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 June 30, 2000
---------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------------------- -------------------
Commission File Number 0-20922
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WHITEHALL ENTERPRISES, INC.
-------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-2274730
-------------------------------- ---------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
801 Brickell Avenue, 9th Floor, Miami, Florida 33131
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(Address of principal executive offices)
(904) 409-0200
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(Issuer's telephone number)
-------------------------------------------------
(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 X 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: 135,025,000 shares as of
June 30, 2000.
<PAGE>
WHITEHALL ENTERPRISES, INC.
FORMERLY KNOWN AS
TOTAL WORLD TELECOMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 2000 and September 30, 1999
Consolidated Statements of Operations -- Nine and Three Months
Ended June 30, 2000 and 1999
Statements of Cash Flows -- Nine Months Ended June 30, 2000 and
1999
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 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Financial Statements, Pro Forma Financial Information and Exhibits
2
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (Unaudited) AND SEPTEMBER 30, 1999 (Audited)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets
Cash $ 92,657 $ 2,264
Accounts receivable 321,593 577,477
Inventory - 448,361
Prepaid expenses 51,449 73,949
----------- ----------
Total current assets 465,699 1,102,051
Fixed assets net of accumulated depreciation of
$53,620 and $ 2,142,371 respectevely 164,675 520,182
Intangible assets
Goodwill net of amortiation of $ 0. 687,621 -
Patents net of amortization of $0. 350,000 350,000
----------- ----------
1,037,621 350,000
Other assets
Loan receivable 4,606,347 1,608,853
Deferred financing costs - 279,337
Deposits 143,719 1,166
----------- ----------
$ 6,418,061 $ 3,861,589
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 180,980 $ 995,585
Income taxes payable - 30,413
Note payable bank 1,089,009 525,624
Capital lease obligation - current portion 10,000 -
Current portion of long term debt 36,004 536,510
----------- ----------
Total current liabilities 1,315,993 2,088,132
Deferred income taxes 18,000 54,171
Deferred gain on sale leaseback transaction - -
Capital lease obligation 72,467 -
Long term debt - 629,771
Shareholders' equity
Common stock, $0.0001 par value 200 million shares
authorized, 135,052,647 and 124,927,647 issued and
outstanding respectively 13,506 12,493
Preferred stock, $0.001 par value, 4 million shares
authorized, issued and outstanding 4,000 4,000
Additional paid in capital 2,932,460 998,653
Retained earnings since 9/30/98 after
Quasi-reorganization 2,061,635 74,369
----------- ----------
5,011,601 1,089,515
----------- ----------
6,418,061 $ 3,861,589
=========== ===========
</TABLE>
3
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the period ended June 30
Third Quarter Nine months ended
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales, net of discounts and returns $ 1,186,703 $ - $ 3,005,959
Cost of goods sold - 887,632 - 2,269,783
----------- ----------- ----------- -----------
Gross Profit - 299,071 - 736,176
Consulting fees 53,566 53,566
Commisions on loan origination fees 1,580,481 - 2,072,634 -
----------- ----------- ----------- -----------
Total operating revenues 1,580,481 352,637 2,072,634 789,742
Expenses
Sales, general and administrative 1,614,734 265,765 2,840,046 645,317
Depreciation 2,540 33,697 5,080 78,628
----------- ----------- ----------- -----------
1,617,274 299,462 2,845,126 723,945
Other income (expenses)
Other income - 44,849 27,383 93,168
Interest expense (4,433) (44,849) (21,328) (93,168)
----------- ----------- ----------- -----------
Discontinued Operations
Income from operations of MBM from October 1,
1999 to June 30, 2000 (net of income tax effect) 2,526 2,526
Net gain on disposal of MBM 2,751,177 2,751,177
----------- ----------- ----------- -----------
Net Income (Loss) $ 2,712,477 $ 53,175 $ 1,987,266 $ 65,797
Net Income (Loss) Per Common Share $ - $ - $ 0.01 $ -
</TABLE>
4
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
For the nine months ended June 30,
2000 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,987,266 $ 65,797
----------- ---------
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 5,080 78,628
Gain on sale of MBM (2,753,703)
Gain on sale of equipment (27,383)
(Increase) decrease in accounts receivable (6,906) 59,923
(Increase) decrease in inventories - 97,618
(Increase) decrease in loan receivables (321,593) (113,368)
(Increase) decrease in prepaid expenses (43,225)
(Increase) decrease in other assets (142,550) (34,358)
Increase (decrease) in accounts payable and accrued expenses 81,825 (200,215)
----------- ---------
Total adjustments (3,208,455) (111,772)
----------- ---------
Net cash from operating activities (1,221,189) (45,975)
----------- ---------
Cash flows from investing activities:
Investment in ALG (82,952)
Cash payments for the purchase of property (96,589) (48,611)
----------- ---------
Net cash provided (used) by investing activities (179,541) (48,611)
----------- ---------
Cash flows from financing activities:
Proceeds from net borrowing (113,996) 76,163
Proceeds from long term debt and capital lease - net 469,365
Cash received in acquisition of ALG 199,894
Proceeds from compensation in exchange for stock options 483,000
Payments of long term debt and capital leases (17,143)
Proceeds from issuance of common and preferred stock 470,003
----------- ---------
Net cash provided by financing activities 1,491,123 76,163
Net increase (decrease) in cash and cash equivalents 90,393 (18,423)
Cash and cash equivalents, beginning of period 2,264 22,695
----------- ---------
Cash and cash equivalents, end of period $ 92,657 $ 4,272
=========== =========
</TABLE>
Shareholders' equity note:
On January 25, 2000 the Company issued 8,000,000 shares of its common stock in
connection with the acquisition of Alternative Lending Group, for the purchase
price of $ 223,356.
On March 23, 2000 the Company issued 2,125,000 shares of its common stock in
connection with the acquisition by Alternative Lending Group a wholly own
subsidiary of the Company, of Direct Financial LLC.
<PAGE>
WHITEHALL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2000
(1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
-------------------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 310(b) of
Regulation SB. Accordingly, they do not include all of the information and
footnote disclosures normally included in complete consolidated financial
statements prepared in accordance with generally accepted accounting principles.
For further information, such as significant accounting policies followed by the
Company, refer to the notes to the Company's audited consolidated financial
statements.
In the opinion of management, the unaudited consolidated financial
statements include all necessary adjustments (consisting of normal, recurring
accruals) for a fair presentation of the financial position, results of
operations and cash flow for the interim periods presented. The results of
operations for the nine-month periods ended June 30, 2000 and 1999 are not
necessarily indicative of operating results to be expected for a full year.
(2) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-----------------------------------------------------------
Whitehall Enterprises, Inc. ("the Company"), formerly Total World
Telecommunications, Inc., was incorporated under the laws of the State of
Delaware on October 12, 1988. On January 8, 1999, the Company amended its
articles of incorporation changing its name from Total World Telecommunications,
Inc. to Whitehall Enterprises, Inc. The acquisition of Alternative Lending
Group, Inc. was effective January 23, 2000. The acquisition of Direct Financial
LLC was effective March 27, 2000.
Principles of Consolidation
The consolidated financial statements of the Company include those accounts of
Whitehall Enterprises, Inc., Hairbiotech, Inc.("HBI"), a development stage
biotechnology company, Alternative Lending Group, Inc.("ALG) and Direct
Financial LLC, ("DF"), both financial services companies. All significant
intercompany transactions and balances have been eliminated in the
consolidation.
Chapter XI Bankruptcy
On December 24, 1997, the Company filed for protection under Chapter XI of the
Federal Bankruptcy laws. Chapter XI encompasses the submission, by the court
appointed trustees, to the Court of a plan or reorganization. On August 28,
1998, the Court approved the plan of reorganization.
6
<PAGE>
Pursuant to this plan, all preferred and common stock shares previously issued
were canceled. In place of these canceled shares, 124,927,647 shares of common
stock, par value $.0001 were issued and the Court also approved the debtors
purchase of stock of Mega Blow Moulding, Limited.
Accounting 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 and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Accounts Receivable
Management believes that accounts receivable are fully collectible based upon
the Company's history of collections. Accordingly, no allowance for doubtful
accounts has been provided.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property, machinery, and equipment are stated at cost, and are depreciated over
their estimated useful lives using accelerated and straight-line methods as
follows:
Useful Life
-----------
Office equipment 3-5 years
Machinery and equipment 5 years
Leasehold improvements 5 years
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information (SFAS No. 131) which established presentation of financial
data based on the "management approach". SFAS No. 131 is applicable for fiscal
years beginning after December 15, 1997.
Revenue Recognition
Origination fees in ALG and DF for warehoused loans are recognized as revenue
when the loans are made to the extent they represent reimbursement of loan
origination costs. Revenues in the form of origination points, service release
premiums and other fees are recognized upon the funding of the mortgage loan by
the ultimate lender. Sales of loan inventory are generally without recourse and
are recorded when the proceeds are received by the Company. Other revenues are
recognized as income when earned.
7
<PAGE>
Advertising
In addition to the advertising expenses incurred as a result of normal
operations, the Company participates in various advertising and promotion
programs relative to its financial services division. All costs related to
advertising and promotion are expensed in the period incurred. Costs for
advertising and promotion programs totaled approximately $300,000 and $110,000
for the nine months and the quarter ended June 30, 2000, respectively.
Amortization
Amortization of goodwill and patents is determined utilizing the straight-line
method based generally on the estimated useful lives of the intangibles as
follows:
Goodwill 15 years
Patents 17 years
Income Taxes
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 109 Accounting for Income Taxes, requiring
companies to use the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the consolidated
financial statement carrying amounts and the tax basis of existing assets and
liabilities. Pursuant to SFAS No. 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment
date. Under the deferred method, deferred taxes were recognized using the tax
rate applicable to the year of the calculation and were not adjusted for
subsequent changes in tax rates. The Company adopted SFAS No. 109 in 1993.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company extends
credit based on an evaluation of the customer's financial condition, generally
(except for mortgages receivable) without requiring collateral. Exposure to
losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.
In addition, at June 30, 2000, the Company had deposits with financial
institutions, which were insured for up to $100,000 by the U.S. Federal Deposit
Insurance Corporation. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
The Company's financial services division does not have any significant off
balance sheet risks as of June 30, 2000. The Company believes its is not exposed
to any significant credit risk on bank balances above insured limits. Company
management is well trained and has had very little turnover in the past,
allowing them to easily fill in work duties if one of the managerial team was
temporarily out of the office.
8
<PAGE>
ALG and DF are an FHA, VA, Fannie Mae correspondent lender. All FHA loans
originated are subject to FHA/HUD Title I and II regulations. Consequently, all
these loans are fully insured by FHA. Company management believes the credit
risks associated with specific borrowers and geographic concentrations are not
significant. A 100% pre-funding quality control program helps limit the risks
associated with the closing of all loans.
Financial instruments in ALG include fully collateralized mortgages pending sale
to investors (Note 9) amounting to $1,101,382 at June 30, 2000. The Company
operates using a warehouse line of credit facility from a national banking
institution (Note 9), the disruption of which could have a near-term impact on
the Company. Company management believes the credit risk associated with these
financial instruments is not significant.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128), which
specifies the computation, presentation and disclosure requirements for earnings
per share. Basic earnings per share are computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of common
shares (the denominator) for the period. The computation of diluted earnings per
share is similar to basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
The numerator in calculating basic earnings per share is reported net income or
(loss). The denominator is based on the following weighted-average number of
common shares:
2000 1999
----------- -----------
Basic 130,969,314 124,928,000
(2) EQUITY TRANSACTIONS
A summary of the stock is as follows:
Common Stock - The Company authorized 200,000,000 shares of common
stock, $.0001 par value per share. As of March 31, 2000, 135,052,647 shares of
common stock were issued and outstanding.
Preferred Stock - The Company authorized 4,000,000 shares of preferred
stock at $.001 par value per share. As of March 31, 2000, none were issued. The
stock remains outstanding as part of the purchase of Mega Blow Moulding, Limited
("MBM").
On December 10, 1998, 4,000,000 shares of preferred stock with a par value of
$.001 were issued under a stock purchase agreement between the Company and
1299004 Ontario Corporation ("129 Ontario"). In exchange for these shares, the
Company acquired 100% of the outstanding common stock of MBM. There is a five
(5) year restriction on the conversion of preferred shares to common shares
pursuant to the Agreement.
9
<PAGE>
In July 1999, 1274328 Ontario issued to Luis Alvarez, CEO, an irrevocable option
to purchase the 4 million preferred shares for $310,400.
During October 1999, the Company's Board of Directors approved a decrease in the
conversion rate of the authorized preferred stock. The rate in effect at the
time of the meeting was 100 common shares for each share of preferred stock. The
new authorized conversion rate is 27 shares of common stock per each share of
preferred stock.
On January 25, 2000, the Company issued 8,000,000 shares of common stock in
exchange for 100% of common stock of Alternative Lending Group, Inc.
During February 2000, the Company issued the preferred shares, but is holding
them during the exercise period, subject to the Irrevocable Option Agreement
between 1274328 Ontario, Inc. and Mr. Luis Alvarez. The exercise period expires
July 30, 2001.
On March 23, 2000, the Company issued 2,125,000 shares of common stock in
exchange for 100% of member equity of Direct Financial LLC.
Stock options - During the October 1999 Board of Directors meeting, the
Company approved the payment of fees to consultants, legal counsel and officers
and directors in the form of stock options. The following summarizes the fees
and the shares provided at a calculated price of $0.03 (consistent with the
closing share price of October 22, 1999, the date of the Board meeting) and an
exercise price of $0.30, expiring in five years. The Board deemed that using a
calculated price of $0.03 was fair for remunerating the Board members for their
efforts throughout the past years. However, with the best interests of both, the
shareholders and the Company as the recipient of the options proceeds in mind,
the Board set an exercise price of ten times the current price of $0.03 per
share as of the date of the meeting to $0.30.
Option Shares Fees
------------- ---------
Officers 18,000,000 $ 260,000
Directors 2,200,000 48,000
Consultants 4,334,000 130,000
Legal counsel 1,500,000 45,000
---------
Total expenses paid
with options $ 483,000
=========
Stock options were recorded as additional paid in capital in accordance with
SFAS No. 123.
10
<PAGE>
(3) ACQUISITIONS
The Alternative Lending Group Acquisition
On January 25, 2000, the Company closed on the purchase of 100% of the
common stock of Alternative Lending Group ("ALG") and all its related assets.
Alternative Lending Group, Inc., is an Illinois corporation that is engaged in
the mortgage banking and brokerage business. The Company acquired 100% of the
shares of common stock of Alternative Lending Group, Inc. in exchange for
$950,000 of working capital for Alternative Lending Group, Inc., and 8,000,000
shares of common stock equivalent to 4% of 200,000,000 shares. In the event that
prior to one year to the date of closing, the amount of authorized common shares
of the Company exceed the 200,000,000 authorized shares, a proportional
adjustment shall be made to compensate the seller for the difference. The
acquisition of ALG will be accounted for as a stock purchase under Accounting
Principles Board Opinion No. 16. The results of operations of the acquired
company were included in the consolidated results of operations of the Company
from the respective acquisition date.
The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
Current assets $ 1,354,313
Property and equipment 45,783
Other assets 122,203
Current liabilities (169,597)
Warehouse line of credit - bank (1,094,203)
Obligations under capital leases (17,143)
Deferred income taxes (18,000)
-----------
$ 223,356
===========
The Direct Financial LLC Acquisition
On March 23, 2000 Alternative Lending Group, a wholly owned subsidiary
of Whitehall Enterprises, Inc., purchased Direct Financial, LLC, a Michigan
Limited Liability Company by the issuance of two million one hundred twenty-five
thousand (2,125,000) shares of the Company's common stock. The transaction was
closed on March 23, 2000. The acquisition of Direct Financial LLC was accounted
for as a stock purchase under Accounting Principles Board Opinion No. 16. The
results of operations of the acquired company were included in the consolidated
results of operations of the Company from the respective acquisition date.
The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
Current assets $ 58,615
Property and equipment 97,329
Other assets 4,012
Current liabilities (83,936)
Obligations under capital leases (55,747)
-----------
$ 20,273
===========
11
<PAGE>
(4) DIVESTITURES:
On June 30, 2000, the Company sold its wholly owned subsidiary, MBM, to
Global Financial Investments LLC, in exchange for notes receivable in the amount
of $3,647,000 (at present value). The Company recorded a pretax gain of
$2,751,177. At June 30, 2000 MBM had net sales of $3,826,000 and a net income of
$2,526.
(5) LEGAL MATERS:
All legal proceedings were eliminated upon the certification of the
Plan of Reorganization by the Bankruptcy Court.
The Company is not involved in any form of litigation, nor has it been
served by anyone, however, it is currently being threatened to be sued by
parties believed to be short in the Company's stock. These parties are
attempting to extort a certain amount of shares from the Company by making
accusations, known to be blatant lies, against the Company and the Company's
CEO, Mr. Luis Alvarez.
Management feels compelled to disclose the Company's dealings with
these parties, at this time, in the unlikely event that either the Company or
the CEO is served with a frivolous lawsuit. The Company is prepared to be served
by such parties and possesses numerous articles of evidence defending the
Company and CEO against these accusations. The Company's Board of Directors
supports Mr. Alvarez in his refusal to be intimidated and believe that his
tenacity and integrity will prevail once again, as it did I the bankruptcy
process.
(6) PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 2000 and September 30, 1999
consisted of the following:
June 30 September 30
2000 1999
---------- -----------
Furniture and fixtures $ 236,523 $ 143,751
Machinery and equipment -- 2,514,860
Leasehold improvement 3,700 3,942
---------- -----------
240,223 2,662,553
Less: accumulated depreciation (75,548) (2,142,371)
---------- ------------
Total $ 164,675 $ 520,182
========== ============
Depreciation expense for the nine month periods ended June 30, 2000 and 1999 was
$5,080 and $44,930, respectively.
12
<PAGE>
(7) LEASE COMMITMENTS:
The Company leases office space, vehicles, and office equipment under
noncancelable capital and operating leases. The minimum rentals payable under
long-term operating leases, expiring December 31, 2004, exclusive of certain
operating costs for which the Company is responsible, are approximately $250,000
annually.
(8) INCOME TAXES:
The Company reduced taxable income for the year ended September 30,
1999, by applying federal net operating losses to pre-tax income, reducing
taxable income by $71,249,531. These losses were carried forward from prior
years. The Company has a remaining federal net operating loss carry forward of
$71,650,735, of which $71,249,531 expires in 2014, and $401,204 expires in 2017.
13
<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, 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
PLAN OF OPERATIONS
During the year ended September 30, 1999, the Company focused its
resources in the effort to successfully carry out the objectives approved by the
Bankruptcy Court in the Company's Chapter XI Bankruptcy Reorganization Plan. For
fiscal year 1999-2000 the Company's objectives for growth are as follows:
14
<PAGE>
The Company continued to oversee the operations of MBM, which was the
Company's only operating subsidiary during the quarter ended December 31, 1999
and was an integral part of operations for the quarter ended June 30, 2000. The
Company evaluated in the course of the prior year whether the operations of MBM
were sufficiently compatible and synergetic with planned acquisition candidates.
Management determined that these operations were not complementary, and,
effective June 30, 2000, negotiated the sale of MBM and its operations.
The Company's plan for growth during the prior fiscal year included the
acquisitions of MBM and Hairbiotech. The details of these acquisitions were
discussed in "Recent Developments" in Part I, Item 1 of Form 10-KSB for the year
ended September 30, 1999.
On June 30, 2000 Whitehall Enterprises, Inc. made and entered into an
agreement to sell MBM. The sale was made to Global Financial Investment, LLC, a
limited liability company incorporated under the laws of Arizona. The following
table summarizes the more significant terms of the agreement:
* Whitehall Enterprises, Inc. sold 100% of the authorized capital of MBM
which consists of an unlimited number of common shares, of which two
hundred forty (240) common shares are issued and outstanding.
* Global Financial Investment will pay Whitehall Enterprises, Inc.
$650,000.00 in fifteen (15) equal monthly installments of $43,333.33 to
commence sometime after the time of closing.
* Global Financial Investment shall pay $1,100,000.00 commencing November
15, 2000 to Whitehall Enterprises, Inc. to fund a marketing campaign of a
future acquisition.
* Global Financial Investment shall pay $500,000.00 pursuant to a promissory
note due with 8% interest on June 30, 2001.
* Whitehall Enterprises, Inc. shall retain $1,397,000.00 worth of current
receivables from Mega Blow Moulding Limited.
* All amounts receivable are evidenced by promissory notes that are
cross-collateralized by the underlying net assets of Global Financial
Investment LLC and additional real estate holdings valued at over $5
million.
* Whitehall Enterprises, Inc. represents, to their knowledge, that MBM is
not a party to or bound by any agreement of guarantee, indemnification,
surety, or indebtedness of any other person, corporation or partnership,
except for trade accounts payable incurred in the normal course of
operations.
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During the year ended September 30, 1999, the Company focused its
resources in an effort to successfully carry out the objectives approved by the
Bankruptcy Court in its Reorganization Plan. Whitehall Enterprises, Inc.
continued to oversee the operations of MBM, which was its only operating
subsidiary during the quarter ended December 31, 1999 and was an integral part
of operations for the quarter ended March 31, 2000. During the course of the
prior year Whitehall management evaluated the operations of MBM to determine
whether they were sufficiently compatible and synergetic with Whitehall's
planned acquisition candidates. Management determined that MBM's operations were
not complementary.
Other considerations that impacted on Whitehall's management's decision to sell
MBM are delineated in the following table:
* Failure of MBM to comply with its responsibilities as set forth by an
agreement between them and Whitehall Enterprises Inc. Also, MBM's
inability to produce necessary documentation in a timely manner.
* The sale of MBM will produce sufficient cash to acquire other financial
service industry companies and biotechnology companies. These companies
are more in line with Whitehall's philosophy of growth.
* Companies under consideration are located within Whitehall's geographical
area. Proceeds from the sale of MBM will leave significant surplus of
equity for these future acquisitions.
* The immediate need for Whitehall to receive cash to close its future
acquisitions without any further dilution of common shareholders at
current stock prices.
As a result of the sale of MBM, the Company recognized a gain of
$2,831,706 for the nine months ended June 30, 2000. The gain is presented net of
deferred interest of $142,035 calculated by establishing the present value of
future payments at an effective interest rate of 8%.
HBI will continue its research and development relative to the
prevention of hair loss in conjunction with the University of Miami School of
Medicine. The Company and HBI are currently negotiating with multinational
industry leaders for the funding of clinical trials and ongoing research.
The Company expects that upon execution of an Option Agreement, a
leading pharmaceutical company will be responsible for funding 100% of
Hairbiotech's Phase III human clinical trials and ongoing research, as well as
supplying adequate bulk topical compound needed to complete the study. The term
of the study will commence within 30 days of the FDA's acceptance of the
application. Per the agreement, Hairbiotech is not required to pay for any of
the research or costs associated with the product. The pharmaceutical company
will furnish Hairbiotech with $1,200,000 in milestone payments. In exchange for
the pharmaceutical
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company's patronage, Hairbiotech will grant it an option to acquire an exclusive
worldwide license to the patent and all applications of the study. The
pharmaceutical company will utilize its resources to manufacture, market and
sell the product(s) and submit associated reports to Hairbiotech. Upon
commercialization, the pharmaceutical company is obligated to document sales of
the product(s) and submit royalty payments to Hairbiotech. The pharmaceutical
company began conducting its first set of preliminary tests in February.
To achieve this growth and obtain the necessary working capital, the
Company will require additional funding. The Company has received working
capital funds for ALG and further preliminary commitments from investors to
arrange for future funding of additional acquisitions. However, the Company does
not want to further dilute the ownership interest of the common shareholders.
Additionally, the imminent collection of loans receivable as part of the MBM
sale is expected to provide cash and capital for other acquisitions. While the
Company has reason to expect the completion of these arrangements in the near
future, no assurances can be given that such funds will be available.
The Company recently acquired 100% of the common stock of Alternative
Lending Group ("ALG") and all its related assets. The Company's President and
CEO is currently studying several other acquisitions.
The Alternative Lending Group Acquisition
During January 2000, the Company closed an agreement to purchase 100%
of the common stock of Alternative Lending Group ("ALG") and all its related
assets.
In just six years, ALG grew from a single-city mortgage company based
in Chicago - with $38 million first-year gross business - to a mortgage bank
covering nine states, (23 states, subsequent to the closing) with $93,592,399 in
actual 1999 gross mortgage loans originated and closed. The company focused its
mortgage origination through a consumer direct marketing channel and maintained
steady growth and profitability by providing mortgage loans to fit all types of
consumers' needs. With the added control that mortgage banking status provides,
ALG is able to make loans simultaneously profitable and competitive because of
the reduction in sales commissions and expenses associated with conventional
mortgage brokerage firms.
ALG has two divisions: the Wholesale Division and the Internet Online
Mortgage Division. These divisions will help establish the company's national
presence and substantially increase gross production over the next months.
ALG offers the convenience of applying for all types of loans via the
Internet. ALG has utilized the Internet as a referral source for the past three
years, and has maintained a $2 million monthly average loan volume
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from its previous website. The company has spent much of the past 12 months
developing a new website, Alternativelending.com, and a new business plan for
the Internet Online Mortgage Division.
With the launch of its website in January, Alternativelending.com, ALG
plans to increase its market focus from the current 23 states to nationwide,
during the next 6 months. Alternativelending.com intends to become the place to
shop online for a home loan. ALG will continue its Internet marketing strategy
direct to customers and will compete directly with current online leaders E-loan
and Mortgage.com to provide a low cost mortgage option to all customers
regardless of credit history.
During this quarter the Company established strategic Internet
alliances with GetSmart.com, LoanWeb.com, LoanApp.com, and
AmericanLoanSearch.com as lead sources. These Web sites provide a vast resource
to obtain quality leads from all over the country. GetSmart, Loanweb and Loanapp
are strictly lead sources. LoanWeb.com provides leads, for a flat price per
lead, and does not promote the Company's Web site. LoanApp provides paid leads
in the form of full loan applications. AmericanLoanSearch serves ALG as both a
portal and a lead source.
Recently the Company arranged the creation of Alternative Title, a new
title insurance division. Through our partnership with Guardian Title, the
Company now offers title insurance. The alliance creates a unique click and
mortar combination allowing the Company to minimize overhead and expenses as
well as close loans virtually any time, anywhere, no matter how far the distance
within the 23 states which ALG is currently licensed to do business. The Company
is among the first in the mortgage industry to offer this kind of innovation.
With the passage of the Gramm-Leach-Bliley Act, permitting banks to
sell insurance, and the widespread use of service bundling within the real
estate industry, most providers have become members of an affiliated business
arrangement. Whitehall's affiliation with Guardian Title has enlisted the
services of a national title corporation, who will underwrite title insurance to
the newly formed company: Alternative Title. Furthermore, all of ALG's closings
will be performed by the underwriter's and third party agents workforce, within
the 23 states where the Company currently has operations. The Company is
negotiating with additional title insurance underwriters, who will become
involved in the near future. Once these negotiations are finalized, ALG will
have the essential groundwork needed to rapidly expand its services across the
remainder of the United States.
Management believes Alternative Title will provide ALG with more
flexibility in pricing, underwriting, closing times and locations, and
ultimately place the Company in a strong position to compete directly with
on-line leaders such as E-Loan and Mortgage.com by offering a superior product
and providing low cost mortgage options to all customers regardless of credit
history.
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ALG is now a mortgage bank and will have more flexibility with pricing,
underwriting, closing times/locations and customer communication. ALG will
continue to provide more hands-on service to customers who request it, through
its traditional offices located in the Midwest and Southwest regions.
ALG's Wholesale Division will be marketing its mortgage banking
services to other mortgage brokers. The Wholesale Division has allowed ALG to
make every loan more profitable, thus allowing improved customer service and
more competitive rates, costs and closing times.
The Direct Financial LLC Acquisition
On March 23, 2000, Alternative Lending Group, a wholly owned subsidiary
of Whitehall Enterprises, Inc., entered into an agreement to purchase Direct
Financial, LLC, a Michigan Limited Liability Company and the interests of James
P. Mack, Wallace W. Qualls, III, Greg Kitchen, and Kip W. Weston (collectively,
the "Members"). The Members' agreed to sell and transfer to Alternative Lending
Group all their Members' interests in Direct Financial, LLC. Whitehall
Enterprises, Inc. agreed, in consideration of the sale and transfer of the
Members' interests to Alternative Lending Group, to issue to the Members' shares
of common stock of Whitehall. The following table summarizes the more
significant terms of the agreement:
* Whitehall Enterprises, Inc. issued two million one hundred twenty-five
thousand (2,125,000) shares of their common stock for the purchase of
Direct Financial, LLC.
* The Members own all the outstanding Members' interest in Direct Financial,
LLC.
* Whitehall Enterprises, Inc. agreed that in the event that James P. Mack or
William W. Qualls become entitled to an additional 187,500 shares each of
Whitehall's common stock, pursuant to their Employment Agreement,
Whitehall will upon receipt of written notification to that effect from
Alternative Lending Group, issue and deliver to Mack and Qualls each
187,500 additional shares of Whitehall Enterprises, Inc. common shares.
* Direct Financial, LLC and the Members represented that they are not a
party to or bound by any agreement of guarantee, indemnification, surety,
or similar commitments of the obligations, liabilities
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(contingent or otherwise) or indebtedness of any other person, corporation
or partnership, except for trade accounts payable incurred in the normal
course of operations.
* Direct Financial, LLC and Members have executed all necessary documents
holding Whitehall Enterprises, Inc. harmless of any liability pursuant to
the stock purchase agreement.
Since its formation Direct Financial LLC and Members have operated as a
mortgage broker/lender in Southfield, Michigan. Direct Financial's current gross
loan origination volume is between $10-12 million per month. As a result of the
acquisition of Direct Financial, LLC, Alternative Lending Group will increase
its annual gross mortgage originations from $93.3 million to approximately $250
million. With Direct Financial's two Michigan locations and an expanded retail
staff it will immediately enhance Alternative Lending Group's East Coast
presence and double their retail origination staff. Direct Financial's average
gross loan amount is almost double that of Alternative Lending Group's due to
their geographical location. This acquisition is just the next step in Whitehall
Enterprises' plan to expand Alternative Lending Group's state-of-the art Web
site presence, as well as accelerate the growth of Alternative Lending Group's
Internet, Retail and Wholesale Divisions.
RESULTS OF OPERATIONS
The Company's continuing operations consists of the operations of ALG
and DF. The finance segment related revenues consist of loan origination fees.
Revenues for the quarter ended June 30, 2000 amounted to $1,580,481, compared to
$452,193 for the quarter ended March 31, 2000 and $2,133,237 for the year ended
December 31, 1999.
General and administrative expenses, exclusive of stock options of
$463,000 issued to directors and non employees for services rendered, amounted
to $2,362,126 for the nine month period ended on June 30, 2000. Total general
and administrative expenses for the nine and three months ended June 30, 2000
were $2,845,126 and $723,945.
Interest expense of $21,328 were incurred on loans due on warehouse
lines of credit during the period ended June 30, 2000.
The Company's consolidated net loss from operations for the nine and
three months ended June 30, 2000 amounted to $(766,437) and $(41,226) compared
to net income of $65,797 and $53,175 for the preceding period of operations
ended June 30, 1999. Net losses exclusive of expenses paid through stock options
issued to directors and non employees for services rendered aggregating
$483,000, would become a net loss of $(283,437) for the nine month period ended
June 30, 2000. ALG's net income for the quarter ended June 30, 2000 was $70,722.
ALG's expected revenue increase of approximately 300% in this quarter
over last quarter was achieved and surpassed to 371% over the preceding
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quarter revenues. This is consistent with the results already achieved in July,
which in turn are a direct result of the start up investments made in the
quarter ended March 31, 2000.
Since the roll out of AlternativeLending.com, ALG has been able to
significantly increase consumer traffic and begin to rely on our Internet web
site to supply the bulk of our mortgage leads. As discussed previously, this
will not only have a positive effect on our marketing costs in the last quarter,
but is also the next step in utilizing the Internet and our web site to generate
100% of our retail mortgage leads.
During the October 22, 1999 Board of Directors Meeting, Luis Alvarez,
CEO, introduced a discussion regarding his initial commitment to the Board when
he set forth the challenge they would be faced with and their acceptance of
their positions as directors. Note 4 in the financial statements discusses the
options approved by the Board.
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PART II.
ITEM 1. LEGAL PROCEEDINGS
For information concerning current litigation regarding the Company,
see Note 5 in the Notes to Financial Statements.
The Company is not involved in any form of litigation, nor has it been
served by anyone, however, it is currently being threatened to be sued
by parties believed to be short in the Company's stock. These parties
are attempting to extort a certain amount of shares from the Company by
making accusations, known to be blatant lies, against the Company and
the Company's CEO, Mr. Luis Alvarez.
Management feels compelled to disclose the Company's dealings with
these parties, at this time, in the unlikely event that either the
Company or the CEO is served with a frivolous lawsuit. The Company is
prepared to be served by such parties and possesses numerous articles
of evidence defending the Company and CEO against these accusations.
The Company's Board of Directors supports Mr. Alvarez in his refusal to
be intimidated and believe that his tenacity and integrity will prevail
once again, as it did I the bankruptcy process.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
SIGNIFICANT SUBSEQUENT EVENTS:
-----------------------------
Sale of MBM
Information relative to the sale of MBM will be presented in an 8-K by
August 31, 2000.
Issuance of Preferred Stock Options
During July 1999, 1274328 Ontario issued to Luis Alvarez - CEO, an
irrevocable option to purchase the Company's 4 million preferred shares
for $310,400.
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During October 1999, the Company's Board of Directors ratified
management's previous decision to decrease the conversion rate of the
authorized preferred stock. The rate in effect at the time of the
meeting was 100 common shares for each share of preferred stock. The
new authorized conversion rate is 27 shares of common stock per each
share of preferred stock leaving control in the public's hands where it
belongs, and thus not compromising the tax loss carryforward.
During February 2000, the Company issued the preferred shares and is
holding them during the "Exercise Period," subject to the Irrevocable
Option Agreement between 1274328 Ontario, Inc. and Mr. Luis Alvarez.
The "Exercise Period" expires July 30, 2001. Mr. Alvarez is free to
exercise said options at any time prior to the expiration date.
On August 11, 1999 the Company's common stock was listed for inclusion
in the OTC Bulletin Board and continues to utilize the symbol "WTHL".
ITEM 6. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Details of the sale of MBM will be available through an 8-K as by
August 31, 2000.
(b) The Company filed Form 8-K reports dated June 16, 2000, June 13, 2000,
June 9, 2000, May 18, 2000, February 10, 1999, May 10, 1999 and June
16, 1999.
(c) Exhibits
None
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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: August 21, 2000 By: /s/ Luis Alvarez
--------------------------------
Luis Alvarez, President
