U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ________________
Commission File Number 0-20922
-------
WHITEHALL ENTERPRISES, INC.
---------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-2274730
-------- ----------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
801 Brickell Avenue, 9th Floor, Miami, Florida 33131
----------------------------------------------------
(Address of principal executive offices)
(904) 409-0200
--------------
(Issuer's telephone number)
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements in the past 90 days.
Yes [ ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 124,900,000 shares as of
December 31, 1998.
<PAGE>
WHITEHALL ENTERPRISES, INC.
FORMERLY KNOWN AS
TOTAL WORLD TELECOMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets -- December 31, 1997 and September 30, 1997
Statements of Operations -- Three Months Ended December 31, 1997 and
1996
Statements of Cash Flows -- Three Months Ended December 31, 1997 and
1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Financial Statements, Pro Forma Financial Information and Exhibits
2
<PAGE>
WHITEHALL ENTERPRISES, INC.
FORMERLY TOTAL WORLD TELECOMMUNICATIONS, INC.
Balance Sheet - Unaudited
December 31, 1997 and September 30, 1997
<TABLE>
<CAPTION>
ASSETS
Unaudited
December 31, 1997 September 30, 1997
--------------------- ---------------------
<S> <C> <C>
Current Assets
Cash $12,732 $44,559
Prepaid Expenses - -
--------------------- ---------------------
Total Current Assets 12,732 44,559
Fixed Assets 847,952 847,952
Less Accumulated Depreciation 154,233 151,893
--------------------- ---------------------
Net Fixed Assets 693,719 696,059
Other Assets
Deposits 550 4,450
--------------------- ---------------------
TOTAL ASSETS $707,001 $745,068
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts payable - $89,354
Mortgage payable and other current liabilities - 436,305
Liabilities due and paid upon sale of property 764,105 -
Liabilities to be forgiven under Chapter XI
bankruptcy reorganization 29,964,577 30,135,217
--------------------- ---------------------
Total Current Liabilities 30,728,682 30,660,876
--------------------- ---------------------
Shareholders' Equity
Preferred stock, $.00001 par value,
10,000,000 million shares authorized,
337,699 shares issued and outstanding 4 4
Common Stock, $ .00001 par value,
100,000,000 shares authorized, 81,118,900
shares issued and outstanding 811 811
Additional Paid In Capital 82,474,223 82,474,223
Unearned compensation - (4,927,394)
Accumulated deficit before quasi-reorganization (111,756,719) (106,723,452)
Treasury Stock at Cost (740,000) (740,000)
--------------------- ---------------------
Total Stockholders' Equity (30,021,681) (29,915,808)
--------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $707,001 $745,068
===================== =====================
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
WHITEHALL ENTERPRISES, INC.
FORMERLY TOTAL WORLD TELECOMMUNICATIONS, INC.
Statement of Operations - Unaudited
For the Quarter Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------- ---------------------
<S> <C>
Revenues from Operations $1,898 -
Telecommunications - 8,922,290
Real estate brokerage fees - 1,529,997
Audit fees - 234,514
--------------------- ---------------------
1,898 10,686,801
Cost of Sales
Telecommunications - 8,072,718
Real estate commissions - 1,310,166
Direct audit expenses - 169,490
--------------------- ---------------------
- 9,552,374
--------------------- ---------------------
Gross Profit 1,898 1,134,427
--------------------- ---------------------
Operating Expenses
Sales, General and Administration 105,431 5,119,080
Depreciation 2,340 1,404,196
--------------------- ---------------------
Total Operating Expenses 107,771 6,523,276
--------------------- ---------------------
Net Loss from Operations (105,873) (5,388,849)
--------------------- ---------------------
Other Income
Rental income - 89,496
Rental expenses, including depreciation
of $33,238 for 1996 and $31,339 in 1995 - (80,674)
Interest expense - (1,401,136)
Interest income - 34,942
Other Income - 1,469,089
--------------------- ---------------------
Total Other Income - 111,717
--------------------- ---------------------
Net Loss ($105,873) ($5,277,132)
===================== =====================
Net Loss Per Common Share - (0.76)
===================== =====================
Number of Shares Used in Computation 114,888,800 6,961,655
===================== =====================
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
WHITEHALL ENTERPRISES, INC.
TOTAL WORLD TELECOMMUNICATIONS, INC.
Statement of Cash Flows
For the Quarter Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------- ---------------------
<S> <C> <C>
Cash flows form operating activities:
Net Loss ($105,873) ($5,277,132)
Adjustments to reconcile net income to new cash
Provided by operating activities:
Depreciation 2,340 422,567
Amortization of intangible assets - 1,207,645
Credit arising from disputed transaction - (1,500,000)
Issuance of debt for payment of interest on debentures - 1,009,149
(Increase) decrease in accounts receivable - 815,154
(Increase) decrease in mortgages held for sale - (879,755)
(Increase decrease in advances to employees and stockholders - 883,664
(Increase) (decrease) in prepaid expenses and other current assets - (523,189)
(Increase) decrease in other assets 3,900 516,578
Decrease in accounts payable 89,354 (2,821,259)
--------------------- ---------------------
Total adjustments 95,594 (869,446)
--------------------- ---------------------
Net cash provided (used) by operating activities ($10,279) ($6,146,578)
--------------------- ---------------------
Cash flows from investing activities
Payments for acquisition of subsidiaries - (3,423,765)
Capital expenditures - (521,586)
--------------------- ---------------------
Net proceeds used in investing activities - (3,945,351)
--------------------- ---------------------
Cash flows from financing activities:
Redemption of Series T Preferred Stock - (1,348,422)
Payments for repurchase of common stock - (10,409,330)
Proceeds from notes payable & long term debt - 7,446,000
Proceeds from officers - 55,000
Payments of amounts due to officers - (20,000)
Payments of notes payable and long-term debt - (2,380,278)
Net proceeds from issuance of common stock per Reg S - 1,082,751
Net proceeds from issuance of convertible preferred stock - 20,782,124
Preferred stock dividends paid - (1,368,000)
Payments of mortgage loans (21,548) -
--------------------- ---------------------
Net cash provided (used) by financing activities (21,548) 13,839,845
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (31,827) 3,747,916
Cash received in acquisition of SOW and N'Touch - 32,357
Cash and cash equivalents - beginning of year 44,559 1,704,020
--------------------- ---------------------
Cash and cash equivalents - end of period $12,732 $5,484,293
===================== =====================
</TABLE>
See Notes to Financial Statements
5
<PAGE>
WHITEHALL ENTERPRISES, INC.
FORMERLY KNOWN AS
TOTAL WORLD TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1997
(1) GENERAL:
--------
The interim December 31, 1997 unaudited financial statements, in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of financial
position as of such date and earnings and cash flows for the periods then ended.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted and the Statements of Operations for three months
ended December 31, 1997 have been reclassified for comparative purposes. It is
recommended that these interim financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal years ended September 30, 1997 and 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Operating results for the three-month period ended December
31, 1997 are not necessarily indicative of the results that may be expected for
the year ended September 30, 1998.
6
<PAGE>
(2) AMENDED PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES
BANKRUPTCY COURT:
--------------------------------------------------------------------
The Company has filed with the United States Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") its Amended Plan of
Reorganization dated July 2, 1998. The Company's Amended Disclosure Statement
dated July 2, 1998 (the "Disclosure Statement") and its Summary of Amended
Disclosure Statement of Whitehall Enterprises, Inc., formerly known as Total
World Telecommunications, Inc. under Chapter 11 of the United States Bankruptcy
Code for Certain General Unsecured Creditors and Holders of Existing Common
Stock dated July 2, 1998 (the "Summary Disclosure Statement") are submitted
pursuant to Section 1125 of the Bankruptcy Code 11 U.S.C. Section 101, et. seq.
(the "Bankruptcy Code") in connection with the solicitation of votes on the Plan
from Holders of Impaired Claims against and Impaired Equity Interests in the
Debtor and the hearing on Confirmation of the Plan that occurred on August 17,
1998.
At a hearing on June 19, 1998, this Disclosure Statement was approved
by the Bankruptcy Court in accordance with Section 1125(b) of the Bankruptcy
Code as containing information of a kind and in sufficient detail adequate to
enable a hypothetical reasonable investor typical of holders of Claims and
Equity Interests of the relevant Voting Classes to make an informed judgment
whether to accept or reject the Plan. On August 28, 1998, the Court approved the
plan of reorganization.
In the opinion of the Company, as described below, the treatment of
claims and equity interests under the Plan contemplates a greater recovery than
that which is likely to be achieved under other alternatives for the
reorganization or liquidation of the Company. Accordingly, the Company believes
that confirmation of the Plan is in the best interests of creditors and holders
of equity interests and recommended that the creditors and holders of equity
interests vote to accept the Plan.
The Plan has been approved by the Company's Board of Directors. In
addition, Advantage Fund Limited, formerly known as GFL Advantage Fund Limited
("Advantage"), which the Company believes holds in excess of 90% of the
unsecured claims against the Company, has consented to the Plan as part of a
settlement between the Company and Advantage which has been approved by the
Bankruptcy Court.
In summary, the Plan is based upon (a) a transfer of all Unsecured
Claims and assets of the Company (excluding certain tax attributes and a portion
of the Condominium Parcel Net Proceeds) to a liquidating trust of which Holders
of Allowed Unsecured Claims will be the primary beneficiaries and Holders of
Allowed Subordinated Claims will be secondary beneficiaries, (b) the purchase by
the Company of all of the issued and outstanding stock of Mega Blow Moulding
7
<PAGE>
Limited, a Canadian plastics company ("MBM"), from 1299004 Ontario Corporation
("129 Ontario"), a wholly-owned subsidiary of 1274328 Ontario Inc. (the
"Proponent"), in consideration for the issuance to the Proponent of
approximately 76% voting control of the Reorganized Debtor and the cash sum of
$75,000, (c) the cancellation of all Existing Preferred Stock and Existing
Common Stock of the Debtor, and (d) the issuance of common stock of the
Reorganized Debtor to Holders of Existing Preferred Stock and Existing Common
Stock of the Debtor.
In August 1997, the Board of Directors of the Company was substantially
reconstituted. The new Board, having observed the failure of TNT to successfully
continue its Chapter 11 case, decided to examine alternatives to maintain a
level of stability with the Company for that period of time necessary for a new
investor to fund ongoing and future operations for the Company. The new Board
hoped to structure a transaction with a new investor which would satisfy
existing Creditor Claims and preserve some value for existing stockholders of
the Company. In examining all of its alternatives, the new Board concluded
shortly after its appointment that the Company had no resources (financial or
otherwise) to defend against any claims or actions which had been or could be
asserted by Advantage. In addition, the filing of the involuntary petition
against the Company on December 1, 1997 left the Company with no option but to
seek to successfully reorganize under Chapter 11 of the Bankruptcy Code. In
order to do so, the Company needed the support of Advantage, which, as stated
above, holds in excess of 90% of the Unsecured Claims against the Company.
The Company's efforts have resulted in (a) the Advantage Settlement
Agreement, which has been approved by the Bankruptcy Court, pursuant to which
Advantage has agreed to support the Plan, and (b) an agreement for the Debtor to
acquire all of the stock of MBM from a wholly-owned subsidiary of the Proponent,
pursuant to which MBM will become a wholly-owned operating subsidiary of the
Reorganized.
Notwithstanding the uncertain distribution to Unsecured Creditors and
the reduced equity interest for stockholders, the Company believes that the Plan
is in the best interest of all Unsecured Creditors and Holders of Equity
Interests for a number of reasons. First, no free and clear assets of
significant value exist which are available for immediate liquidation and
distribution to Unsecured Creditors and Holders of Equity Interests. Second, TNT
the Company's chief operating subsidiary prior to the Involuntary Petition Date,
is presently in a Chapter 7 bankruptcy proceeding in Texas, and the Company will
in all likelihood receive nothing in return for its substantial investment in
TNT. Third, the costs of administering the Estate continue to accrue as long as
the Reorganization Case remains pending, further eroding whatever value there is
available for Unsecured Creditors. Fourth, Advantage, which holds in excess of
8
<PAGE>
90% of the total dollar amount of Unsecured Claims, supports the Plan and has
already expended significant funds in investigating Causes of Action, the
proceeds of which will be available for distribution to all Unsecured Creditors
on a pro rata basis. Indeed, absent confirmation of the Plan, the Company would
itself have to consider an orderly liquidation of assets in Chapter 11 or a
conversion to Chapter 7, either of which would yield far less of the total
number of shares of Reorganized Debtor Common Stock issued and outstanding
immediately after the Effective Date.
The Company believes that its efforts to maximize the return for
Creditors and to find an investor and attract value for stockholders have been
full and complete. The Company further believed that the Plan in the best
interest of all Creditors and Holders of Equity Interests, even though (a) it
does not appear that there are sufficient funds to pay Unsecured Creditors in
full and (b) the percentage of the outstanding equity to be retained by Holders
of Equity Interests following the Effective Date will be substantially diluted.
In the event of a liquidation of the Company's assets under Chapter 7 of the
Bankruptcy Code, the Company believes the distribution to Unsecured Creditors
would be substantially less than under the Plan. In addition, absent concessions
from holders of Unsecured Claims, there would be no distribution to Holders of
Equity Interests. Should the Plan not be confirmed, the Company will have to
seriously consider a Chapter 7 liquidation. For these reasons, the Company urges
that the Plan be accepted.
(3) FINANCIAL CONDITION:
--------------------
Since inception, the Company has incurred substantial losses, and as of
December 31, 1997, has an accumulated deficit of $111,756,719. The efforts of
the Company were concentrated in carrying out its reorganization.
(4) LEGAL PROCEEDINGS:
------------------
All legal proceedings will be eliminated upon the certification of the
Plan of Reorganization by the Bankruptcy Court. (See Note (2).
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21F OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SPECIFICALLY, ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF SIMILAR
IMPORT AS THEY RELATE TO THE COMPANY OR COMPANY'S MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF
THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, COST OF
CAPITAL, GOVERNMENTAL REGULATION AND SUPERVISION, THE OPERATION OF THE COMPANY'S
NETWORKS, TRANSMISSION COSTS, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, DISRUPTIONS ASSOCIATED WITH EXPANSION, ONE-TIME EVENTS AND OTHER
FACTORS DESCRIBED HEREIN. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS
ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE APPLICABLE
CAUTIONARY STATEMENTS.
RESULTS OF OPERATIONS
- ---------------------
During the quarter ended December 31, 1998, the Company focused its
resources in the effort to successfully achieve its Chapter XI Bankruptcy
reorganization Plan.
The Company's plan for growth included the acquisition of MBM. The
Board of Directors are currently studying several other acquisitions in South
Florida. To achieve this growth and the necessary working capital, the Company
will require additional funding. The Company has received preliminary
commitments from investors to arrange future funding. While the Company has
reason to expect the completion of these arrangements, no assurances can be
given that such funds will be provided.
10
<PAGE>
Description of Stock Purchase Agreement
- ---------------------------------------
On June 19, 1998, following extensive negotiations, the Debtor entered
into the Stock Purchase Agreement with 129 Ontario has agreed to sell, and the
(Debtor (subject to the approval of the Bankruptcy Court) has agreed to
purchase, effective as of the Effective Date 100% of the issued and outstanding
stock of MBM. As a result thereof, on and after the Effective Date, MBM will be
a wholly-owned subsidiary of the Reorganized Debtor. Prior to and during the
Reorganization Case, management of the Debtor has actively searched for an
operating business to bring into the Debtor following the August 28, 1998 and
has determined, in the exercise of its business judgment, that MBM is the best
operating business available at this time. In this regard, the Debtor required
the Proponent to obtain an independent valuation of MBM. In addition, the Debtor
has conducted, and will continue to conduct up to the date of the Confirmation
Hearing, due diligence as to MBM and its business operations. The Debtor has
agreed in the Stock Purchase Agreement, in consideration for the sale of the MBM
stock, that, subject to the terms and conditions of the Stock Purchase
Agreement, including the Confirmation of the Plan, it will (a) cause the
Reorganized Debtor to issue to the Proponent at the Closing 400,000,000 shares
of the Reorganized Debtor Preferred Stock, and (b) pay the sum of $75,000 in
cash to the Proponent. The above is a brief summary of the material terms of the
Stock Purchase Agreement.
General Information Regarding the Proponent and 129 Ontario
- -----------------------------------------------------------
The Proponent, 1274328 Ontario Inc., is an Ontario corporation which
was formed on December 31, 1997. The Proponent's business address is 3101
Bathurst Street, Suite 600, Toronto Ontario M6A2A6. The Proponent is a holding
company which has an investment in MBM and holds passive investments in other
enterprises. Because it was formed on December 31, 1997, the Proponent has no
financial history. The sole shareholder of the Proponent is The Gerendasi Group
129 Ontario, which controls the issued and outstanding stock of MBM, is a
wholly-owned subsidiary of the Proponent. The Debtor has been advised by the
Proponent that none of the Proponent, 129 Ontario or MBM have had or have any
affiliation with the Debtor or CVI, except that the Gerendasi Group formerly
owned a small percentage of the Debtor's common stock which was sold in 1996.
11
<PAGE>
General Information Regarding MBM
- ---------------------------------
Overview. Since its formation in 1984, MBM has operated as a
specialized custom molder or manufacturer of plastic bottles and containers for
use in the pharmaceutical, health and beauty, household cleaner and food product
industries. During fiscal 1997, MBM's revenues are generated in the United
States. MBM also has a strong market presence in the Province of Ontario,
Canada, which is the main manufacturing center in Canada. Plastic is a
disposable material which is in high demand in today's environmentally friendly
and industrialized world. Management of MBM believes that demand will continue
to grow significantly well into the next century. With an estimated market in
North America of over $15 billion for plastic products, management of MBM
believes that MBM is well positioned for growth.
Customers. MBM concentrates on manufacturing products for customers who
are the end user of the products and orders placed by manufacturer agents. MBM
has fostered relationships with many major North American corporations,
including Johnson & Johnson, G.K. Packaging, Fenton Webber, Novo Pharm, Jones
Packaging and the Canadian shampoo division of L'Oreal. Management of MBM
believes that MBM has an excellent reputation for quality and customer services
and prides itself on its ability to consistently maintain a zero percent defect
rate. This has resulted in long-standing customer relationships, many in excess
of 10 years.
Facilities/Equipment. MBM operates from a leased, 46,000 square foot
manufacturing facility in metropolitan Toronto, Canada. MBM operates nine Bekum
blowing machines. The Bekum machine is considered by industry experts to be the
best currently available and gives MBM a state-of-the-art manufacturing
capacity. The Bekum machine can be operated almost indefinitely when properly
maintained and updated. All machines are computerized and controlled by special
tracking devices which monitor all aspects of machine productivity. Further,
MBM's computerized systems give the manufacturing process numerous diagnostic
features which maximize productivity and quality control. All manufacturing
machines are constantly serviced and maintained to the highest degree possible
by a specially trained maintenance staff as will as by 24 hour on-call
maintenance professionals. MBM seeks to maximize productivity and utilization of
fixed overhead cost by operating the plant 24 hours a day with four shifts.
Personnel. MBM employs regular employees including production,
management, foremen and office staff. MBM's management is experienced in every
facet of operations including machine operation, machine repairs and
maintenance, completing setups, mold maintenance, purchasing, distributing and
marketing. A majority of MBM's staff has been with MBM since its inception and
has grown and been promoted over time. It is presently anticipated that MBM's
management will remain in place following its acquisition.
12
<PAGE>
Materials. MBM's major raw usage consists of the following resins: Pet
G., H.D.P.E. (High Density Polyethylene) and L.D.P.E. (Low Density
Polyethylene). Management of MBM is not aware of any environmental concerns in
respect of MBM, its manufacturing facilities or its products. MBM presently uses
sic major suppliers of the above resins. MBM has been dealing with each of its
major suppliers for over ten years. In the event that its existing sources of
supplies are insufficient to meet its existing needs, management of MBM believes
that alternative supplies would be available at competitive prices from one of
its other major suppliers or from outside alternative suppliers not currently
engaged by MBM.
Valuation of MBM. In connection with the transactions contemplated by
the Stock Purchase Agreement, the Proponent has engaged an independent
accountant to value the shares of MBM to be acquired by the Debtor. The
valuation report was conducted as of February 1, 1998 and provided a value
ranging from $9.7 to $11 million for MBM. The financial information included in
the valuation report is in Canadian dollar values. As of February 1, 1998, the
Canadian dollar had a value of $.69 in United States dollars. As of December 31,
1997, the Canadian dollar had a value of slightly in excess of $.68 in United
States dollars. Due to the cost to the Estate and the fact that the valuation
report has been rendered by an independent Canadian accounting firm, the Debtor
has decided not to obtain its own valuation of the shares of MBM.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The foregoing matters and uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. The Company recently
closed on the purchase of MBM pursuant to its stock purchase agreements. The
Company is currently negotiating with several alternative financing sources in
order to secure sufficient funding to support its reorganization and
restructuring plans.
At December 31, 1997, the Company has operating cash of $12,732. The
cash would be used to defray operating costs and professional fees necessary to
continue supporting restructuring plans. For the quarter ended December 31, 1997
the Company utilized proceeds from the sale of assets and borrowing form the
Proponent to meet operating expenses.
13
<PAGE>
In August 1997, Joseph Lents resigned as Chairman of the Board of the
Company, and the Board of Directors of the Company was thereafter substantially
reconstituted to add Vincent Landis, Carlos Trueba and Les Miller as new members
of the Board with the then existing directors, Arnold Salinas and Loretta
Murphy. Loretta Murphy resigned as a director of the Company during the course
of the Reorganization Case in order to pursue other business interests. During
the Reorganization Case, Luis Alvarez has served as interim President of the
Company. None of the directors of executive officers of the Company has received
any compensation from the Company for service in such capacities for the period
from the Involuntary Petition Date to the date of this quarterly report.
A number of factors ultimately contributed to the Company's decision to
seek Bankruptcy Court protection. As of March 31, 1996, the Company was
experiencing a number of financial problems, including significant losses since
its inception, negative cash flow and arrears in several of its obligations. A
significant portion of these problems resulted from the losses sustained in the
TNT operations. As a result of the foregoing, the Company continued to finance
its expansion and operations with equity and debt financing in 1997. In 1997,
the Company was sued in various jurisdictions as a result of these equity
offerings. In July 1997, TNT was forced to seek protection under Chapter 11 of
the Bankruptcy Code. In September 1997, TNT's Chapter 11 case was converted to a
case under Chapter 7 of the Bankruptcy Code, thus leaving the Company with
little hope of recouping its substantial investment in TNT. On December 1, 1997,
three petitioning alleged creditors, Francesco Morello, Christopher Robichaux
and David J. Latraverse, filed an involuntary petition under Chapter 7 of the
Bankruptcy Code against the Company. On December 19, 1997, Advantage instituted
the Advantage Suit against certain former officers and directors of the Company.
Had it not been for the filing of the involuntary petition and the automatic
stay provisions of Section 362 of the Bankruptcy Code, Advantage would have also
named the Company as a defendant in the Advantage Suit. The combined effect of
these events led the Company to conclude that it was without any viable
procedure for handling these and other concerns outside of a reorganization
proceeding under Chapter 11 of the Bankruptcy Code. Accordingly, on December 24,
1997, the Company consented to the entry of an order for relief under Chapter 11
of the Bankruptcy Code.
The Company has filed with the United States Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") its Amended Plan of
Reorganization dated July 2, 1998. The Company's Amended Disclosure Statement
dated July 2, 1998 (the "Disclosure Statement") and its Summary of Amended
Disclosure Statement of Whitehall Enterprises, Inc. formerly known as Total
World Telecommunications, Inc. under Chapter 11 of the United States Bankruptcy
14
<PAGE>
Code for Certain General Unsecured Creditors and Holders of Existing Common
Stock dated July 2, 1998 (the "Summary Disclosure Statement") were submitted
pursuant to Section 1125 of the Bankruptcy Code 11 U.S.C. Section 101, et. seq.
(the "Bankruptcy Code") in connection with the solicitation of votes on the Plan
from Holders of Impaired Claims against and Impaired Equity Interests in the
Debtor and the hearing on Confirmation of the Plan.
At a hearing on June 19, 1998, this Disclosure Statement was approved
by the Bankruptcy Court in accordance with Section 1125(b) of the Bankruptcy
Code as containing information of a kind and in sufficient detail adequate to
enable a hypothetical reasonable investor typical of holders of Claims and
Equity Interests of the relevant Voting Classes to make an informed judgment
whether to accept or reject the Plan. Approval of this Disclosure Statement by
the Bankruptcy Court and the transmittal of this Disclosure Statement does not,
however, constitute a determination by the Bankruptcy Court as to the fairness
or merits of the Plan and should not be interpreted as being a recommendation by
the Bankruptcy Court either to accept or reject the Plan.
In the opinion of the Company, as described below, the treatment of
claims and equity interests under the Plan contemplates a greater recovery than
that which is likely to be achieved under other alternatives for the
reorganization or liquidation of the Company. Accordingly, the Company believes
that confirmation of the Plan is in the best interests of creditors and holders
of equity interests and recommends that the creditors and holders of equity
interests vote to accept the Plan.
The Plan has been approved by the Company's Board of Directors. In
addition, Advantage Fund Limited, formerly known as GFL Advantage Fund Limited
("Advantage"), which the Company believes holds in excess of 90% of the
unsecured claims against the Company, has consented to the Plan as part of a
settlement between the Company and Advantage which has been approved by the
Bankruptcy Court.
In summary, the Plan is based upon (a) a transfer of all Unsecured
Claims and assets of the Company (excluding certain tax attributes and a portion
of the Condominium Parcel Net Proceeds) to a liquidating trust of which Holders
of Allowed Unsecured Claims will be the primary beneficiaries and Holders of
Allowed Subordinated Claims will be secondary beneficiaries, (b) the purchase by
the Company of all of the issued and outstanding stock of Mega Blow Moulding
Limited, a Canadian plastics company ("MB"), from 1299004 Ontario Corporation
("129 Ontario"), a wholly-owned subsidiary of 1274328 Ontario Inc. (the
"Proponent"), in consideration for the issuance to the Proponent of
approximately 76% voting control of the Reorganized Debtor and the cash sum of
$75,000, (c) the cancellation of all Existing Preferred Stock and Existing
Common Stock of the Debtor, and (d) the issuance of common stock of the
Reorganized Debtor to Holders of Existing Preferred Stock and Existing Common
Stock of the Debtor.
15
<PAGE>
In August 1997, the Board of Directors of the Company was substantially
reconstituted. The new Board, having observed the failure of TNT to successfully
continue its Chapter 11 case, decided to examine alternatives to maintain a
level of stability with the Company for that period of time necessary for a new
investor to fund ongoing and future operations for the Company. The new Board
hoped to structure a transaction with a new investor which would satisfy
existing Creditor Claims and preserve some value for existing stockholders of
the Company. In examining all of its alternatives, the new Board concluded
shortly after its appointment that the Company had no resources (financial or
otherwise) to defend against any claims or actions which had been or could be
asserted by Advantage. In addition, the filing of the involuntary petition
against the Company on December 1, 1997 left the Company with no option but to
seek to successfully reorganize under Chapter 11 of the Bankruptcy Code. In
order to do so, the Company needed the support of Advantage, which, as stated
above, holds in excess of 90% of the Unsecured Claims against the Company.
The Company's efforts have resulted in (a) the Advantage Settlement
Agreement, which has been approved by the Bankruptcy Court, pursuant to which
Advantage has agreed to support the Plan, and (b) an agreement for the Debtor to
acquire all of the stock of MBM from a wholly-owned subsidiary of the Proponent,
pursuant to which MBM will become a wholly-owned operating subsidiary of the
Reorganized Debtor on and after the Effective Date August 28, 1998.
Notwithstanding the uncertain distribution to Unsecured Creditors and
the reduced equity interest for stockholders, the Company believes that the Plan
is in the best interest of all Unsecured Creditors and Holders of Equity
Interests for a number of reasons. First, no free and clear assets of
significant value exist which are available for immediate liquidation and
distribution to Unsecured Creditors and Holders of Equity Interests. Second, TNT
the Company's chief operating subsidiary prior to the Involuntary Petition Date,
is presently in a Chapter 7 bankruptcy proceeding in Texas, and the Company will
in all likelihood receive nothing in return for its substantial investment in
TNT. Third, the costs of administering the Estate continue to accrue as long as
the Reorganization Case remains pending, further eroding whatever value there is
available for Unsecured Creditors. Fourth, Advantage, which holds in excess of
90% of the total dollar amount of Unsecured Claims, supports the Plan and has
already expended significant funds in investigating Causes of Action, the
proceeds of which will be available for distribution to all Unsecured Creditors
on a pro rata basis. Indeed, absent confirmation of the Plan, the Company would
itself have to consider an orderly liquidation of assets in Chapter 11 or a
conversion to Chapter 7, either of which would yield far less of the total
number of shares of Reorganized Debtor Common Stock issued and outstanding
immediately after the Effective Date.
16
<PAGE>
The Company believes that its efforts to maximize the return for
Creditors and to find an investor and attract value for stockholders have been
full and complete. The Company further believes that the Plan is in the best
interest of all Creditors and Holders of Equity Interests, even though (a) it
does not appear that there are sufficient funds to pay Unsecured Creditors in
full and (b) the percentage of the outstanding equity to be retained by Holders
of Equity Interests following the Effective Date will be substantially diluted.
In the event of a liquidation of the Company's assets under Chapter 7 of the
Bankruptcy Code, the Company believes the distribution to Unsecured Creditors
would be substantially less than under the Plan. In addition, absent concessions
from holders of Unsecured Claims, there would be no distribution to Holders of
Equity Interests. Should the Plan not be confirmed, the Company will have to
seriously consider a Chapter 7 liquidation. The plan was approved on August 28,
1998.
<PAGE>
PART II.
ITEM 1. LEGAL PROCEEDINGS
-----------------
For information concerning current litigation regarding the Company,
see Note 3 in the Notes to Financial Statements.
ITEM 6. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
------------------------------------------------------------------
(a) Exhibits -- None
(b) The Company filed a Form 8-K report dated February 10,
1999.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer and as the chief financial officer of
the Registrant.
WHITEHALL ENTERPRISES, INC.
FORMERLY KNOWN AS
TOTAL WORLD TELECOMMUNICATIONS, INC.
(Registrant)
Date: ___________, 1999 By:
-----------------------
Luis Alvarez, President
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