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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-2534507
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Box 338, Village Road, New Vernon, New Jersey 07976
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Address of Principal Executive Offices Zip Code
Issuer's telephone number, including area code: (973) 734-0100
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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
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(Title of Class)
<PAGE>
PART I
Item 1. Description of Business.
General
- - -------
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:
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(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
(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 are to receive
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 out suitable 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.
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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
concerning the Company's investments including, purchase prices and valuation at
June 30, 1996, June 30, 1997 and December 31, 1997, 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 December 31, 1997 the
Company had a 32% equity interest in Autoparts Warehouse.
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Prior to March 31, 1997 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
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. To date, no demand for the payment of principal or
interest has been made by the Company.
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.
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.
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
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remaining principal balance of the promissory note. It is anticipated that all
accrued interest thereon will be repaid in the second quarter of 1998.
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.
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%,
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$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% and $17,132.60 on April 3, 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.
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.
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. 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.
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.
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.
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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 13,000 shares of Continucare's issued
and outstanding common stock.
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.
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. 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)...."
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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
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 March 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 December 31, 1996 and for
the six months ended December 31, 1997 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>
Six Months October 23, October 23, July 1,
Ended 1996 to 1996 to 1996 to Year Ended
December 31, December 31, June 30, October 22, June 30,
1997 1996 1997 1996 1996
------------- -------------- ------------ ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest Income $ 26,100 $ 9,340 $ 10,139 $ 17,911 $ 76,246
Continuing operating expenses ($ 355,276) ($ 216,938) ($ 490,877) ($ 220,889) ($ 685,777)
Realized and unrealized gain
(loss) on marketable and not
readily marketable ($ 136,682) ($ 20,894) ($ 45,000)
securities
Reorganization items -
expenses ($ 157,247) ($ 248,914) ($ 298,266)
(Note G)
------------ ------------ ------------ ------------ ------------
Loss from operations ($ 465,858) ($ 207,598) ($ 658,879) ($ 496,892) ($ 907,797)
Loss from investee - net of
related expenses (Note J) ($ 40,000) ($ 190,000)
------------ ------------ ------------ ------------ ------------
Loss before taxes,
discontinued
operations, and ($ 465,858) ($ 207,598) ($ 698,879) ($ 686,892) ($ 907,797)
extraordinary
item
Income (loss) from
discontinued $ 2,420 ($ 42,460) $ 62,702
operations (Note H)
------------ ------------ ------------ ------------ ------------
Loss before taxes and
extraordinary item ($ 465,858) ($ 207,598) ($ 696,459) ($ 729,352) ($ 845,095)
Extraordinary item:
Forgiveness of debt
(Note B) $ 13,066,541
------------ ------------ ------------ ------------ ------------
Net Income (Loss) ($ 465,858) ($ 207,598) ($ 696,459) $ 12,337,189 ($ 845,095)
============ ============ ============ ============ ============
Net loss per common share
(Note ($ 0.05) ($ 0.02) ($ 0.08)
============ ============ ============
c[8])
Weighted average number of
common shares outstanding 8,905,833 8,905,833 8,905,833
========= ========= =========
Balance Sheet Data:
Total assets $ 1,120,487 $ 2,411,611 $ 3,080,886
Total liabilities 1,131,501 2,150,236 15,421,239
Shareholder's equity ( 11,014) 261,375 ( 12,340,353)
(deficiency)
</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 December 31, 1997 (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 DECEMBER 31, 1997
During the period from July 1, 1997 to December 31, 1997, the Company had
realized and unrealized losses on marketable and non marketable securities of
$136,682, interest income of $26,100, continuing operating expenses of $335,276
and a net loss of $465,858 or $.05 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 $696,459, 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 and continuing
operating expenses of $220,889. 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.
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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
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 December 31, 1997 the Company had cash, cash equivalents and marketable
securities totaling $542,562 or 48% of total assets compared to $2,015,694 or
84% 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 December 31, 1997 such loans
totaled $526,267 or 47% 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 $817 on December 31, 1997
compared to $1,103 on June 30, 1997 and $60,628 on June 30, 1996. The reduction
in value is due to depreciation and the disposal of assets no longer used in the
company's operations.
In conjunction with the Confirmation Order certain pre-petition liabilities
were discharged or revalued. On December 31, 1997 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 $203,660 on December 31, 1997 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
13
<PAGE>
obligations is subject to the viability of the Principal Investments. 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.
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 December 31, 1997, (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 management's 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.
(INTENTIONALLY LEFT BLANK)
14
<PAGE>
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.
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 December 31, 1997, 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.
15
<PAGE>
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 people) 5,594,315 62.80%
- - -----------------------
(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.
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.
16
<PAGE>
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., Vice President of Fidelity
Medical, Inc. and Secretary and Director 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 six months ended December 31,
1997, representing compensation earned by the executive officers of the Company.
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
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
17
<PAGE>
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.
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,
18
<PAGE>
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
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.
19
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.
As of December 31, 1997, there were approximately 120 holders of record of
the Company's Common Stock with 8,905,883 shares of Common Stock outstanding.
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. The Company's shares do
not currently trade on any national securities exchange or on any over the
counter market.
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
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.
20
<PAGE>
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
21
<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
22
<PAGE>
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.
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)
23
<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 Six Months Ended December 31, 1997 (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
December 31, 1997 (Unaudited) F-2
Consolidated Statement 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 December 31,
1996 (Unaudited) and For The Six Months Ended
December 31, 1997 (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 December 31, 1997
(Unaudited) F-4
Consolidated Statement 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 Six Months Ended
December 31, 1997 (Unaudited) F-5
Notes to Financial Statements F-6
24
<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 & Co., 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
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)
25
<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: Spencer J. Angel
----------------------------
Dated: April 16, 1998 Spencer J. Angel
Its: President, Treasurer
and Chief Executive Officer
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Harter Financial, Inc.
New Vernon, NJ
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, stockholder's 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>
December 31, June 30,
1997 1997 1996
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (Note C[5]) $ 15,141 $ 1,063,458 $ 2,326,708
Receivable from brokers 23,063 49,669 5,122
Securities owned, at market value (Note C[3]) 504,358 902,567 18,512
Securities not readily marketable,
at estimated fair value(Note C[3]):
Equity securities 200 200 401,575
Loan receivable (net of allowance
for losses of $45,000 in 1997) 260,423 145,000 237,500
Investment in net assets of and advances to
equity investee(Note K) 215,844 142,345
------------ ------------ ------------
1,019,029 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]) 817 1,103 60,628
Other assets 50,641 31,770 30,841
Loans receivable others 50,000 75,499
------------ ------------ ------------
$ 1,120,487 $ 2,411,611 $ 3,080,886
============ ============ ============
LIABILITIES
Post-petition liabilities $ 203,660 $ 117,395
Accounts payable, accrued expenses and
other current liabilities $ 228,163
Deferred tax attributed to
prereorganization appreciation of securities 105,000
------------ ------------ ------------
203,660 222,395 228,163
------------ ------------ ------------
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 1,131,501 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 and
authorized 15,000,000 shares, 6,738,300
issued and outstanding in 1996 89,059 89,059 67,383
Additional paid-in capital 994,690 889,690 7,079,899
Accumulated deficit (19,487,635)
Unrealized gain (loss) on marketable
securities net of taxes 67,554 (20,915)
Deficit from October 23, 1996 (1,162,317) (696,459)
------------ ------------ ------------
Total stockholders' equity
(capital deficiency) (11,014) 261,375 (12,340,353)
------------ ------------ ------------
$ 1,120,487 $ 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>
October 23, July 1,
Six Months October 23, 1996 1996 Year
Ended 1996 to to to Ended
December 31, December 31, June 30, October 22, June 30,
1997 1996 1997 1996 1996
------------ ------------ ------------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income $ 26,100 $ 9,340 $ 10,139 $ 17,911 $ 76,246
Continuing operating expenses (355,276) (216,938) (490,877) (220,889) (685,777)
Realized and unrealized (loss)
on marketable and not
readily marketable securities (136,682) (20,894) (45,000)
Reorganization items - expenses
(Note G) (157,247) (248,914) (298,266)
------------ ------------ ------------ ------------ ------------
Loss from operations (465,858) (207,598) (658,879) (496,892) (907,797)
Loss from investee - net
of related expenses
(Note J) (40,000) (190,000)
------------ ------------ ------------ ------------ ------------
Loss before taxes, discontinued
operations, and
extraordinary item (465,858) (207,598) (698,879) (686,892) (907,797)
Income(loss) from discontinued
operations(Note H) 2,420 (42,460) 62,702
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (465,858) (207,598) (696,459) (729,352) (845,095)
Extraordinary item:
Forgiveness of debt (Note B) 13,066,541
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (465,858) $ (207,598) $ (696,459) $ 12,337,189 $ (845,095)
============ ============ ============ ============ ============
Net loss per common share
(Note C[8]) $ (.05) $ (.02) $ (.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 Stockholder's 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 -
subscription receivable
of $300,000)
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
Stockholder's 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 six months
ended December 31, 1997
(unaudited) (465,858) (465,858)
Change in market value of
securities available for
sale net of taxes 88,469 88,469
Tax attributable to pre-
reorganziation appreciation
of securities
realized in current period 105,000 105,000
---------- ------------ ------------ ------------ ------------ ------------
Balance - December 31, 1997
(unaudited) 8,905,883 $ 89,059 $ 994,690 $ (1,162,317) $ 67,554 $ (11,014)
========== ============ ============ ============ ============ ============
</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>
October 23, July 1,
Six Months October 23, 1996 1996 Year
Ended 1996 to to to Ended
December 31, December 31, June 30, October 22, June 30,
1997 1996 1997 1996 1996
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ (465,858) $ (207,598) $ (696,459) $ 12,337,189 $ (845,095)
Adjustments to reconcile net
income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amortization 286 2,090 6,856 10,006 44,287
Deferred interest income (39,719)
Forgiveness of debt (13,066,541)
Changes in:
Due to/from brokers (net) 26,606 (5,840) (49,669) 5,122 2,151,199
Securities not readily
marketable, at
estimated fair value 401,375 (353,000)
Securities owned, at
market value (net) 486,678 316,749 (652,376) 552,331
Other assets (18,871) (3,084) (10,842) 9,915 (3,170)
Accounts payable and
accrued expenses:
Pre-petition (1,000,000) (6,731)
Post-petition 86,265 (176,782) (208,844) 116,950 66,239
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) continuing
operations (884,894) (391,214) (642,209) (838,360) 1,566,341
Net cash provided by discontinued
operations 42,663
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities (884,894) (391,214) (642,209) (795,697) 1,566,341
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in
investments in debt (188,922) (125,000) (207,345) 157,500 12,500
securities
(Increase) decrease in
loans receivable others 25,499 10,000 (499) (75,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) investing
activities (163,423) (115,000) (207,844) 82,500 12,500
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of stock - 0 - - 0 - 300,000 - 0 - - 0 -
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (1,048,317) (506,214) (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 $ 15,141 $ 1,107,297 $ 1,063,458 $ 1,613,511 $ 2,326,708
============ ============ ============ ============ ============
</TABLE>
See Note B for discussion of plan of
reorganization and forgiveness of debt
See independent auditors' report and notes to financial statements F-5A
<PAGE>
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
October 23, July 1,
Six Months October 23, 1996 1996 Year
Ended 1996 to to to Ended
December 31, December 31, June 30, October 22, June 30,
1997 1996 1997 1996 1996
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash
flow information
Cash paid for:
Interest $ 312 $ 2,650
Income taxes 2,687 $ 12,914
Details of operating cash
receipts and payments
resulting from
reorganization:
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
</TABLE>
See Note B for discussion of plan of
reorganization and forgiveness of debt
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 December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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 December 31, 1997 and for the
periods ended December 31, 1996 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 six months ended December
31, 1997 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>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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.)
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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.)
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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 are
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.
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.
F-9
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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 to June 30, 1997
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.
Note D - Securities Available-for-Sale
At December 31, 1997 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:
December 31, 1997
-----------------------------
(Unaudited)
Market Unrealized
Cost Value Gain
---------- -------- ----------
Common stock $ 391,804 $ 504,358 $ 112,554
========= ========= =========
June 30, 1997
-----------------------------
Market Unrealized
Cost Value Loss
---------- -------- ----------
Common stock $ 923,482 $ 902,567 $ (20,915)
========= ========= =========
From the period of October 23, 1996 to June 30, 1997 the Company realized a gain
of approximately $287,000 on the sale of available-for-sale securities.
F-10
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
Note E - Pre - Petition Liabilities
Pre-petition liabilities (unsecured) consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 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>
(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).
[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 canceled.
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.
F-11
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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,
Six Months 1996 1996
Ended to to
December 31, June 30, October 22,
1997 1997 1996
------------ ----------- -----------
(Unaudited)
Income tax provision (benefit)
statutory rate $(186,000) $ (279,000) $4,934,000
Nontaxable items 63,000 (5,226,000)
Increase in valuation allowance
on deferred tax asset 155,000 168,000
Tax on unrealized gain of available
for sale securities 45,000 228,000
Other (14,000) 48,000 64,000
--------- ----------- ----------
0 0 0
========= =========== ==========
The principal components of deferred tax assets, liabilities and the valuation
allowance are as follows:
December 31, June 30,
1997 1997
----------- ---------
(Unaudited)
Deferred tax assets:
Federal and state net operating loss
carryforwards $ 276,000 $ 76,000
Loss from equity investment 92,000 92,000
---------- ---------
Total deferred tax assets, before
valuation allowance 368,000 168,000
Valuation allowance (323,000) (168,000)
---------- ---------
Total deferred tax assets $ 45,000 $ 0
========= =========
Deferred tax liabilities:
Unrealized gain on securities
available for sale $ 45,000 $ 0
========= =========
Net deferred tax asset/liability $ 0 $ 0
========= =========
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.
F-12
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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 statement of operations and are
summarized as follows:
October 23 July 1,
1996 1996
to to Year Ended
June 30, October 22, June 30,
1997 1996 1996
---------- ----------- ----------
Legal notices $ 145,998 $ 104,635
Bankruptcy fees 4,250 11,000
Professional fees $ 190,950 126,442 323,193
Interest (income) (33,703) (27,776) (140,562)
--------- --------- ---------
$ 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.
Results from discontinued operations are as follows:
October 23 July 1,
1996 1996
to to Year Ended
June 30, October 22, June 30,
1997 1996 1996
---------- ----------- ----------
Revenues:
Commissions $ 2,420 $ 203 $34,118
Trading and
investment gains 4,115
Other 24,469
-------- -------- -------
2,420 203 62,702
Loss on disposal
(no income tax
benefit) (42,663)
-------- -------- -------
Income (loss) from
discontinued
operations $ 2,420 $(42,460) $62,702
======== ======== =======
F-13
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
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 of the
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.
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
=========
F-14
<PAGE>
Notes to Financial Statements
(Unaudited as to December 31, 1997 and for the periods ended
December 31, 1997 and 1996)
Note K - Equity in Net Assets of and Advances to Equity Company
From August of 1996 through June of 1997 the Company acquired 24% of the issued
and outstanding common stock in Autoparts Warehouse Inc. for $130,000 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,
Inc. as at June 30, 1997 and for the period of February 1, 1997 to June 30, 1997
is as follows:
(Unaudited)
Net sales $ 548,000
=========
Gross profit on sales $ 251,000
=========
Net (loss) $( 87,400)
=========
Current assets $ 608,600
Noncurrent assets 83,100
---------
Total assets $ 691,700
=========
Current liabilities $ 662,500
Equity 29,200
---------
Total liabilities and equity $ 691,700
=========
F-15
