------------ ----------- ----------- ------------ -----------
Cash and cash equivalents at
end of period $ 35,069 $ 802,873 $ 1,063,458 $ 1,613,511 $ 2,326,708
------------ ----------- ----------- ------------ -----------
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest $ 1,306 $ 2,650
Income taxes $ 2,687 $ 12,914
Details of operating cash
receipts and payments
resulting from reorgan-
ization:
Interest received on
cash accumulated
because of the Chapter
11 proceedings $ 29,782 $ 140,562
Professional fees paid
for services rendered
in connection with the
Chapter 11 proceedings $ 107,566 $ 251,927
See Note B for discussion of plan of
reorganization and forgiveness of debt
</TABLE>
See independent auditors' report and notes to financial statements F-5B
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Notes to Financial Statements
(Unaudited as to March 31, 1998 and for the periods ended March 31, 1998
and 1997)
NOTE A - BASIS OF PRESENTATION
Wolf Financial Group, Inc.("WFG") and its wholly owned subsidiary, F.N. Wolf &
Co., Inc. ("FNW"), filed voluntary petitions seeking reorganization under
Chapter 11 of Title 11 of the United States Code (the"Bankruptcy Code") on
August 24, 1994. Prior to the filing, FNW discontinued its operations (effective
June 30, 1994) as a registered broker and dealer in securities under the
Securities Exchange Act of 1934. WFG's other wholly owned subsidiary, Planner's
Insurance Agency, Inc. ("Planner's"), has limited activities.
Prior to the filing date, three outside directors were elected as a majority of
the board of WFG. Under the amended joint plan of reorganization, the focus of
the business will be that of a quasi investment banker, merchant banker and
financial consultant to small and medium sized companies seeking nonpublic
bridge financings. On November 6, 1996, by order of the United States Bankruptcy
Court, the Company changed its name to Harter Financial, Inc. (the "Company ").
The Company intends to seek opportunities to acquire other operating companies.
Pending confirmation of the Company's plan of reorganization, the Company
carried out limited business activities, including issuing bridge loans to
certain unrelated third parties. On October 23, 1996, the Bankruptcy Court
confirmed the joint amended plan of reorganization (the "Plan") dated July 2,
1996 (see Note B). In accordance with Statement of Position No. 90-7 ("SOP
90-7") of the American Institute of Certified Public Accountants, WFG is
required to account for the reorganization using fresh-start reporting (see Note
B). Accordingly, all consolidated financial statements for any period prior to
October 22, 1996, are periods prior to the implementation of fresh-start
reporting, and are not comparable to the financial statements for periods after
the implementation of fresh-start reporting. The Company has limited operations
and therefore, its ability to continue as a going concern is contingent upon its
ability to attain profitable operations.
The accompanying financial statements as of March 31, 1998 and for the periods
ended March 31, 1998 and 1997 are unaudited. In the opinion of management, they
reflect all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of the Company's financial position and
results of operations.
The results of operations and cash flows for the nine months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
full year ending June 30, 1998.
NOTE B - JOINT AMENDED PLAN OF REORGANIZATION
On October 23, 1996 the Bankruptcy Court confirmed the Plan which provided for
the following:
o Class 1 consists of secured claims of which there are none.
o Class 2 consists of priority wage and tax claims. Class 2 creditors holding
claims of approximately $225,446 are to be paid in full.
o Class 3 consists of all general unsecured claims, other than insider claims,
indemnity claims and securities claims. Class 3 creditors holding claims of
approximately $1,605,784 are to receive one share of common stock in the
reorganized entity (the "New Stock") for each $1 in claim. Accordingly,
Class 3 creditors were issued 1,605,784 shares of New Stock. As of the
confirmation date, the value of each share of New Stock was estimated in the
Plan at approximately $.06.
F-6
<PAGE>
NOTE B - JOINT AMENDED PLAN OF REORGANIZATION (CONTINUED)
o Class 4 consists of securities claims against the Company. Class 4 claims
approximated $100 million (see Note I). Class 4 creditors will receive cash
of $500,000, the guaranteed minimum cash payment under the Plan, and New
Stock equal to the number of shares of New Stock issued to holders of Class
3 claims (1,605,784 shares of New Stock).
o Class 5 consists of claims of the Securities and Exchange Commission (the
"SEC"). The SEC had a number of actions pending against the Company
asserting an aggregate liability of approximately $13 million, for which the
SEC received an allowed claim of $8,814,235 (see Note I). The SEC received
cash of $1 million in settlement of its claim.
o Class 6 claims consist of all insider and indemnity claims. Class 6 claims
amounted to approximately $448,995. These claims will share pro rata the
distribution of 100,000 shares of New Stock.
In addition to the above claims, the Company has agreed to pay $200,000 to the
Internal Revenue Service in settlement of a disputed priority tax claim of up to
$3,464,268 and approximately $2,395 for undisputed priority tax claims.
The Plan also provided that on the effective date of the Plan, certain
individuals (the "Plan Funder") would purchase an aggregate of 5,263,158 shares
of New Stock for $300,000 ($.057 per share, the value provided in the Plan) and
for the Company to issue 331,157 shares of New Stock (valued at $18,876), (to a
financial consultant) which equaled 10% of the number of shares issued to the
holders of Class 3, Class 4 and Class 6 claims in consideration for services
rendered to the Company during the Chapter 11 proceedings.
F-7
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
NOTE B - JOINT AMENDED PLAN OF REORGANIZATION (CONTINUED)
WFG and subsidiaries accounted for the reorganization using fresh-start
reporting. In accordance with Statement of Position 90-7, at the date of
reorganization, assets and liabilities of the Company have been valued at their
fair value in the manner specified by APB Opinion 16, Business Combinations.
Accordingly, the liabilities are restated to reflect their reorganization value
at the date of reorganization. There were no adjustments to the recorded values
of assets as a result of the Plan. The following table ("Plan of Reorganization
Recovery Analysis") summarizes the adjustments required to record the
reorganization and the issuance of the various securities in connection with the
implementation of the Plan.
<TABLE>
<CAPTION>
Amounts Recovery
Recorded ------------------------------------------------------------------
Prior to Elimination Additional Common Stock
Implementation of Debt Surviving Paid-in Par
of The Plan and Equity Debt Cash Capital % Value
----------- ----------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Post-petition liabilities $ 345,112 $ 326,236 $ 15,564 9.1% $ 3,312
============
Claim/interest:
Undisputed priority tax
claims 2,395 2,395
Class 2 225,446 $ 225,446
Class 3 1,605,784 $ (1,509,437) 80,289 44.1 16,058
Class 4 596,347 500,000 80,289 44.1 16,058
Class 5 8,814,235 (7,814,235) 1,000,000
Class 6 448,995 (442,995) 5,000 2.7 1,000
IRS Claim 3,464,268 (3,264,268) 200,000
Trade and other
miscellaneous claims 35,606 (35,606)
----------- ------------
15,193,076 (13,066,541)
Additional paid-in
capital 7,079,899 (6,741,720) 338,179
Common stockholder 67,383 (67,383)
Deficit (19,875,644) 19,875,644
Total $ 2,464,714 $ - 0 - $ 328,631 $1,925,446 $519,321 100.0% $36,428
============ ============ ========== ========== ======== ====== =======
</TABLE>
F-8A
<PAGE>
Table, continued
Total Recovery
-----------------------
$ %
------------ ---------
Post-petition liabilities $ 345,112 100%
============
Claim/interest:
Undisputed priority tax
claims 2,395 100
Class 2 225,446 100
Class 3 96,347 6
Class 4 596,347 100
Class 5 1,000,000 11
Class 6 6,000 1
IRS Claim 200,000 6
Trade and other
miscellaneous claims - 0 -
2,126,535
Additional paid-in
capital 338,179
Common stockholder - 0 -
Deficit - 0 -
Total $2,464,714
=============
F-8B
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Liabilities subject to compromise:
Liabilities subject to compromise include obligations such as various
litigation claims notes payable, due to clearing brokers and trade payables
which were outstanding on the bankruptcy filing date and were subject to
compromise under the terms of the joint plan.
[2] Securities transactions:
Securities transactions and related revenues were recorded in the consolidated
financial statements on a settlement-date basis; however, all transactions were
reviewed and adjusted to a trade-date basis for significant changes.
[3] Security valuation:
The Company classifies certain investments as "available-for-sale". Investments
in securities that are classified as available-for-sale and have readily
determinable fair values are measured at fair market value in the balance
sheet, and unrealized holding gains and losses for these investments are
reported as a separate component of stockholders' equity net of tax effect
until realized. Realized gains and losses on sale of investments, as determined
on the first-in, first-out method are included in the consolidated statements
of operations.
Securities not readily marketable held by the Company are carried at fair value
as determined by management, with related changes in unrealized appreciation or
depreciation reflected in continuing net income (loss).
[4] Furniture, fixtures, equipment and leasehold improvements:
Furniture, fixtures and equipment are recorded at cost and are generally
depreciated over a five to seven-year period using the straight-line method.
Leasehold improvements are amortized over the lesser of the economic useful
life of the improvement or the terms of the respective lease, using the
straight-line method.
[5] Cash and cash equivalents:
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less when acquired
to be cash equivalents.
The Company maintains cash accounts in a bank insured by the Federal Deposit
Insurance Corporation ("FDIC"). The FDIC maximum insurable limit of cash
deposits is $100,000 per account. At June 30, 1997 and 1996, the Company had
cash in this bank in excess of the FDIC limit.
[6] Principles of consolidation:
The consolidated financial statements include the accounts of Harter Financial,
Inc. and its wholly owned subsidiaries, F.N. Wolf & Co., Inc. (through October
22, 1996) and Planner's Insurance Agency, Inc. All significant intercompany
transactions and accounts have been eliminated. The equity method of accounting
is used for investments in companies 20% to 50% owned. At June 30, 1997, the
Company had a 24% equity interest in Autoparts Warehouse, Inc. At March 31,
1998, the Company had a 32% equity interest in Autoparts Warehouse, Inc.
F-9
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
[8] Loss per share:
Loss per share for periods subsequent to October 22, 1996 is computed based on
the number of shares of common stock issued in connection with the plan of
reorganization, including the number of shares sold to the Plan Funder.
Earnings (loss) per share data for the periods prior to October 23, 1996 is not
presented as such consolidated financial statements were for periods prior to
the implementation of fresh-start reporting and are not comparable to
subsequent consolidated financial statements.
[9] Recent pronouncement:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 established new standards for computing and presenting earnings per share.
SFAS 128 is effective for periods ending after December 15, 1997. The above
pronouncement will not have an effect on the net (loss) per share information
presented in the consolidated financial statements.
The Financial Accounting Standards Board has also recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure," No. 130, "Reporting Comprehensive Income," No.
131,"Disclosures about Segments of an Enterprise and Related Information," No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
and No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The above pronouncements will not have a significant effect on the information
presented in the consolidated financial statements.
NOTE D - SECURITIES AVAILABLE-FOR-SALE
At March 31, 1998 and June 30, 1997, all of the Company's marketable securities
were classified as available-for- sale. The following tables summarize the
Company's securities:
March 31, 1998
---------------------------------------
(unaudited)
Market Unrealized
Cost Value Loss
--------- --------- ----------
Common stock $373,340 $352,054 $(21,286)
========= ========= =========
June 30, 1997
---------------------------------------
Market Unrealized
Cost Value Loss
--------- --------- ----------
Common stock $923,482 $902,567 $(20,915)
========= ========= =========
F-10
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
NOTE D - SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
From the period of October 23, 1996 to June 30, 1997 and for the nine months
ended March 31, 1998, the Company realized a (loss) and gain of approximately
($21,000) and $58,000 on the sale of available-for-sale securities respectively.
NOTE E - PRE - PETITION LIABILITIES
Pre-petition liabilities (unsecured) consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997 June 30, 1996
----------- ----------- ------------------------
(unaudited)
<S> <C> <C> <C> <C>
Accounts payable and accrued expenses $ 925,446 $ 1,925,446
Priority tax claims 2,395 2,395 $ 2,395
Subject to compromise:
Notes payable:
Note payable - Therapeutic
Patch Research N.V. [1] $ 1,000,000
Note payable - Anker Bank [2] 250,000
Other accounts payable and
accrued expenses (a) 13,940,681 15,190,681
----------- ----------- ----------- -----------
$ 927,841 $ 1,927,841 $15,193,076
----------- ----------- ----------- -----------
</TABLE>
The Plan of reorganization did not specify the timing for satisfaction of the
pre-petition liabilities.
(a) Pre-petition liabilities include an aggregate of $9,410,582 representing a
class action securities litigation in excess of $100,000,000 (recorded at the
settlement amount of $596,347) and an allowed claim of $8,814,235 related to
certain SEC litigation which was ultimately settled for $1,000,000 (see Note I).
[1] Note payable - Therapeutic Patch Research N.V.:
The note payable, dated May 3, 1994, maturing on May 31, 1995 was issued to
Therapeutic Patch Research N.V. in the principal amount of $1,000,000 in
exchange for 200,000 shares of Pharma Patch PLC. The note had a 10% interest
rate and was issued with 5-year warrants to acquire 1,000,000 shares of WFG
common stock at an exercise price of $.25 per share. The warrants were
estimated to have a minimal value. WFG defaulted on the note. Under the
bankruptcy proceeding, the warrants were canceled and the note payable was
considered unsecured and was classified as a Class 3 liability which was
subject to compromise (see Note B).
F-11
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
NOTE E - PRE - PETITION LIABILITIES (CONTINUED)
[2] Note payable - Anker Bank:
The note payable, dated May 25, 1994, issued to Anker Bank in the amount of
$250,000, bearing interest at 10% was convertible into WFG common stock at a
rate of $1.00 principal amount for each share up to the maturity of the note on
May 31, 1996. In addition, WFG issued a warrant to Anker Bank to purchase
250,000 shares of WFG common stock at an exercise price of $.25 per share
expiring on May 31, 1999. The warrants were estimated to have a minimal value.
Pursuant to the Plan, the warrants were cancelled. Anker Bank did not file a
claim under the plan of reorganization and thus is deemed to be barred from
filing a claim by operation of law.
NOTE F - INCOME TAXES
Expected tax expense (benefit) based on the statutory rate is reconciled with
actual tax expense (benefit) as follows:
Percent of Pre-tax
Earnings (Loss)
---------------------------------------
October 23, July 1,
Nine Months 1996 1996
Ended to to
March 31, June 30, October 22,
1998 1997 1996
----------- ------------ -----------
(unaudited)
Income tax provision (benefit)
statutory rate $(234,000) $ (279,000) $4,934,000
Nontaxable items 63,000 (5,226,000)
Increase in valuation allowance
on deferred tax asset 225,000 168,000
Tax on unrealized gain of
available for sale securities 228,000
Other 9,000 48,000 64,000
--------- ----------- ----------
$ 0 $ 0 $ 0
========= =========== ==========
The principal components of deferred tax assets, liabilities and the valuation
allowance are as follows:
March 31, June 30,
1998 1997
--------- --------
(unaudited)
Deferred tax assets:
Federal and state net operating
loss carryforwards $ 236,000 $ 76,000
Loss from equity investment 157,000 92,000
--------- ---------
Total deferred tax assets,
before valuation allowance 393,000 168,000
Valuation allowance (393,000) (168,000)
--------- ---------
Total deferred tax assets $ 0 $ 0
========= =========
F-12
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Notes to Financial Statements
(Unaudited as to March 31, 1998 and for the periods ended
March 31, 1998 and 1997)
NOTE F - INCOME TAXES (CONTINUED)
The Company's deferred tax asset has been fully reserved as the likelihood of
its future realization cannot be presently determined. During the period from
October 23, 1996 to June 30, 1997, the valuation allowance increased by
$168,000.
As of June 30, 1997, the Company has a net operating loss carryforward of
approximately $191,000, expiring in the year 2012.
NOTE G - REORGANIZATION ITEMS
Reorganization items consist of expenses and other costs directly related to the
reorganization of the debtors, since the Chapter 11 filing. Reorganization items
incurred are included in the consolidated statements of operations and are
summarized as follows:
October 23, October 23, July 1,
1996 1996 1996
to to to Year Ended
March 31, June 30, October 22, June 30,
1997 1997 1996 1996
---------- ---------- ---------- -----------
(unaudited)
Legal notices $145,998 $ 104,635
Bankruptcy fees 4,250 11,000
Professional fees $102,613 $190,950 126,442 323,193
Interest (income) (17,871) (33,703) (27,776) (140,562)
-------- -------- -------- ---------
$ 84,742 $157,247 $248,914 $ 298,266
========= ======== ======== =========
NOTE H - DISCONTINUED OPERATIONS
The Company had been involved in various civil and regulatory litigation in
connection with its brokerage operations. On June 30, 1994, the Company
determined to discontinue all operations in consideration of the litigation
discussed in Note I. In connection with the decision to discontinue operations,
the Company recorded a charge of $12,874,850 consisting of a provision for
estimated losses on disposal of assets and a provision for estimated losses
through the expected time of discontinuance including $8,814,235, as a
Securities and Exchange Commission allowed claim; $3,464,268, as an Internal
Revenue Service tax claim, as discussed in Note B, and a settlement amount of
$500,000 and 1,605,784 shares of New Stock valued at $96,347 for various class
action claims involving multiple creditors seeking damages in excess of
$100,000,000.
F-13
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Notes to Financial Statements
(Unaudited as to March 31, 1998 and for the periods ended
March 31, 1998 and 1997)
NOTE H - DISCONTINUED OPERATIONS (CONTINUED)
Results from discontinued operations are as follows:
October October
23, 1996 23, 1996 July 1, Year
to to 1996 to Ended
March 31, June 30, October 22, June 30,
1997 1997 1996 1996
======== ====== ======== =======
(unaudited)
Revenues:
Commissions $ 2,420 $2,420 $ 203 $34,118
Trading and investment
gains 4,116
Other 24,468
-------- ------ -------- -------
2,420 2,420 203 62,702
Loss on disposal (no income
tax benefit) (42,663)
-------- ------ -------- -------
Income (loss) from discontinued
operations $ 2,420 $2,420 $(42,460) $62,702
======== ====== ======== =======
NOTE I - LITIGATION AND REGULATORY MATTERS
[1] Regulatory matters:
In connection with its discontinued activities as a broker-dealer, the Company
was a defendant (along with the Company's then president) in various civil
actions and an administrative proceeding brought by the SEC alleging violations
of various sections of the anti-fraud provisions of the federal securities laws.
Pursuant to the Plan, the SEC received $1 million on account of its allowed
Class 5 claim in the amount of $8,814,235.
Prior to the filing, the Company and certain of its officers were the subject of
NASD proceedings alleging violations of certain Exchange Act rules and NASD
rules which resulted in an adverse ruling against the Company and certain
officers. The Company appealed the NASD ruling. The Company no longer operates
as a broker-dealer.
The Bureau of Securities for the State of New Jersey (the "Bureau") filed an
administrative complaint against the Company and certain of its officers
alleging violations of certain provisions of New Jersey securities laws.
Pursuant to a settlement with the Bureau, the registration of the Company as a
broker-dealer in the State of New Jersey was revoked and the State of New Jersey
was paid a monetary penalty of $5,000.
[2] Class action litigation:
The Company was a defendant in a class action lawsuit entitled In re Hibbard
Brown & Co. Securities Litigation, alleging among other things, violations of
various sections of the anti-fraud provisions of the federal securities laws.
The Company was also a defendant in a related class action lawsuit captioned
Jerry W. Kapp, Joe Basile and Norman C. Miller, individually and on behalf of
all other persons similarly situated v. F.N. Wolf & Company, Inc., Wolf
Financial Group, Inc., Franklin N. Wolf, et al. Claims under the class action
lawsuits, (together, the "Securities Claims") aggregated in excess of $100
million. Under the Plan, plaintiffs in the Securities Claims (Class 4 claims)
are to receive $500,000 (the guaranteed minimum under the Plan) and 1,605,784
shares of common stock, valued at $96,347, in the reorganized company.
F-14
<PAGE>
HARTER FINANCIAL, INC. AND SUBSIDIARIES
(formerly Wolf Financial Group, Inc.)
Notes to Financial Statements
(Unaudited as to March 31, 1998 and for the periods ended
March 31, 1998 and 1997)
NOTE I - LITIGATION AND REGULATORY MATTERS (CONTINUED)
[2] Class action litigation: (continued)
The Company was also a party to a number of other litigations, arbitrations,
investigations and inquiries which arose in the ordinary course of business.
Under the Plan, such matters may not be continued.
NOTE J - LEASE COMMITMENT
The Company was obligated under an operating lease for its administrative office
premises which expired on August 31, 1997 at a monthly rental of $3,400.
On August 1, 1997 the Company entered into an operating lease for the premises
of its administrative office. The lease term from August 1, 1997 to July 31,
2000 includes future minimum rent payments as follows:
Year Ending
June 30,
1998 $ 39,600
1999 43,200
2000 45,400
2001 3,800
-----------
$132,000
-----------
NOTE K - EQUITY IN NET ASSETS OF AND ADVANCES TO EQUITY INVESTEE
From August of 1996 through June of 1997, the Company acquired 24% of the issued
and outstanding common stock in Autoparts Warehouse, Inc. for $90,000 and made
loans of $242,345 to the investee. As of March 31, 1998 the Company's interest
has increased to 32% and loans amounted to $302,345, which have been fully
reserved. This investment is accounted for under the equity method of accounting
(20% to 50% owned). Unaudited summarized financial information for the Company's
investment in and advances to Autoparts Warehouse, Inc.:
As of
As of June 30, 1997 and
March 31, 1998 for the Period From
and for the Nine February 1, 1997
Months Ended to
March 31, 1998 June 30, 1997
---------------- -------------------
(Unaudited) (Unaudited)
Net sales $ 796,000 $ 548,000
=========== =========
Gross profit on sales $ 251,000 $ 300,000
=========== =========
Net loss $ (651,000) $ (87,400)
=========== =========
Current assets $ 389,000 $ 608,600
Noncurrent assets 119,000 83,100
Total assets $ 508,000 $ 691,700
----------- ---------
Current liabilities 1,246,000 $ 662,500
Equity (deficit) (738,000) 29,200
----------- ---------
Total liabilities and equity $ 508,000 $ 691,700
=========== =========
F-15
Harter Financial, Inc.
Box 338, Village Road
New Vernon, N.J. 07976
(973) 734-0100
July 15, 1998
Mr. Todd K. Schiffman, Assistant Director
Div. of Corporate Finance
c/o Securities & Exchange Commission
Mail Stop 4-8
Washington, DC 20549
Re: Harter Financial, Inc. (the "Company")
Registration Statement on Form 10-SB
File No.-0-29692
Dear Mr. Schiffman:
This is in response to your comment letter dated June 29, 1998 regarding
the subject registration statement that was filed by Harter Financial, Inc.
Enclosed is a hard copy of the amended filing which addresses the comments made
by the Commission. An Edgar filing is also being made with the applicable
changes as summarized below:
Plan of Reorganization page 2 ( Now Page 2 & 3)
- ------------------------------
1. The "Plan Funder" was defined in the amended Plan of Reorganization dated
November 6, 1996. Capital was provided to the Company during the reorganization
process by the "Plan Funder".
Description of Business - Present Capital Investments, page 3 (Now Pages 3-8)
- -------------------------------------------------------------
2. The term "suitable businesses" has been deleted from page 3 of the Form
10-SB.
3. All of the company's investments are detailed on pages 3-8 of the Form 10-SB.
4. The initial investments in AutoParts Warehouse, Azurel, Ltd. and Fidelity
Medical, Inc. were made prior to the date that the name of Wolf Financial Group,
Inc. was changed to Harter Financial, Inc. All subsequent investments have been
made by Harter Financial, Inc. in the above companies as well as any other
entities discussed on pages 3 - 8 of the Form 10-SB.
1. Autoparts Warehouse, page 4 (Now Pages 4 & 5)
- -------------------------------
5. The performance of the Company's loan to a principal is clarified on page 5
of the Form 10-SB.
2. FCI Food Group, page 5 (Now Page 6)
- -------------------------
6. The Company's equity interest in FCI Group is stated on page 6 of the Form
10-SB.
28
<PAGE>
5. Ivax Corporation, page 7 (Now Page 8)
7. The Company's ownership interest in Ivax Corporation is included on page 8.
In addition, other equity interests are detailed on pages 3-8 of the Form 10-SB.
Regulations, page 8 (Now Page 9)
- -------------------
8. The Company has conferred with counsel regarding its position that it is
exempt from the Investment Company Act of 1940 in accordance with the provisions
of Section 6.(a)(2). A written opinion has not been requested or issued to date.
The Company presently has no plans to offer its stock for sale.
9. The Company has not sold any securities during the reorganization process.
All shares were issued to creditors on a pro-rata distribution and to the "Plan
Funder" in accordance with the confirmed Plan of Reorganization.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page 10 ( Now pages 11-14)
- -------------------------------------------------------------------------------
10. During the bankruptcy reorganization period financial reports were issued as
required to the U.S. Trustee. Upon confirmation of the Plan of Reorganization a
Form 10-SB was filed with the Commission.
11. The Company's plan to continue as a going concern is expanded on page 14 of
the Form 10-SB.
Security Ownership of Certain Beneficial Owners and Management, page 14
- -----------------------------------------------------------------------
(Now Page 15)
12. Mr. Joshua Angel has furnished the Company with the following information
which is in response to your comment:
Mr. Angel is an attorney who specializes in the financial reorganization of
troubled companies. Because of his expertise in reorganizing troubled
companies, Bolzano sought out Mr. Angel in May of 1994 and requested that
he sit as an outside director on the WFG board of directors. Prior to that
time Bolzano was unknown to Mr. Angel. Since that time, Mr. Angel has had
no association with Bolzano.
The Bolzano equity interest in the Company emanates from its pro-rata
distribution on account of Bolzano's Allowed Claim in the WFG bankruptcy.
This distribution was made in accordance with the WFG confirmed Plan of
Reorganization. A copy of that plan was previously filed with the
Commission.
Joshua J. Angel, page 16 (Now Page 17)
- ------------------------
13. Disclosure as required in Item 401(d) of Regulation S-B is made on pages 17
and 18 of the Form 10-SB.
29
<PAGE>
Market Price of and Dividends on the Registrant's Common Equity and Related
- ---------------------------------------------------------------------------
Stockholder Matters, page 20 (Now Pages 21 & 22)
- ----------------------------
14. The price of the common stock listed on page 20 was for the common stock of
WFG which was canceled in its entirety under the provisions of the Plan of
Reorganization. To our knowledge, shares of Harter Financial, Inc. have not been
traded in any public market. Additional disclosure regarding the risks relating
to penny stocks and the possible resulting effects upon the Company's liquidity
are addressed on page 21 of Form 10-SB
General
- -------
15. The Company is not registering its common stock under the Act of 1934 at
this time. The securities have been issued in accordance with Sub Section (b)
Section 5 of the Act of 1933, Paragraph (1) (A) of Form 10-SB.
Accounting Comments
- -------------------
Change In Basis Of Accounting
- -----------------------------
16. The financial statements have been revised accordingly.
Consolidated Statements of Cash Flows
- -------------------------------------
17. The statements of cash flows have been revised accordingly, and footnote
C[3]provides the disclosure as required by SFAS 115 paragraphs (a)&(b).
18. The financial statements have been revised accordingly.
Note 4-Income Taxes
- -------------------
19. The fresh-start statements provided deferred income taxes on the
pre-organization appreciation on securities in accordance with paragraph 38 of
SOP 90-7. The fair market value of the securities as of October 22, 1996, the
date of the confirmation of the plan, was $1,240,230, which included unrealized
appreciation of $569,343 and a related deferred tax liability of $228,000 was
also recorded. The resulting gain net of income taxes amounting to $34l,343 was
reflected in equity section as unrealized gain (loss) on securities
available-for-sale. When those securities on hand on October 22, 1996 were sold
in the subsequent periods ended June 30, 1997 and March 31, 1998 the provision
for deferred taxes of $228,000 was recorded as an addition to paid-in capital.
The Company did not have reorganization value in excess of amounts allocable to
identifiable assets and other intangibles.
Note K-Equity in Net Assets of and Advances to Equity Company
- -------------------------------------------------------------
20. Page 4 has been revised accordingly.
30
<PAGE>
SAB 74
- ------
21. See note C [9].
General
- -------
22. Financial statements and MD&A have been updated to reflect interim periods
ended March 31, 1998 and 1997.
Year 2000
- ---------
23. The year 2000 disclosure is included on page 14. The Company believes that
all required year 2000 information is presented.
Please feel free to contact me should you have any comments or questions
concerning the matters discussed hereinabove.
Sincerely yours,
HARTER FINANCIAL, INC.
/s/ Spencer J. Angel
Spencer J. Angel
President
SJA/pr
Enclosure (s)
31
