U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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COMMISSION FILE No. 0-20922
Date of Report (Date of earliest event reported) May 26, 2000
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WHITEHALL ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2274730
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
801 Brickell Avenue, 9th Floor, Miami, Florida 33131
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(Address of principal executive offices) (Zip Code)
(904) 409-0200
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 1. Changes in Control of Registrant N/A, No change of control of
registrant.
ITEM 2. Acquisition and Disposition of Assets
Agreement For The Purchase Of Direct Financial, LLC.
----------------------------------------------------
On March 23, 2000 Whitehall Enterprises, Inc., 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. agrees, in consideration of
the sale and transfer of the Members' interests to Alternative Lending Group, to
issue to the Members' shares of the 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. by Alternative Lending Group, a wholly owned
subsidiary of Whitehall.
* The Members own all the outstanding Members' interest in Direct
Financial, LLC.
* Whitehall Enterprises, Inc. agrees that in the event that James P. Mack
or William W. Qualls becomes 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' represents that they are not a
party to or bound by any agreement of guarantee, indemnification,
surety, or similar commitments of the obligations, liabilities
(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.
2
<PAGE>
Business
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
their annual gross mortgage originations from $93.3 million to $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. Management at Whitehall Enterprises, Inc.
states Direct Financial's average gross loan amount is almost double that of
Alternative Lending Group's because of 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.
Alternative Lending Group recently created two new divisions, the Wholesale
Division and the Internet Online Mortgage Division. The new divisions will
augment its present operation, which provides hands-on service to customers who
request it, through its traditional offices located in the Midwest and Southwest
regions, and will help establish the company's national presence and
substantially increase gross production over the next twelve months.
Additionally, the company has developed a new state-of-the art web-site
Alternativelending.com, and business plan. The focus of the plan is to increase
its market share over the next twelve months, from nine states to a national
level. Since Alternative Lending Group is a mortgage bank it can provide a
superior Internet online mortgage service, compared to those companies that
still operate under the mortgage broker laws. Alternative Lending Group will
have more flexibility with pricing, underwriting, closing times/locations and
customer commination. All of this will place Alternative Lending Group in a
strong position to compete directly with online leaders E-Loan and Mortgage.com,
offering a superior product, and providing low cost mortgage options to all
customers regardless of credit history.
ITEM 3. Bankruptcy or Receivership
None; not applicable.
ITEM 4. Changes in Registrant's Certifying Accountant.
None; not applicable.
ITEM 5. Other Events
See item 2
ITEM 6. Resignations of Directors and Executive Officers.
None; not applicable.
3
<PAGE>
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Direct Financial LLC balance sheet, as of December 31,
1999 and related statements of income and members' equity and cash flows for the
year then ended and the report of independent auditors Canvasser, Rofel &
Associates certified public accountants and consultants thereon, together with
the notes thereto, are located at pages 6 through 13 of this Report.
Audited Financial Statements of Direct Financial LLC. for the period ended
December 31, 1999.
* Accountant's Report
* Balance Sheet
* Statement of Income and Members' Equity
* Statement of Cash Flows
* Notes to Financial Statements
(b) Pro Forma Financial Information.
The Pro Forma condensed combined Balance Sheet (unaudited) as
of September 30, 1999 and the Pro Forma condensed combined statement of
operations (unaudited) for the year then ended and the notes thereto, are
located at pages 14 through 19 of this report.
* Pro Forma Combined Financial Data
* Pro-Forma Condensed Combined Balance Sheet
* Pro-Forma Condensed Combined Statement of Operations
* Notes to the Pro Forma Condensed Combined Financial Statements
(c) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.49 Stock Purchase Agreement for the purchase of Direct Financial,
LLC, and the interests of James P. Mack, Wallace W. Qualls, III,
Greg Kitchen, and Kip W. Weston.
ITEM 8. Change in Fiscal Year.
None; not applicable.
ITEM 9. Sales of Equity Securities pursuant to Regulation S.
None; not applicable.
4
<PAGE>
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Whitehall Enterprises, Inc.
By: /s/ Luis Alvarez
----------------
Luis Alvarez - President
5
<PAGE>
DIRECT FINANCIAL, LLC
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITOR'S REPORT
YEAR END DECEMBER 31, 1999
6
<PAGE>
CONTENTS
--------
Page
----
Independent Auditor's Report 8
Financial Statement:
Balance sheet 9
Statement of income and members' equity 10
Statement of cash flows 11
Notes to financial statements 12-13
7
<PAGE>
CANVASSER, ROFEL & ASSOCIATES Phone (248)539-8888
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CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS Fax (248)539-8080
7071 Orchard Lake Road, Suite 315, West Bloomfield,
Michigan 48322
INDEPENDENT AUDITOR'S REPORT
To the Members of
Direct Financial, LLC
Southfield, Michigan
We have audited the accompanying balance sheet of Direct Financial, LLC, at
December 31, 1999, and the related statements of income and members' equity, and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Direct Financial, LLC as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
March 6, 2000
8
<PAGE>
DIRECT FINANCIAL, LLC
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 46,931
Fees receivable 67,584
Prepaid Expenses 1,995
Total Current Assets 116,510
Property and equipment:
Furniture and fixtures 35,145
Equipment under capital lease 79,996
Leasehold improvements 3,700
118,841
Less: accumulated depreciation (21,512)
97,329
Other assets:
Organization costs, net of amortization 983
Deposits 3,029
4,012
$ 217,851
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 19,200
Lines of credit 3,922
Accounts payable 52,181
Accrued expenses 26,332
Taxes payable, other than income 1,501
Total current liabilities 103,136
Long-term capital lease obligations 36,547
Members' equity 78,168
$ 217,851
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE>
DIRECT FINANCIAL, LLC
STATEMENT OF INCOME AND MEMBERS' EQUITY
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Broker and origination fees $ 2,367,985
Operating expenses 2,004,423
Income from operations 363,562
Interest expense 13,168
Net income 350,394
Members' equity, January 1, 1999 2,645
Contributions 13,760
Distributions (288,631)
Members' equity, December 31, 1999 $ 78,168
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE>
DIRECT FINANCIAL, LLC
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1999
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income $ 350,394
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 21,806
Changes in assets and liabitlies:
(Increase) in fees receivable (67,584)
Decrease in member receivables 10,149
(Increase) in prepaid expenses (1,995)
Decrease in deposits 2,441
Increase in accounts payable 52,181
Increase in accrued expenses 26,332
Increase in taxes payable, other
than on income 1,211
44,541
Net cash provided by operating activities 394,935
Cash flows from investing activities:
Capital expenditures (39,316)
Net cash flows used in investing activities (39,316)
Cash flows from financing activities:
Proceeds from lines of credit 25,964
Principal payments on line of credit (37,042)
Principal payments on capital leases (23,777)
Member contributions 13,760
Member distributions (288,631)
Net cash used in financing activities (309,726)
Net increase in cash 45,893
Cash at January 1, 1999 1,038
Cash at December 31, 1999 $ 46,931
</TABLE>
The accompanying notes are an integral part of these financial statements
11
<PAGE>
DIRECT FINANCIAL, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Summary of significant accounting policies
------------------------------------------
This summary of significant accounting policies of Direct Financial,
LLC is presented to assist in understanding the limited liability
company's financial statements. The financial statements and notes are
representations of the limited liability company's management, which is
responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles.
Nature of operations
--------------------
Direct Financial, LLC is a mortgage broker-lender engaged in the
funding of residential non-conforming mortgage loans in Michigan. The
Company's revenue is derived primarily from commissions and origination
fees charged on these loans.
Estimates
---------
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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Fees receivable
---------------
Accounts receivable represent loans that closed prior to December 31,
1999, but were not funded until the following year.
Property and equipment
----------------------
Property and equipment are stated at cost. Depreciation and
amortization are provided using straight-line and accelerated methods
over their estimated useful lives.
Income taxes
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Effective May 7, 1998, the members of Direct Financial, LLC elected to
be taxed as a partnership. As a partnership, each member reports and
pays income taxes on their respective share of the Company's taxable
earnings and specially allocated items, therefore, no provision for
income taxes has been made.
12
<PAGE>
2. Depreciation and amortization
-----------------------------
Property and equipment is being depreciated over their estimated useful
lives as follows:
Years
Furniture and fixtures 5 - 7
Capital leases 5 - 7
Leasehold improvements 39
Depreciation and amortization of property and equipment for the year
December 31, 1999 is $21,511.
Organization costs of $1,475 are being amortized over five years using
the straight-line method. Amortization for the year ended December 31,
1999 is $ 295.
3. Lines of credit
---------------
The Company has two lines of credit.
The first line of credit in the amount of $25,000 with a variable
interest rate (10.5% at December 31, 1999), matures January 2000 and
requires monthly principal and interest payments and is secured by all
the assets of the company and personal guarantees of the members. At
December 31, 1999, the balance outstanding on the credit line is
$3,922.
The second line of credit in the amount of $35,000 with interest at 2%
over bank prime expires November 2000. This line is secured by the
personal guarantees of the members of the Company. At December 31 1999,
there were no advances against this line.
4. Leases
------
At December 31, 1999, the Company is obligated under three capital
leases, secured by personal guarantees of company members, for office
and computer equipment.
13
<PAGE>
FINANCIAL STATEMENTS
WITH
PRO FORMA COMBINED FINANCIAL DATA
(UNAUDITED)
AS OF SEPTEMBER 30, 1999
14
<PAGE>
Pro Forma Combined Financial Data 16
Financial Statement:
Pro-Forma Condensed Combined Balance Sheet 17
Pro-Forma Condensed Combined Statement of Operations 18
Notes to the Pro Forma Condensed Combined Financial Statements 19
15
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
On March 23, 2000 Alternative Lending Group, a wholly owned subsidiary of
Whitehall Enterprises, Inc., entered into an agreement to purchase Direct
Financial, LLC, ("DF") 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"). As a result thereof DF became a wholly owned
subsidiary of the Company.
The following pro forma financial data of the Company consists of (i) a pro
forma condensed combined balance sheet (unaudited) as of September 30, 1999 (the
"Pro Forma Balance Sheet"), and (ii) a 1999 fiscal year pro forma condensed
combined statement of income (unaudited) (the 1999 ro Forma Statement of
Income"), (collectively, the "Pro Forma Statements").
The Pro Forma Balance Sheet reflects the combination of the balance sheet of the
Company as of September 30, 1999, and the balance sheet of DF as of December 31,
1999, as adjusted for the DF Acquisition. The Pro Forma Balance Sheet is
presented as if the DF Acquisition was consummated on December 31, 1999. The
1999 Pro Forma Statement of Income reflects the combination of the income
statement of the Company for the year ended September 30, 1999, and the income
statement of DF for year ended December 31, 1999, as adjusted for the DF
Acquisition. The 1999 Pro Forma Statement of Income is presented as if the DF
Acquisition was consummated on September 30, 1999. The Pro Forma Statements
should be read in conjunction with the separate historical financial statements
of the Company and DF and the notes thereto and with the accompanying notes to
the Pro Forma Statements. The Pro Forma Statements are based upon currently
available information and upon certain assumptions that the Company believes are
reasonable under the circumstances. The Pro Forma Statements do not purport to
represent what the Company's financial position or results of operations would
actually have been if the aforementioned transaction in fact had occurred on
such date or at the beginning of the period indicated or to project the
Company's financial position or the results of operations at any future date or
for any future period.
16
<PAGE>
WHITEHALL ENTERPRISES, INC. AND DIRECT FINANCIAL LLC
Pro-Forma Condensed Combined Balance Sheet - Unaudited
September 30, 1999
<TABLE>
<CAPTION>
PRO-FORMA
-------------------------------------------- ------------------------------------------
ASSETS
Whitehall Direct Financial
September 30, December 31, Adjustments for
1999 1999 Combined Acquisition Combined
------------- ---------------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash $ 2,264 $ 46,931 $ 49,195 $ 49,195
Accounts receivable 577,477 67,584 645,061 645,061
Inventories 448,361 0 448,361 448,361
Prepaid expenses 73,949 1,995 75,944 75,944
----------- ----------- ----------- -----------
Total Current Assets 1,102,051 116,510 1,218,561 1,218,561
----------- ----------- ----------- -----------
Loans Receivable 1,608,853 0 1,608,853 1,608,853
Deferred Financing Costs 279,337 0 279,337 279,337
Property and Equipment 2,662,553 118,841 2,781,394 2,781,394
Less Accumulated Depreciation (2,142,371) (21,512) (2,163,883) (2,163,883)
----------- ----------- ----------- -----------
Property and Equipment - Net 520,182 97,329 $ 617,511 617,511
----------- ----------- ----------- -----------
Investments in DF 0 0 $ 0
Other Assets
Patents 350,000 983 350,983 350,983
Deposits 1,166 3,029 4,195 4,195
Goodwill 0 0 0 (a) 510,977 510,977
----------- ----------- ----------- -----------
Total Other Assets 351,166 4,012 355,178 866,155
----------- ----------- ----------- -----------
TOTAL ASSETS $ 3,861,589 $ 217,851 $ 4,079,440 $ 4,590,417
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Current portion of long term debt $ 536,510 19,200 $ 555,710 555,710
Lines of credit 0 3,922 3,922 3,922
Notes payable - bank 525,624 0 525,624 525,624
Income taxes payable 30,413 0 30,413 30,413
Accounts payable 995,585 52,181 1,047,766 1,047,766
Other liabilities 0 27,833 27,833 27,833
----------- ----------- ----------- -----------
Total Current Liabilities 2,088,132 103,136 2,191,268 2,191,268
----------- ----------- ----------- -----------
Deferred Income Taxes 54,171 0 54,171 54,171
Capital lease liability 0 36,547 36,547 36,547
Warehouse line of credit 0 0 0 0
Long-Term Debt 629,771 0 629,771 629,771
----------- ----------- ----------- -----------
Total Liabilities 2,772,074 139,683 2,911,757 2,911,757
----------- ----------- ----------- -----------
Shareholders' Equity
Preferred stock, $.001 par value,
4,000,000 million shares authorized, issued
and outstanding at December 31, 1998 4,000 0 4,000 4,000
Common Stock, $.0001 par value,
200,000,000 shares authorized, 124,900,000
shares issued and outstanding 12,493 0 12,493 (b) 213 12,706
Additional Paid In Capital 998,653 0 998,653 (a) & (b) 588932 1,587,585
Retained Earnings (Accumulated deficit) 74,369 78,168 152,537 (b) (78,168) 74,369
----------- ----------- ----------- -----------
Total Stockholders' Equity 1,089,515 78,168 1,167,683 1,678,660
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,861,589 $ 217,851 $ 4,079,440 $ 4,590,417
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
WHITEHALL ENTERPRISES, INC. AND DIRECT FINANCIAL LLC
Pro-Forma Condensed Combined Statement of Operations - Unaudited
For the Year Ended September 30, 1999
<TABLE>
<CAPTION>
PRO-FORMA
---------------------------------------------- ------------------------------------------
Whitehall Direct Financial
September 30, September 30, Adjustments
1999 1999 Combined for Acquisitions Combined
-------------- ---------------- ------------ --------- ---------------- ---------------
<S> <C> <C> <C> <C>
Income from Operations
Sales $ 4,170,370 $ 2,367,985 $ 6,538,355 $ 6,538,355
Cost of Sales 3,282,274 0 3,282,274 3,282,274
------------- ------------- ------------- -------------
Gross Profit 888,096 2,367,985 3,256,081 3,256,081
------------- ------------- ------------- -------------
Operating Expenses
Sales, General and Administration 709,230 2,004,423 2,713,653 (c) 274,871 2,988,524
Depreciation 199,932 0 199,932 199,932
------------- ------------- ------------- -------------
Total Operating Expenses 909,162 2,004,423 2,913,585 3,188,456
------------- ------------- ------------- -------------
Net Income/Loss from Operations (21,066) 363,562 342,496 67,625
------------- ------------- ------------- -------------
Other Income
Unrealized income current translation 1,801 0 1,801 1,801
Interest 242,589 0 242,589 242,589
------------- ------------- ------------- -------------
Total Other Income 244,390 0 244,390 244,390
------------- ------------- ------------- -------------
Other Expenses
Interest expense 95,839 13,168 109,007 109,007
------------- ------------- ------------- -------------
Total Other Expenses 95,839 13,168 109,007 109,007
------------- ------------- ------------- -------------
Income taxes
Currently payable 29,709 0 29,709 29,709
Deferred 23,406 0 23,406 23,406
------------- ------------- ------------- -------------
Total Income Taxes 53,115 0 53,115 53,115
------------- ------------- ------------- -------------
Net income (Loss) $ 74,370 $ 350,394 $ 424,764 (c) (274,871) $ 149,893
============= ============= ============= =============
Net income (Loss) per common share 0.0006 0.1649 0.1655 0.0012
============= ============= ============= =============
Number of shares used in computation 124,900,000 2,125,000 127,025,000 127,025,000
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
WHITEHALL ENTERPRISES, INC. AND DIRECT FINANCIAL LLC
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
(a) Reflects the estimated purchase accounting adjustments for the DF
Acquisition based upon a preliminary appraisal of the assets and
liabilities assumed. For purchase accounting, DF assets have been
recorded at estimated fair market value subject to adjustment based
upon the results of an independent appraisal. The estimated amounts
recorded for assets and liabilities acquired from DF are not expected
to differ materially from the final assigned values. Purchase
accounting adjustments were recorded to eliminate DF's members' equity.
The calculation of excess purchase cost over fair value of net assets acquired
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Total Purchase Cost $ 531,250
Net Book Value of DF (20,273)
---------
Excess of purchase cost over fair
Value of assets acquired and
Liabilities assumed $ 510,977
=========
</TABLE>
(b) Reflects the elimination of DF's shareholders' equity.
(c) Reflects the effect of inclusion of net contributions and distributions
of members' equity as operating expenses and a reduction of net income.
19
