U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended September 30, 2000
Commission File No. 0-20922
WHITEHALL ENTERPRISES, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 75-2274730
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(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
801 Brickell Avenue, 9th Floor, Miami, Florida 33131
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(Address of Principal Executive Offices) (Zip Code)
(561) 997-5880
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
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Name of Each Exchange Title of Each Class
on Which Registered
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Securities registered under Section 12(g) of the Exchange Act: ________
Common Stock ($.0001 par value)
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(Title of Class)
Check whether the issuer (1) has 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 issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes No X
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State issuer's revenues for its most recent fiscal year: $ 3,583,474
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.
<PAGE>
Common Stock, par value $.0001 per share ("Common Stock") and
Preferred Stock par value $.001 per share ("Preferred Stock"), were the
only class of voting stock of the Registrant outstanding on December
31, 2000. Due to the events and circumstances taking place in the
operations of the Company, there have been no material exchange
transactions. Based on the recent market value on the closing bid price
of the Common Stock on the NASD Automated Quotation System of $0.0469
at December 31 2000 the aggregate Market Value of the 130,241,695
shares of Common Stock held by persons other than officers, directors
or owners known to the Registrant to be beneficial owners "as that term
is defined under the rules of the SEC" of more than 5% of the Common
Stock on that date was approximately 7,866,250. By the foregoing
statements, the Registrant does not intend to imply that any of these
officers, directors or beneficial owners are affiliates of the
Registrant or that the aggregate market value, as computed pursuant to
rules of the Securities and Exchange Commission, is in any way
indicative of the amount which could be obtained for such shares of
Common Stock.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has 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
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
138,107,945 shares of Common Stock, $.0001 par value, as of
December 31, 2000.
4,000,000 shares of Preferred Stock, $.001 par value, as of
December 31, 2000.
<PAGE>
PART I
BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED IN
THIS ANNUAL REPORT ON FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF WHITEHALL ENTERPRISES, INC. AND ITS
SUBSIDIARIES (COLLECTIVELY, THE "COMPANY") MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT COULD
CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED WITH THE FORWARD-LOOKING STATEMENTS
THROUGHOUT THIS REPORT AND ARE SUMMARIZED IN THIS SECTION AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-FORWARD-LOOKING STATEMENTS-CAUTIONARY LANGUAGE."
INTRODUCTION
Whitehall Enterprises, Inc., formerly Total World Telecommunication,
Inc., formerly International Standards Group Limited (the "Company") was
incorporated under the laws of the State of Delaware on October 12, 1988. The
Company, through its subsidiary, currently operates a mortgage bank licensed in
twelve states and pending licensure in two additional states.
During fiscal year ended September 30, 2000, the Company acquired
Alternative Lending Group, Inc. ("ALG") and Direct Financial LLC ("DF"). These
entities constitute the core of the Company's operations in the financial
services sector. The Company also acquired the license to distribute and sell
"DocPal," a medical diagnostic software product. Subsequent to year end the
Company acquired MiB Financial Services, Inc. And MiB Group Ltd. (Indiana
organizations). These companies operate a telemarketing sales business and a
financial service subsidiary licensed in Indiana and Kentucky.
The Company sold Mega Blow Moulding Limited ("MBM"), a Canadian
manufacturer of plastic bottles and containers effective June 30, 2000. From its
acquisition in December 1998, until the acquisition of ALG in December 1999, MBM
was the Company's only operating subsidiary. As the Company carried out its
planned objectives that included further involvement and commitment to financial
services and new technologies, it became evident that the operations of MBM were
not sufficiently compatible or synergetic with Company goals.
<PAGE>
The Company's plan for growth included the acquisitions of ALG, DF and
DocPal during the fiscal year ended September 30, 2000. The Board of Directors
is currently studying several other acquisitions. To achieve this growth and the
necessary working capital, the Company is seeking commitments from investors to
arrange future funding for 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.
BANKRUPTCY
The Company 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
was submitted pursuant to Section 1125 of the Bankruptcy Code 11 U.S.C. Section
101, et. seq. in connection with the solicitation of votes on the Plan from
Holders of Impaired Claims against and Impaired Equity Interests in the Debtor.
These issues are discussed below in greater detail.
Prior to the petition for bankruptcy and through September 12, 1997,
the Company, through various subsidiaries, provided telecommunications services.
Through Financial Standards Group, Inc. ("FSGI") and Real Estate Services
Network Holding Corp. ("RESN") subsidiaries, both Florida corporations the
Company assisted credit unions and their supervisory committees in performing
comprehensive or internal regulatory compliance audits in satisfaction of their
statutory requirements. It also provided related internal auditing, accounting
and managerial advisory services to credit unions. RESN provided commercial and
residential real estate brokerage, mortgage origination and title services.
In June 1996, the Company acquired Houston-based Total National
Telecommunications, Inc., doing business as Total World Telecom, Inc ("TWT"), a
Tier 2 switch-based interexchange carrier that utilized digital and fiber optic
facilities, with switches located in New York, Chicago, Los Angeles, Atlanta,
Houston, Dallas, Kansas City and Miami as of December 31, 1996, and two
additional switches in Seattle and Washington, D.C. to have been operational in
early 1997.
In the latter part of March 1997, management elected to divest itself
of the two business units comprising the Company's non-telecommunications
operations. These two units were Financial Standards Group, Inc., the credit
union auditing operation ("FSGI"), and Real Estate Services Network Holding
Corp., the real estate group ("RESN").
<PAGE>
The Company sold to former employees the outstanding stock in FSGI, all
of which was owned by the Company. In addition, the Company sold to management
of the real estate services group all of the outstanding stock in its
subsidiary, RESN, as well as a commercial warehouse facility in Mount Vernon,
Ohio.
On July 23, 1997, the Company's wholly-owned operating subsidiary,
Total National Telecommunications, Inc., ("TNT") filed a petition for relief
under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy
Court for the Southern District of Texas. Under Chapter 11, certain claims
against the Company's subsidiary in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws were stayed while the
subsidiary continued business operations as Debtor-in-Possession. Claims secured
against the subsidiary's assets ("secured claims") also were stayed, although
the holders of such claims had the right to move the court for relief from the
stay.
On September 12, 1997, the case was converted to Chapter 7, and a
trustee was appointed. On September 24, 1997, the assets of TNT were sold
pursuant to 11 U.S.C. Section 363. Accordingly, the Company's intangible assets
related to that subsidiary were written off during the year ended September 30,
1997.
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 XI 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 Fund Limited, formerly known as GFL Advantage Fund Limited
("Advantage"), which the Company believed held in excess of 90% of the unsecured
claims against the Company. 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 eventually
consented to the Plan of Reorganization.
The Company's efforts resulted in (a) the Advantage Settlement
Agreement, which was approved by the Bankruptcy Court, pursuant to which
Advantage had agreed to support the Plan, and (b) an agreement for the Company
to acquire all of the stock of MBM from a wholly-owned subsidiary of the
Proponent, pursuant to which MBM would become a wholly-owned subsidiary of the
Company.
<PAGE>
At a hearing on June 19, 1998, the 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
Reorganization Plan.
In the opinion of the Company, as described below, the treatment of
claims and equity interests under the Plan contemplated a greater recovery than
that which was likely to be achieved under other alternatives for the
reorganization of the Company. Accordingly, the Company believed that
confirmation of the Plan was 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.
In summary, the Plan was 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 would be the primary beneficiaries and Holders of
Allowed Subordinated Claims would be secondary beneficiaries, (b) the purchase
by the Company of all of the issued and outstanding stock of 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 (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.
RECENT DEVELOPMENTS
Alternative Lending and Direct Financial Acquisition
On January 22, 2000, the Company closed on the purchase of ALG, an Illinois
corporation from R. Jeffrey Mertz. ALG is engaged in the mortgage banking and
mortgage brokerage business. Their principal office is located in Phoenix,
Arizona. The following table summarizes the more significant terms of the
agreement:
* The Company acquired 100% of the shares of common stock of ALG in exchange for
$950,000 as working capital and 8,000,000 shares of Whitehall's common stock,
which is equivalent to 4% of their 200,000,000 issued shares.
<PAGE>
* If the Company common shares exceeds 200,000,000 shares prior to one year to
the date of closing, a proportional adjustment shall be made to ALG.
* ALG represented that they were 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 as stated in ALG's audited financial statements as
of and for the year ended December 31, 1999.
* ALG executed all necessary documents holding the Company harmless of any
liability pursuant to the purchase agreement.
Business
Since its formation in 1993, ALG had grown from a single-city mortgage company
based in Chicago - with $38 million first year gross business - to a mortgage
bank covering eight states, with $93,592,399 of mortgage loans originated and
closed in 1999. ALG has focused its mortgage origination through a consumer
direct marketing channel and has maintained steady growth and profitability by
providing mortgage loans to fit all types of consumers' needs. This coupled with
the added control that mortgage banking 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.
Since its acquisition ALG has continued to increase loan originations through
the period ended September 30, 2000.
ALG operated two additional divisions during the current fiscal year,
the Wholesale Division and the Internet Online Mortgage Division. These
divisions add to ALG's operations, by providing hands-on service to customers
and correspondents who request it through its traditional offices located in the
Midwest and Southwest regions, and help establish the company's national
presence and substantially increase gross production.
ALG developed a new state-of-the art web-site Alternativelending.com.
The focus of ALG is to increase its market share to a national level as it can
provide a superior Internet online mortgage service, compared to those companies
that still operate under the mortgage broker laws. Although the closing of
online loans did not offer the projected results because the average borrower is
not yet ready for loan technology without the human touch. The web site has
instead become a source of sales leads for ALG. Consequently, ALG has redefined
its marketing strategy in continuing to promote and close loans via the
internet, but in a more cost effective manner that includes human contact with
the borrower in key parts of the application process. Through December 31, 2000,
<PAGE>
ALG continues to compete with other online lenders, and, because of the poor
financial situation of Mortgage.com, ALG has gained market share.
With its Wholesale Division, ALG will not only be marketing its
Internet online mortgages, but also 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, more competitive rates,
costs and closing times.
The current regulatory requirement and new exemption changes
promulgated by the United States Department of Housing and Urban Development
("HUD"), have required ALG to redefine its markets. Predatory Lending laws
recently established and the high costs of doing business in some states have
led ALG to reduce the states it was licensed and operating in from twenty-seven
in December 2000 to the current twelve and two additional states pending in
January 2001. The decisions were made based an extensive evaluation of
individual state profitability and risk factors.
Agreement For The Sale Of Mega Blow Moulding Limited
On June 19, 2000 the Company made and entered into an agreement to sell its
wholly owned subsidiary, MBM. The sale was made to Global Financial Investment,
LLC, a limited liability company incorporated under the laws of Arizona. MBM is
engaged in the manufacture of plastic containers for the beauty supply and
pharmaceutical industries. Their principal office is located in Ontario Canada.
The following table summarizes the more significant terms of the agreement:
* The Company 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 the Company $500,000.00 in fifteen (15)
equal monthly installments of $33,333.00 to commence at time of closing.
* Global Financial Investment will pay the Company $150,000.00 in fifteen (15)
equal monthly installments of $10,000.00 for contract administration to commence
at time of closing.
* Global Financial Investment will pay $500,000 due June 1, 2001 plus accrued
interest of 5%.
<PAGE>
* Global Financial Investment shall pay to the Company $1,100,000.00 commencing
November 15, 2000 to fund a marketing campaign of a future acquisition.
* Global Financial Investment has also agreed to pay an additional $1,397,000
when these amounts are collected from MBM. All notes are collateralized by real
estate property valued at $2,150,000.
* The Company represented, 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.
Business
Since its formation in 1984, MBM had 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 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 Chapter XI Reorganization Plan. The Company 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, 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 decision to sell
MBM were:
* Failure of MBM to comply with its responsibilities as set forth by an
agreement between MBM and Whitehall. Also, MBM's inability to produce the
necessary documentation in a timely manner.
* The sale of MBM would 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.
<PAGE>
* 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 and/or existing operations.
* The immediate need for Whitehall to receive cash to close its future
acquisitions without any further dilution of common shareholders at current
stock prices.
Agreement For The Purchase of License of Software Known as
"DocPal Medical Review" from Windmill Scientific Corporation
On August 23, 2000, the Company closed on the purchase of the license to market
a software known as "DocPal Medical Review" (the "License" or the "Licensed
Product") from Windmill Scientific Corporation ("Windmill"). The licensed
product is medical software for humans, written in English and Spanish,
containing information about general internal medicine. The software is composed
of three main sections:
1. Written medical information on general internal medicine topics, accompanied
by multimedia that complements the specific topic.
2. Four interactive laboratory consultants that guide the user in interpreting
laboratory data. These consultants include Blood Test, Liver Function Tests,
Pleural Effusion Analysis and Thyroid Function Tests.
3. A Differential Diagnosis Finder that generates a differential diagnosis based
on the selected clinical presentation.
Under the terms of the agreement, Whitehall will possess exclusive worldwide
rights to market and distribute the software for 15 years. The following
summarizes the more significant terms of the agreement:
o Windmill granted to the Company an exclusive royalty bearing license during
the term of the Agreement to use the License to market the software throughout
the world in all formats and media except as provided below. Notwithstanding the
foregoing, Windmill retained the exclusive right to license, market and sell the
License in all formats and media, except for use on an Internet website,
pursuant to all agreements, joint ventures and licenses (and renewals or
amendments thereof) with respect to DocPal to which Windmill is a party as of
June 2000. These include a one year representation agreements with third parties
<PAGE>
in Colombia, Costa Rica, Dominican Republic, Honduras, Mexico and Venezuela.
There is also in place a representation agreement with third parties in Brazil
for 7 months and both Argentina and Uruguay for 90 days. Whitehall, however, has
a first right of refusal on all of these countries when said representation
agreements expire.
o In consideration of this Agreement, the Company shall pay to Windmill the
following:
1. License Fee. A nonrefundable initial license fee of $500,000, payable in 15
equal installments of $33,333 commencing on August 23, 2000 and on the next 14
-15th days of each month commencing September 15,2000.
2. Profit Participation. An annual fee payable on or before the last day of
February of each year equal to 25% of the Net Profits for the preceding year
inuring to Licensee from the Licensed Product. "Net Profits" as used herein
shall mean all revenues received in connection with the Licensed Product
("Revenues"), from whatever source, of the division or subsidiary whose sole
revenues and expenses relate to the Licensed Product including all fees, sales
and advertising revenues, linkage revenues and user fees from the Licensee Site,
less operating expenses determined in accordance with generally accepted
accounting principles. Excessive benefits, excessive salaries, excessive bonuses
and excessive incentive compensation shall be excluded from such operating
expenses.
3. Royalties. An annual royalty fee equal to 7.5% of Revenues for each year
(commencing with the calendar year 2001). The royalty fee for the year 2001
shall be paid in the year 2002 in four (4) equal installments. Each installment
shall be paid after the end of each fiscal quarter (payable on or before the
last day of the following month). After the year 2001, the royalty fee for each
remaining year of this Agreement will be payable on or before the last day of
February of the following year.
4. Debenture. A convertible debenture issued in the name of Windmill and
delivered contemporaneously with the execution of the Agreement in the principal
amount of $2,150,000. The debenture is incorporated in the Exhibits.
o Windmill has executed all necessary documents holding Whitehall Enterprises,
Inc. harmless of any liability pursuant to the purchase agreement.
Business
DocPal is an advanced state-of-the-art program, offering the most current
medical information gathered from universities and health organizations across
the globe. All subjects, functions and pertinent information are accessed
instantaneously, eliminating the need for lengthy index searches. Additionally,
<PAGE>
the software contains an extensive database of over 600 diagnoses with
corresponding signs, symptoms, procedures and treatments, and can be used in
conjunction with a medical knowledge base via an intricate system wherein the
physician can view the relationships between a diagnosis and its corresponding
signs, symptoms, procedures and medications. With DocPal, a doctor simply enters
specific symptoms and the software indicates what tests to administer. After
tests determine the health problem that exists, the software provides specific
treatment information.
Due to the dynamic nature of medicine, physicians are faced with the challenge
of frequent updates. With DocPal, medical updates will be available to
registered users on a continuous basis. It is the Company's plan to create an
Internet portal that will provide recurring revenue by providing access to an
unlimited number of users including but not limited to, physicians, physician
assistants, medical students, insurance companies, health maintenance
organizations and facilities such as hospitals, clinics and private practices
worldwide.
ALTERNATIVE LENDING GROUP, INC.
ALG Operations
Alternative Lending Group ("ALG") commenced operations in 1993 as a full service
mortgage broker. Over the last seven years ALG has transformed itself from a
single-city mortgage broker to a mortgage bank currently conducting business in
13 states. The company has focused its mortgage operations through a consumer
direct channel and has maintained steady growth even through down markets by
providing conventional, non-conventional, government and niche loan products.
ALG continues to develop a regional business in specific areas of the United
States where the banking climate and lead generation results are optimum.
Wholesale and Online Mortgage Division
ALG continues to develop its wholesale and Internet online mortgage divisions.
The wholesale division has experienced strong growth in terms of volume most of
which has come from the growing retail arm of ALG. The wholesale division has
provided necessary product and has cut closing time to the ALG customer from an
average of 3 weeks to an average of 2 for these internal products. The wholesale
division is an important part of the future of ALG and it will play a much
larger role in the months to come. The online Mortgage division is keeping pace
in a difficult and ever-changing environment. The dot-com world has been a tough
business to manage over the last year and this division has held it's ground and
is ready to grow with the consumer's demand.
<PAGE>
Web Site
The launch of the Alternativelending.com web site has been a growing source of
leads for the ALG sales force. This web site not only produces applications for
ALG retail but also offers the consumer a virtual confirmation of the person
they are dealing with via phone, mail or the internet. ALG continues to reshape
and apply its Internet marketing strategy direct to customers and competes
directly with other online lenders such as e-loan and quicken-loan. The goal is
to provide a low cost niche mortgage option to all consumers regardless of
credit histories.
Competition
The mortgage broker/lending industry has been undergoing dramatic changes over
the past year. Various competitors have been forced out of the business due to
the slowdown in the refinance market. The industry is sensitive to higher
interest rates that the past year has brought, along with low unemployment and
higher average hourly income. These two factors affected the refinance and debt
consolidation markets. Pricing pressure has also been a problem for both the
retail and secondary markets. This has required mortgage banks to price their
loans cheaper to the consumer netting smaller profits as well as selling loans
on the secondary markets at a lower price.
In response to recent trends, ALG has been innovative in its marketing approach
and has provided niche products to its customers. The promotion of these various
niche products has allowed ALG to increase sales throughout the year and keep a
constant profit per loan. The customer has continued to demand these more
profitable niche products allowing ALG to become more cost effective in its
marketing efforts. ALG is also benefiting from the market pressures on its
competitors by procuring experienced loan officers from other companies. The
wholesale division has remade itself into a smaller, more responsive, and most
importantly, profitable group. Reacting to the current pricing and funding risks
of the sub-prime markets, the wholesale division has directed its attention
towards the more stable and predictable conforming arena. The increased lead
flows to the sales force has produced increased volume for the wholesale
division to select the more profitable loans to sell off in the secondary
market. It is believed that ALG's reaction in these areas is generating a more
constant flow of business from its retail operation to the wholesale unit.
In the future months ahead ALG expects to benefit from the prospects of a lower
interest rate environment, continued recruitment of experienced loan officers
and the marketing of its niche mortgage products. The lead generation system
that feeds the sales force is capable of supporting twice the current number of
loan officers. ALG expects to expand its marketing to specific areas to generate
<PAGE>
higher closing ratios at a higher profit per loan rate. The increasing customer
and prospective customer databases continue to grow and will be a significant
source of new business in a lower interest rate market. An increase in
originations will have a direct impact on the restructured wholesale arm of ALG.
It is believed that any volume increase on the front end will produce increased
profits through the wholesales division. Secondary market pricing is cyclical
and ALG stands to benefit going forward from a wider spread on the loans it
sells to that market.
Title Division
ALG has been slow to benefit from its tittle affiliation due to poor economics
in terms of title premiums where current title business is generated. It is
anticipated that the diversification of ALG business to states where premiums
are more profitable will develop into an important revenue source.
Regulation
The mortgage loan origination operations of ALG are subject to the rules and
regulations of the Federal Housing Administration, the Veterans Administration
or state regulatory authorities, with respect to originating, processing,
underwriting, selling and servicing residential mortgage loans. In addition,
there are other federal and state statutes and regulations affecting such
activities. These rules and regulations, among other things, impose licensing
obligations, establish eligibility criteria, prohibit discrimination, provide
for inspections and appraisals of properties, require credit reports on
prospective borrowers, regulate payment features and, in some instances, fix
maximum interest rates, fees and loan amounts. Failure to comply with these
requirements can lead to a loss of approved status, demand for indemnification
or loan repurchases, litigation or administrative enforcement actions. There can
be no assurance that ALG operations will obtain full compliance with current
laws, rules and regulations or any more restrictive laws, rules and regulations
which may be adopted in the future which could make compliance more difficult,
more costly or which may limit or restrict the amount of interest and fees that
may be earned or charged on mortgage loans originated, serviced or purchased by
ALG.
Employees
As of September 30, 2000, ALG employed a total of 40 loan officers and 48 full
time employees including 3 executive officers and 15 managerial and support
staff. ALG contracts with an employee leasing company for payroll and benefit
purposes.
<PAGE>
HAIRBIOTECH, INC.
Introduction
Hairbiotech, Inc. ("HBI"), a Nevada Corporation, is a developmental
stage company that intends to enter the hair growth stimulation and hair loss
prevention industry by marketing its hair growth and hair loss prevention
technologies. The founders of HBI initially signed a Research and Development
Agreement and License Agreement with the University of Miami (FL) regarding HBI
"Hair Growth Factor" technology. The patent for this technology was granted on
February 1, 1998 and this patent and related technology was licensed to HBI. The
second technology regards the prevention of chemotherapy-induced hair loss. The
patent for this technology was granted on February 1, 1997, and has received FDA
approval for clinical testing. The third technology patent was granted to HBI in
November, 1997. This technology seeks to prevent hair loss due to oxidative
damage, i.e., hair dye, sunlight, and pollution. Currently, HBI is also involved
in the development of products designed to combat as well as counter the visible
effects of aging on hair, in particular alopecia.
History of Industry
The hair growth and hair loss prevention industry has long known that
hair is a fully cornified structure that results from the complete maturation of
follicular matrical cells emanating from the hair follicles. It is also known
that hair loss in the majority of cases is determined by the stage of growth of
the hair follicle. The hair follicle has three stages of growth: anagen, the
active growth cycle; catagen, the resting cycle; and telogen, the regression of
the hair follicle leading to hair fallout. For the past several years, intense
efforts have been applied to identify the factors that regulate the active hair
follicle growth cycle. Maintaining the hair follicle in a healthy and actively
growing status would translate to healthy hair.
The Market
The Hair Growth Factor (HGF) technology, as well as the Antioxidant
(A-O) technology, will be widely marketed to individuals who are experiencing
thinning of the hair due to regular hair dyeing or natural hair loss. This
totals a number in excess of 60,000,000 potential customers - both men and women
- in the United States alone, with over 100,000 new potential U.S. customers
emerging each year. The Vitamin D3 technology, which has been created to protect
against chemotherapy-induced alopecia, will be marketed to tens of thousands of
patients who are undergoing chemotherapy treatment for cancer each year.
<PAGE>
The HBI Solution
HBI believes its technologies will provide the basis for products that
will be demanded by individuals experiencing hair thinning or hair loss as well
as individuals who dye their hair or are presently undergoing chemotherapy, with
a method of protecting the hair follicles (HF) against oxidative stress and
chemotherapy, which HBI believes will ultimately reduce the loss of hair.
The primary goal of HBI is to develop, license, and market its hair
growth and preventative hair loss technology to individuals who have a hair
thinning condition, who are experiencing hair loss, who dye their hair or who
are presently undergoing chemotherapy. HBI's third biotechnological method which
protects the hair follicles (HF) against oxidative stress, and which ultimately
reduces the loss of hair is ready for market and does not need to be approved by
the United States Food and Drug Administration ("FDA") because it is a cosmetic
product.
Principal Products, Services and Markets
HBI has three technologies that will provide the basis for its hair
restoration products: the antioxidant (A-O) technology, the vitamin D3
technology and the Hair Growth Factor (HGF) technology. All three of the
technologies are patented.
First, HBI believes that it can immediately offer its clients an
alternative method for reducing the deterioration of the HG due to oxidants and
free radicals through products that are currently ready for production. These
products are generated from proprietary technology referred to as the "A/O
technology" and will be offered to its clients in the form of a lotion, cream,
sunscreen, emulsion, liposomes and shampoo or conditioner formulation. These
products will be provided to individuals, through third party cosmetic
companies, who have a hair thinning condition, who are experiencing hair loss
actively, and who dye their hair.
The technology is a cosmetic product and, as such, the FDA requires no
human studies on the product prior to its sale. It is prophylactic in nature:
people use it to protect against hair damage. For example, it is used to protect
the hair against oxidative damage resulting from regular dyeing, anoxious
environmental agents and sunlight. Additionally, management believes it is
useful in preventing further hair loss in both men and women who are
experiencing natural hair loss which is normally the result of exposure to
various environmental pollutants.
<PAGE>
Although there are thousands of experiments providing that oxidants
cause injury to the skin "wrinkles" and a great amount of publicity about the
salutary health effects of antioxidants that prevent the skin injury, HBI
believes that it is the first company to prove that the same theory applies to
the hair. HBI's antioxidant for the hair is HBI's exclusive intellectual
property as stated in its patent. The Antioxidant (A-O) technology will be
widely marketed to individuals who are experiencing thinning of the hair due to
regular hair drying or natural hair loss. This totals a number in excess of
60,000,000 potential customers - both men and women - in the United States
alone, with over 100,000 new potential U.S. customers emerging each year.
Secondly, the D3 technology will be used by chemotherapy patients who
are experiencing concomitant hair loss. The vitamin D3 technology is a
pharmaceutical product and does require human studies before it can be marketed.
The FDA has approved such human studies for this technology, and HBI has
initiated such studies on the technology in collaboration with a large
pharmaceutical company. Management of HBI estimates that products based on this
technology will be delivered to the market within two (2) years.
Thirdly, the patented HGF technology is in the research phase and is
the exclusive technology of HBI. Like the A-O technology, it is a pharmaceutical
product; unlike the A-O technology, the HGF technology is remedial in nature and
not yet approved by the FDA. It is expected to be used via weekly injections by
both men and women with virtually any kind of hair-related malady. Management
estimates that products based on this technology will be delivered to the market
within two (2) years.
Management believes that it is quite important to recognize the
significance of the fact that the HGF technology is derived from a human hormone
and is therefore not a drug. It is in this respect that management believes HGF
products will be distinguished from current market leaders Rogaine and Propecia.
Specifically, because the HGF products are human hormones, management believes
that they will be as effective for women as men. Rogaine and Propecia are not as
effective for women as for men. Moreover, management believes HGF products will
have a higher rate of effectiveness for men than the 20-30% rate touted by
Rogaine and Propecia.
Marketing and Sales
HBI plans to market its three technologies through two specific
channels: (1) large cosmetic companies, and (2) large pharmaceutical companies.
<PAGE>
As a cosmetic product, the A/O technology will be licensed and/or
sub-licensed to cosmetic industry leaders with the understanding that those
entities will market products using the technology under their own brands. HBI
believes that existing market penetration enjoyed by these brands will generate
significant sales for the technology without requiring HBI to allocate resources
for the development of its own marketing infrastructure. Alternatively, HBI
itself could market the technology through infomercials and direct sales,
methods that are well-established and require no description here.
As pharmaceutical products, management believes that the Vitamin D3
technology and the hair growth factor technology will also be licensed and/or
sub licensed to a pharmaceutical industry leader. Management believes that
market penetration enjoyed by such a large pharmaceutical company or any other
company that HBI enters into agreement with will generate significant sales for
the technology without requiring HBI to allocate resources to the development of
its own marketing infrastructure.
Strategy
HBI's objective is to grow earnings and revenues by licensing or
assigning its technologies to large, well-established companies in the cosmetics
and pharmaceuticals industries. HBI believes that these large, well-established
firms will utilize their own trademarks in the marketing and distribution of
products derived from and/or based on technologies. HBI intends to require
royalty agreements from its licensees and assignees in addition to the
aforementioned fees. Such relationships are currently in negotiations and
therefore will not be discussed until the terms are finalized.
Management believes that its first source of revenues will be derived
from the A/O technology. The product of this technology is ready for immediate
production as soon as HBI executes and agreement with a cosmetic concern.
Company representatives are currently having discussions with a large cosmetic
company.
The Vitamin D3 technology, which is already approved by the FDA for
clinical trials, is expected to generate revenues through royalty fees within
two (2) years.
The hair growth factor, in management's opinion, is the most
potentially rewarding in terms of its revenue-generating potential. However,
management believes that it is still too early to accurately determine when this
product will be ready for production. Alternatively, HBI itself could market and
distribute products derived from and/or based on HBI's technologies via direct
sales and infomercials.
<PAGE>
Products and Technology
HBI has three (3) technologies that will provide the bases for hair
repair and growth products: the Antioxidant (A-O) technology, the Vitamin D3
technology and the Hair Growth Factor (HGF) technology. All three of HBI's
technologies are patented.
The Antioxidant (A-O) Technology
Products made with the A-O technology are ready for immediate
production. The technology is a cosmetic product and, as such, the FDA requires
no human studies on the product prior to its sale. It is prophylactic in nature,
designed to prevent hair damage. For example it protects the hair against damage
resulting from regular dyeing and sunlight. Additionally, it is useful in
preventing further hair loss in both men and women who are experiencing natural
hair loss, which is normally the result of exposure to various environmental
pollutants.
Although there are thousands of experiments providing that oxidants
cause injury to the skin "wrinkles" and that antioxidants prevent the skin
injury, HBI believes that it is the first company to prove that the same theory
applies to the hair. HBI's antioxidant for the hair is HBI's exclusive
intellectual property as stated in its patent. The Antioxidant (A-O) technology
will be widely marketed to individuals who are experiencing thinning of the hair
due to regular hair drying or natural hair loss. This totals a number in excess
of 60,000,000 potential customers - both men and women - in the United States
alone, with over 100,000 new potential U.S. customers emerging each year.
The Vitamin D3 Technology
The patented Vitamin D3 technology will be used by chemotherapy
patients experiencing concomitant hair loss. The vitamin D3 technology is a
pharmaceutical product and, as such, the FDA requires human studies before
marketing to the public. The FDA approved human studies for this technology, and
HBI's plans to initiate such studies in collaboration with a large
pharmaceutical company within the next 12 months. Management estimates that
products based on this technology will be delivered to the market within two (2)
years.
The Hair Growth Factor (HGF) Technology
The patented HGF technology is in the research phase and is the exclusive
technology of HBI. It is a pharmaceutical product. Unlike the Vitamin D
technology, the HGF technology is remedial in nature and not yet approved by
FDA. It is expected to be used by both men and women experiencing virtually any
kind of hair-related malady. The HGF technology is a natural hormone that is
derived from human cultured cells and is expected to be delivered to the user
via weekly injections. Management estimates that products based on this
technology will be delivered to the market within three to four years.
<PAGE>
In the hair growth technology industry, the only FDA approved competing
products to date are Rogaine and Propecia. Unlike HBI's human hormone, in the
HGF technology, however, both of these products are chemicals with significant
side effects, i.e., possible impotence in the case of Propecia. In addition,
both of these products have a low percentage of efficacy, and Propecia is
limited in its use for men only.
Competition
Industry Background
General
The FDA strictly regulates the hair growth and hair loss prevention
industry. Management believes the HBI patent has been proven effective in
protecting against chemotherapy-induced alopecia. HBI believes that there is
currently no significant competition for the treatment of chemotherapy-induced
alopecia. The Vitamin D3 technology, which has been created to protect against
chemotherapy-induced alopecia and has been recently approved by the FDA for
clinical testing, will be marketed specifically to those individuals who are
cancer patients and are undergoing chemotherapy.
In the hair growth technology industry, the only FDA approved competing
products are Rogaine and Propecia. Unlike HBI's human hormone, the "hair growth
factor", both of these products are chemicals with significant side effects,
i.e., possible impotence in the case of Propecia. In addition, both of these
products have a low percentage of efficacy, and Propecia is limited in its use
for men only.
Although there are thousands of experiments providing that oxidants
cause injury to the skin "wrinkles" and a great amount of publicity about the
salutary health effects of antioxidants that prevent the skin injury, HBI
believes that it is the first company to prove that the same theory applies to
the hair. HBI's antioxidant for the hair is HBI's exclusive intellectual
property as stated in its patent. The Antioxidant (A-O) technology will be
widely marketed to individuals who are experiencing thinning of the hair due to
regular hair drying or natural hair loss. This totals a number in excess of
60,000,000 potential customers - both men and women - in the United States
alone, with over 100,000 new potential U.S. customers emerging each year.
<PAGE>
Intellectual Property and Proprietary Rights
HBI regards its hair growth and hair loss prevention technologies as
proprietary and has protected them using a combination of some or all of the
following measures: copyrights, patents, trademarks, and trade secret laws,
employee and third-party nondisclosure agreements and other methods of
protection. There can be no assurance that these measures will be adequate or
that HBI's competitors will not independently develop technologies that are
substantially equivalent or superior to HBI's technologies. It may be possible
for unauthorized third parties to copy or reverse engineer portions of the
products developed with HBI's technologies or otherwise obtain and use
information that HBI regards as proprietary. Furthermore, the laws of certain
foreign countries in which HBI's products are or may be developed, manufactured
or sold may not protect HBI's products or intellectual property rights to the
same extent as do the laws of the United States and thus makes the possibility
of unauthorized use of HBI's products more likely. Significant and protracted
litigation may be necessary to protect HBI's intellectual property rights. Such
litigation would likely result in significant expenditures and the diversion of
management's attention. Any such litigation involving HBI could have a material
adverse effect on HBI's business, financial condition and results of operations.
The Vitamin D3 technology is U.S. Patent Number 5,486,509. The
inventors are Dr. Joaquin J. Jimenez and Dr. Adel A. Yunis, two researchers at
the University of Miami Medical School, and the patent was originally assigned
to the University of Miami (FL). In August 1997, the University of Miami then
assigned this patent to Hairbiotech, Inc. ("Hairbiotech of Florida"), a Florida
corporation controlled by the founders and officers and directors of the HBI,
for a $25,000 fee, payable in five annual installments of $5,000, commencing
January 1, 1998, and a 1% royalty fee generated by net sales of products derived
from or utilizing the patent. This patent, related technologies, and all rights
associated with both were sold and assigned to HBI on or about July 30, 1998.
The HGF technology is patented under U.S. Patent Number 8,570,411. The
technology is the property of the University of Miami and Dr. Jimenez.
Hairbiotech of Florida retained an exclusive license from the University of
Miami for the entire life of the patent
The Antioxidant technology is U.S. Patent Number 8,745,911 and is the
property of Dr. Yunis and HBI.
<PAGE>
Government Regulation
HBI's products are subject to strict federal, state, and local
law/regulations. The hair growth and hair loss prevention industry is highly
regulated and closely monitored by the FDA. The only FDA-approved competing
products at this time are Rogaine and Propecia. HBI acquired the patent for the
first drug proven effective in protecting against chemotherapy-induced alopecia
in the animal model. After demonstrating that HBI's product will provide
protection against chemotherapy-induced alopecia, HBI has received FDA approval
for clinical trials. There is currently no competition for the treatment of
chemotherapy-induced alopecia. However, the hair growth and hair loss prevention
industry is currently dominated by companies that have substantially greater
capital, marketing, and research and development resources than the Company. And
while HBI will seek to protect its current patents and technologies, there can
be no assurance that HBI will be competitive or ever establish a significant
market share.
Research and Development Over the Last Two Years
Management of HBI estimates that research and development costs over
the last three years amounted to $250,000. These costs were paid by HBI,
Hairbiotech of Florida and the scientific personnel involved in the research and
development activities. No research and development costs were borne directly by
customers.
Environmental Laws
HBI or its management is not aware of any noncompliance issues with
federal, state or local environmental laws.
Employees
HBI currently has no (0) full-time employees and three (2) part-time
employees. None of the personnel is covered by a collective bargaining
agreement, and HBI considers its relationships with its employees to be very
good.
LITIGATION
The Company reported in its last Form QSB for the quarter ending June
30, 2000, that it was not involved in any form of litigation, nor had it been
served by anyone, however, it was being threatened of being sued by parties
believed to be short in the Company's stock. Some of these parties are still
attempting to extract 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 believes that these parties are filing
<PAGE>
frivolous complaints and motions in their continued efforts to receive a
specified amount of common shares, but without having to expose themselves to
any sort of testimony. Thus, the following has been their course of action:
(1) On February 22, 2000, CVI Group ("CVI"), a Canadian joint venture,
and others associated with CVI (collectively, "Plaintiffs"), filed in Palm Beach
County, Florida, Circuit Court, but did not serve, an action styled CVI Group,
et al. V. Whitehall Enterprises, Inc. and Luis Alvarez, Case No. CL 00-1807 AB
(the "Lawsuit"). The Lawsuit is a desperate attempt to unwind certain
arms-length transactions in the shares of Whitehall Enterprises, Inc.
("Whitehall") to which a Plaintiff or various Plaintiffs is a party, including a
July 30, 1999 written agreement affording Whitehall's CEO, Luis Alvarez
("Alvarez"), the option to purchase from plaintiff, 1274328 Ontario, Inc., four
million (4,000,000) shares of Whitehall preferred stock (collectively, the
"Transactions"). Plaintiffs falsely depict themselves as victims of a scheme by
defendants to increase demand for Whitehall shares. They complain also of damage
resulting from threats of physical harm allegedly made by Mr. Alvarez.
There is absolutely no merit whatever to the Lawsuit. Mr. Alvarez did
not threaten Plaintiffs as alleged in the Lawsuit, nor are Plaintiffs otherwise
entitled to relief from the Transactions. Whitehall and Mr. Alvarez will seek
dismissal of the Lawsuit, attacking, among other things, the sufficiency of
Plaintiffs allegations and of Plaintiffs efforts to serve upon them a summons
and complaint. If an when they are required to answer the Lawsuit, Whitehall and
Mr. Alvarez will assert against Plaintiffs claims of their own.
(2) On March 27, 2000, 127 Ontario and 129 Ontario ("Ontario"), a
related party of CVI, filed a Motion with the United States Bankruptcy Court,
Southern District of Florida to require the Company to fulfill certain terms of
the Court's Confirmation Order of September 8, 1998, specifically payment of
$75,000 in cash, issuance of 4,000,000 shares of Preferred Stock and the
appointment of three of the five directors of the Company. Coincidentally, the
attorneys for Ontario, which also represent CVI, did not notify the Company
attorneys and an Order was granted by the U.S. Bankruptcy Court on October 16,
2000 to this effect.
On October 25, 2000, the Company moved to vacate the Order on the basis
that each of the matters ordered by the Court had been previously satisfied and
fulfilled by the Company. Based on these circumstances, the Company believes
that it will be in a position to demonstrate essential compliance with the
Court's Order and, consequently, there should be no impact on the Company's
operations since it has satisfied previously the specific terms of the Order.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices are located at 801 Brickell, Avenue,
9th Floor Miami, Florida 33131. These premises are being rented on a month to
month basis.
ALG's corporate headquarters are located at 25899 West 12 Mile Road,
Suite 350, Southfield, MI 48034. ALG operates additional offices located at:
Y 235 North Leroy, Fenton, MI 48430 Y 1430 East Missouri, Suite 155, Phoenix, AZ
85014 Y 3060 Ogden Avenue, Suite 204, Lile, IL 60532
HBI's corporate headquarters are located at Dr. Doured Daghistani's
pediatric oncology offices at 8940 No. Kendall Dr., Suite 905, Miami, Florida
33176. These headquarters are provided at no cost to the Company. HBI's
laboratory and other facilities are located at the University of Miami Medical
School, Miami, Florida. Management believes that these facilities are adequate
for the Company's current needs and that suitable additional space, should it be
needed, will be available to accommodate expansion of the Company's operations
on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On December 22, 2000 the Company filed in Superior Court of the state
of Arizona, County of Maricopa a complaint styled Whitehall Enterprises, Inc., a
Delaware corporation; and Alternative Lending Group, Inc., an Illinois
corporation, Plaintiffs, v. R. Jeffrey Mertz and Kelly Mertz, husband and wife,
Defendants., Case number CB2000022536. The complaint charges the Defendants with
Breach of Contract, Conversion, Breach of Fiduciary Duty, Fraudulent Conveyance
and Unjust Enrichment.
Subsequent to the acquisition of ALG by Whitehall and pursuant to an
Employment Agreement, Mr. Robert Jeffrey Mertz ("Mertz") continued to be
employed as the President of ALG. In that capacity, Mertz retained significant
control over ALG's corporate accounts and operations. Mr. Mertz abused his
authority and misappropriated ALG's funds for personal use to the detriment of
ALG.
<PAGE>
At all times relevant to the allegations set forth in the complaint, a
fiduciary and agency relationship existed between Mertz, ALG, and Whitehall, as
the sole shareholder of ALG and Mertz owed a duty of care and loyalty to ALG and
Whitehall. Mertz's conduct constituted a breach of his duties of care and
loyalty to ALG and the Defendants were enriched by the wrongdoing described in
the complaint and the Plaintiffs were unjustly deprived of assets as a result of
the Defendants' wrongdoing. There is a connection between the Defendants'
enrichment and the harm caused to Plaintiffs. Therefore, the Plaintiffs are
seeking relief from the Court in favor of Plaintiffs and against Defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on OTC:BB under the symbol "WTHL."
On October 15, 1996, the Company under previous management, amended its
Certificate of Incorporation and undertook a one-for-fifteen (1:15) reverse
split of its outstanding Common Stock. The following table sets forth the high
and low bid quotations for the Common Stock since the commencement of trading
and for the periods indicated. These quotations reflect prices between dealers,
and do not include retail mark-ups, mark-downs or commission and may not
necessarily represent actual transactions.
High Low
---- ---
October 1 - October 31, 1998 $ 0.05 $0.00*
October 30 - December 31, 1998 $ 0.04 $0.00*
January 1 - February 19, 1999 $ 0.09 $0.01*
February 20 - March 31, 1999 $ 0.15 $0.02*
April l, - June 30, 1999 $ 0.08 $0.01
July 1, - September 17, 1999 $ 0.15 $0.03
September 18 - December 31, 1999 $ 0.20 $0.03
January 1 - February 19, 2000 $ 0.28 $0.03
February 20 - March 31, 2000 $ 0.38 $0.03
April l, - June 30, 2000 $ 0.30 $0.09
July 1, - September 30, 2000 $ 0.17 $0.08
October 1 - December 31, 2000 $ 0.14 $0.03
*After May 1997, the Company had no significant operations.
Consequently,, there were no authoritative or authentic bid quotations Between
May, 1997 and February 1999.
As of December 31, 2000, the approximate number of holders of the
Company's Common Stock was approximately 9,300.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. Future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
PLAN OF OPERATIONS
During the year ended September 30, 2000, the Company focused its
resources in establishing a presence in the financial services industry as a
national mortgage lender. The most important goal was to increase the amount of
mortgage loans originated. Once achieved, with the acquisitions of ALG, DF, and
MiB, the Company was licensed and operating in twenty-seven states until
December 2000. However, due to Predatory Lending laws recently established and
the high costs of doing business in some states have led ALG to reduce the
states it operates in to the current twelve and two additional states pending
licensure in January 2001. Currently, resources are also being provided to
increase marketing efforts to originate more loans. The details of these
acquisitions are presented in Part I, Item I - Recent Developments and -
Alternative Lending Group, Inc., in this report.
To achieve growth, the Company needed capital to acquire the targets
and fund the transactions. This was achieved, in part, through the sale of MBM
as discussed in Part I, Item I - Recent Developments and through loans as
discussed in Part II - Item 6 - Liquidity and Capital Resources in this report.
Effective June 30, 2000, the Company sold MBM. With the proceeds and
obligations received with the sale of MBM, the Company purchased the license to
the distribution rights of "DocPal" from Windmill. The details of the
transaction are also discussed in Part I, Item I - Recent Developments in this
report.
On October 3, 2000, Alternative Lending Group, Inc., a wholly owned
subsidiary of Whitehall Enterprises, Inc., acquired MiB Group Ltd., an
out-source telemarketing company based in Indianapolis and MiB Financial
Services, Inc., a mortgage brokerage company licensed to conduct business in
Kentucky and Indiana, wholly owned by MiB Group Ltd. (collectively known as
"MiB"). The following table summarizes the more significant terms of the
agreement:
* Alternative Lending Group acquired 100% of the ownership of MiB in exchange
for 900,000 shares of Whitehall's common stock, which is equivalent to .5% of
its 200,000,000 issued shares. The total interest in MiB was acquired from Scott
J. Weaver and Michael Beasley.
* Of the 900,000 common shares of Whitehall, 450,000 shares will have a value
twelve (12) months from October 3, 2000 of $450,000. As additional
consideration, ALG agrees to retain Scott J. Weaver as a consultant to be paid
an annual salary of $1 plus health/dental benefits under MiB's existing plan.
Weaver and Beasley signed non compete agreements with ALG for three years and
six years, respectively.
<PAGE>
* MiB represents that they are 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.
* MiB has executed all necessary documents holding Whitehall Enterprises, Inc.
harmless of any liability pursuant to the purchase agreement.
MiB Group Ltd. provides marketing support and fulfillment services from its
Indianapolis call center to companies across America. Utilizing a 12-hour call
center (from 9:00 a.m. to 9:00 p.m. weekdays), MiB's 40 telemarketing employees
specialize in providing in/outbound telemarketing services for the mortgage and
financial industry (most notably in B, C and D refinancing debt consolidation).
MiB has assisted in excess of 700 clients grow their business. MiB's client
roster includes large, medium and small mortgage bankers; however, the company
also performs a variety of calling for insurance companies, fixed annuities and
home improvement lead generation. While the company does not currently market
credit cards, there are plans for expansion.
Whitehall's objective in this acquisition was to acquire a profitable
business that would complement Whitehall's other operations. ALG and their
subsidiaries have the need to be marketed. Management believes that having MiB
in our fold will cut expenses as it will eliminate the need to out-source the
essential marketing function. Furthermore, MiB Group's mortgage brokerage
business will immediately grow exponentially and become more profitable with
ALG's operational and back office support in both Indiana and a new state added
to the roster, Kentucky.
As a subsidiary of Whitehall Enterprises, MiB will now have the means
to approach expansion into additional service offerings with brand name
recognition. Although MiB has the capacity to expand its operations, in terms of
a proven product, it has lacked the necessary backing to do so. This union will
immediately impact MiB by providing that essential link.
HBI will continue with 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, ongoing research and
marketing of products.
Upon completion of preliminary trials and execution of an Option
Agreement, a leading pharmaceutical company will be responsible for funding 100%
of Hairbiotech's 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
<PAGE>
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 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.
During fiscal year ending 2001, the Company will focus on carrying out the
following objectives:
o Increase the amounts of loans originated and secure more favorable terms in
the warehouse lines of credit for ALG group. Concentrate on increasing revenues
and profits within profitable markets and not just increasing the number of
states.
o Continue efforts to promote HBI patents and execute a royalty agreement to
generate revenue.
o Generate revenues by marketing DocPal through a joint venture with one of
several candidates.
o Make two acquisitions that will have an immediate, positive impact on the
Company's balance sheet in terms of equity, and generate net income.
Cash flows from the collection of loans and operations of ALG should
provide the liquidity necessary to meet obligations of the next 12 months.
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. The
most important goal was to overview the operations of MBM.
For the year ended September 30, 1999, the Company's plan for growth
included the acquisitions of MBM and Hairbiotech. The details of these
acquisitions were discussed in "Recent Developments" in Part I, Item 1, of the
Company's Form 10-KSB filed for that year.
The CEO continues to study several other acquisitions and specifically,
negotiating with the principals of two acquisition candidates. 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 for future funding for 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.
<PAGE>
On November 10, 2000, Mr. Robert Jeffrey Mertz, his wife Kelly Mertz,
Mr. Jonathan Reece and several other individuals were terminated from ALG by Mr.
Luis Alvarez. Mr. James P. Mack, the former CEO of Direct Financial who is
responsible for over 80% of ALG's revenue and all of its profit, replaced Mr.
Mertz as CEO of ALG. Furthermore, the Company has filed a complaint against Mr.
and Mrs. Mertz in the State of Arizona's Superior Court in Maricopa County for
Breach of Contract, Conversion, Breach of Fiduciary Duty, Fraudulent Conveyance
and Unjust Enrichment. The Company expects to be filing an amended complaint to
include other charges and is currently evaluating the circumstances to determine
if any legal actions against any other parties are necessitated.
RESULTS OF OPERATIONS
The Company's operations consists almost entirely of the operations of
ALG. Revenues consist of commissions and fees earned on mortgage loans closed
and sold with no recourse to institutional investors.
Revenues from sales for the period from January 1, 2000, the effective
date of the ALG purchase through September 30, 2000, were $3,583,474. This
amount included revenues from DF from March 23, 2000, the date the Company
closed that transaction. Pro-forma combined revenues from ALG and DF from their
prior fiscal year (December 31, 1999) amounted to $4,501,272. This represents an
increase of 28.7% over comparable periods. (Comparable periods were determined
by multiplying ALG 1999 revenues of $2,133,287 by 75% (9/12 months - January to
September) and adding to DF 1999 revenues of $2,367,985 by 50% (6/12 months -
March to September). These amounts total comparable revenues of $2,783,958).
General and administrative expenses were $5,003,413 or 139.6% of sales
for the period ended September 30, 2000. General and administrative expenses for
ALG amounted to $3,908,491 or 109.1% of revenues for the short period referred
to above.
Management is currently placing emphasis in attaining greater
profitability through cost cutting measures in ALG and DF operations.
Interest expense incurred of $141,557 in ALG was paid in warehouse
lines of credit used to close loans originated.
The Company's consolidated net income for the year amounted to $190,563
compared to net income of $74,370 for the year 1999. Net income for this period
consists principally of the reclassification of net income in MBM operations of
$78,003 to net income from discontinued operations due to the sale of MBM.
<PAGE>
Activities for the entire year ended September 30, 1998 were related to
carrying out the Plan of Reorganization under Chapter XI. Consequently, revenues
were of a non operating and passive nature and expenses incurred were
significantly for attorneys fees and bankruptcy costs.
From May, 1997 until the acquisition of MBM on December 1, 1998, the
Company did not carry any significant continuing operations. As discussed
previously, the Company's efforts were focused on in achieving its Chapter XI
reorganization plan.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had operating cash on hand of
$57,380. As compared to cash on hand at September 30, 1999 of $2,264. At
September 30, 2000, the Company had a negative working capital ratio of current
assets to current liabilities of approximately .879 which improved from a
comparable ratio of .528 at September 30, 1999.
The long term portion of debt at September 30, 2000 consisted of
installments due on capital lease and loan obligations of $94,146, convertible
debenture of $2,150,000 issued for the purchase of DocPal Medical Review
software license, and loans of $626,070 due to an investor group that was issued
common shares in lieu of payment on October 31, 2000. The convertible debenture
referred to above is subject to conversion at $1 per share until February 28,
2002, the maturity date. Afterwards, the conversion rate becomes the average
closing bid price per share for the five trading days prior to the notice of
conversion.
The long term portion of debt at September 30, 1999 consisted of loans
due to the Royal Bank of Canada. The bank indebtedness was secured by a
registered general assignment of book debts and a general security agreement, a
guarantee and postponement of claim in the amount of $1,397,000 by 129 Ontario,
assignment of all shares of the company, postponement and assignment of all
shareholder debt and an assignment of Keyman insurance. MBM had violated certain
covenants with respect to the operating loans. While the bank had been advised
of this, they did not expressly waive the conditions. The Company was relieved
of all responsibility upon the closing of the sale of MBM.
Cash flows provided by operating activities during the year ended
September 30, 2000 were approximately $633,183. The cash provided by operations
was used to pay for the expenses of the Company and service debt. Cash used in
operating activities for the year ended September 30, 1999 was approximately
$490,576.
<PAGE>
Cash flows used in investing activities during the year ended September
30, 2000 were approximately $2,621,228 used to acquire the ALG and DF common
stock and the DocPal Medical Review software license. Cash flows used in
investing activities during the year ended September 30, 1999 were approximately
$109,210 used to acquire the HBI patents and to purchase capital assets required
for manufacturing processes in MBM. Cash flows provided by investing activities
during the year ended September 30, 2000 were approximately $549,910 consisting
of the proceeds from the sale of MBM.
Cash flows from financing activities during the year ended September 30,
2000 were provided by loans advanced to meet the working capital agreement
requirements in the acquisition of ALG (as discussed above and in the financial
statements). These loans were paid by the issuance of common stock on October
31, 2000. Cash flows used in financing activities during the year ended
September 30, 1999 consisted mainly of changes in loans receivable balances from
129 Ontario and debt service costs in the form of capitalized deferred charges
and loan costs and other loan payments required under the agreements between MBM
and the Royal Bank of Canada.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data are included under Item
13(a)(1) and (2) of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE UNDER SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions with the
Company of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of stockholders and serve for one
year or until their successors are elected and qualify. Officers are elected by
the Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
Name Position Age
---- -------- ---
Luis Alvarez President and Director 41
Carlos M. Trueba Director 46
Vincent Landis Director 54
Leslie Miller Director 58
Mary Lou Foy Director 56
The business backgrounds of the individuals referred to above are as follows:
Luis Alvarez, the current President of the Company, served as President of
Sentrex Financial Consulting Services, Inc., (1994-1998). Prior to that, Mr.
Alvarez was President and CEO of Knight Corporation (1991-1994) and President
and CEO of Sentrex Security Systems, Inc. (1985-1991). Mr. Alvarez also spent
four years serving the community as a police officer with the City of Miami
(1981-1985).
Carlos M. Trueba is a certified public accountant with over 21 years of
experience practicing his profession in South Florida. He graduated from Florida
International University with a degree in business administration with majors in
accounting and finance. Mr. Trueba is currently Vice President and director of
the audit practice of the Accounting firm of Rodriguez, Trueba & Company CPA's
P.A.
Vincent Landis has been employed with the City of Miami Police Department for
the past 32 years and has served in every organizational department therein. Mr.
Landis is currently a Captain of Police in the City of Miami Police Department.
Mr. Landis has also served in the City of Miami Civil Service Board. He
graduated from St. Thomas University with a B.A. in Public Administration.
<PAGE>
Leslie Miller graduated from Temple University with a major in business
administration. Mr. Miller has 36 years of experience in the lumber industry,
and for over a decade has been President of L. Miller Forest Products, Inc.
Mary Lou Foy graduated from Auburn University with a BA major in Journalism. Ms.
Foy conducted graduate studies at the University of Florida in journalism and
environmental engineering. She received a journalism law research scholarship
funded by the Environmental Protection Agency. Ms. Foy is the current Picture
Editor at the Washington post where she has been employed since 1990. Previously
she was a staff/chief photographer with major newspaper publications since 1971.
ITEM 10. EXECUTIVE COMPENSATION
CASH COMPENSATION
There was no cash compensation paid to executive officers as a group
for services provided to the Company in all capacities during the year ended
September 30, 2000.
EMPLOYMENT AGREEMENTS
There are no employment agreements at the current time.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth Common Stock ownership as of December
31, 2000 with respect to (i) each person known to the Company to be the
beneficial owner of five (5%) percent or more of the Company's outstanding
Common Stock, (ii) each director of the Company and (iii) all executive officers
and directors of the Company as a group. This information as to beneficial
ownership was furnished to the Company by or on behalf of the persons named.
Unless otherwise indicated, the business address of each person listed is 801
Brickell Avenue, 9th Floor, Miami, Florida, 33131. Information with respect to
the percent of class is based on 138,107,945 shares of the Company's Common
Stock issued and outstanding at December 31, 2000.
Shares
Beneficially Percent
Name Owned (1) of Class
--------------------------------------------------------------------
Luis Alvarez (2) 0 0
Mary Lou Foy (3) 0 0
Carlos M. Trueba (4) 0 0
Vincent Landis (5) 0 0
Leslie Miller (6) 140,000 0
1274328 Ontario Inc. (7) 0 0
All executive officers and
Directors as a group
(5 persons) 0 0
(1) Except as otherwise indicated in the footnotes below, each stockholder
has sole power to vote and dispose of all the shares of common stock
listed opposite his name.
(2) Mr. Alvarez is Chairman of the Board and President of the Company and
he owns no shares of the Company's common stock as of the date of this
report.
(3) Ms. Foy is a director of the Company and she owns no shares of common
stock as of the date of this report.
(4) Carlos M. Trueba is a director of the Company and he owns no shares of
common stock as of the date of this report.
(5) Vincent Landis is a director of the Company and he owns no shares of
common stock as of the date of this report.
(6) Leslie Miller is a director of the Company and he owns 140,000 shares
of common stock as of the date of this report.
<PAGE>
(7) In connection with the acquisition of MBM, the Company conditionally
issued 4,000,000 shares of its Series 1, $1 Convertible Preferred Stock
(the "Series 1 Preferred Stock") to 129 Ontario. Each of the shares of
Series 1 Preferred Stock is convertible into 100 shares of Common Stock
over various periods based on the underlying Common Stock reaching
price levels ranging from $10.00 to $50.00 per share. However, no
shares of Series 1 Preferred Stock may be converted into Common Stock
before January 1, 2004. Each share of Series 1 Preferred Stock has 100
Notes or a total of 4,000,000 Notes. On July 30, 1999, 129 Ontario
issued an irrevocable option to purchase the 4 million shares to Luis
Alvarez at an exercise price of $0.0388. The option will expire July
30, 2001.
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 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, in September of 1997, to be compensated within two
years. The following options for shares were approved unanimously by the Board
of Directors as follows:
(1) Each of the directors were issued options to purchase 200,000
shares of Common Stock at an exercise price of $0.03 per share ("computed at
$0.03 which is consistent with the closing share price of October 22, 1999, the
day of the Board Meeting"), expiring in five years. The Board deemed that using
a calculated price of $0.03 was fair for remunerating the Board members efforts
throughout the past years. This amount would be received for each of the fiscal
years ended September 30, 1998 and 1999 and would receive an additional 200,000
shares for fiscal year 2000. Joe Lebovics will receive 200,000 shares having
only served as Director during the 1998 fiscal year. Ms. Mary Lou Foy, in
consideration for services to be rendered in the 2000 fiscal year will receive
200,000 shares of Common Stock. Mr. Alvarez will not receive any shares for his
seat on the Board.
(2) Carlos Trueba, CPA, was owed and due $65,000 for services rendered
during several fiscal years up to the October 22,1999 Board meeting. Mr. Trueba,
in lieu of cash, was issued options to purchase 2,167,000 shares of Common Stock
at an exercise price of $0.03 per share expiring in five years. Services
<PAGE>
rendered included, but were not necessarily limited to, the preparation of all
financial documents for the Company e.g. SEC FILINGS, Quarterly Reports, Annual
Reports and Federal and State Income Tax Reports, reviewing all financial
documents of prospective business acquisitions, that the Company considers. Mr.
Trueba also prepared valuations of potential acquisitions when necessary. During
reorganization and bankruptcy procedures of the former company, Total World
Telecommunications, he performed all financial reviews and analysis necessary
for the court proceedings.
(3) Atlas, Pearlman, Trop & Borkson, PA, was owed and due $45,000 for
legal services rendered during several fiscal years up to the October 22,1999
Board meeting. In consideration for their services the firm agreed to receive
options to purchase 1,500,000 shares of common stock at an exercise price of
$0.03 per share expiring in five years. The Firm, has served as securities and
transactional counsel for the Company since September 1997. Upon request by Mr.
Alvarez, they assisted the Company with all matters of legal advice and review
and preparation of numerous legal documents relevant to acquisitions and
proposed acquisitions.
(4) Mr. Leslie Miller was owed and due $20,000 retainer for consulting
services rendered and for future services to be rendered on behalf of the
Company during the 2000 fiscal year. Mr. Miller, in lieu of cash, was issued
options to purchase 670,000 shares of Common Stock at an exercise price of $0.03
per share expiring in five years. The activities surrounding these services
center on his accessibility to decision makers in the pharmaceutical and
cosmetic industries. These particular efforts have been of invaluable service to
HBI. Mr. Miller reports directly to Mr. Alvarez on the progress of his efforts
and all other acquisition engagements.
(5) Mr. Vincent Landis, in consideration for services rendered during
several fiscal years up to the October 22,1999 Board meeting was owed and due
$45,000.00. Mr. Landis, in lieu of cash, was issued options to purchase
1,500,000 shares of Common Stock at an excise price of $0.03 per share expiring
in five years. Mr. Landis has worked in close relationship with Mr. Alvarez
during the takeover, bankruptcy procedures, and reorganization, attending all
court hearings and relevant meetings during that time. He assists Mr. Alvarez in
the review and investigation of written materials on proposed acquisitions and
makes on site inspections of proposed companies facilities. He attends and
assists at negotiation meetings relevant to proposed companies for acquisitions.
(6) Mr. Luis Alvarez, in consideration for services rendered during
several fiscal years up to the October 22,1999 Board meeting was issued options
<PAGE>
to purchase 18,000,000 shares of Common Stock at an exercise price of $0.03 per
share expiring in 5 years. These shares were based on Mr. Alvarez only accepting
a one-year salary of $260,000 for his services since July 1997. Prior to the
Board of Directors approving, a lengthy discussion ensued as to the enormous
amount of time, work, effort, personal and monetary sacrifice expended by Mr.
Alvarez, without any compensation by the Company, from the time of takeover,
bankruptcy procedures, reorganization, SEC compliance, trading and acquisitions.
The Board concurred that if it was not for Mr. Alvarez' foresight, tenacity and
negotiating abilities the former company (Total World Telecommunications) would
have never emerged from bankruptcy proceedings. When the former company was
forced into Involuntary Chapter Seven Bankruptcy everyone involved with that
company (management, board of directors, and creditors) considered this to be
the only option. Mr. Alvarez worked diligently with all creditors, private
investors and attorneys to come up with a viable reorganization plan. Mr.
Alvarez had a strong commitment to two central elements of this plan. One, the
plan would insure equity in the reorganized company for its thousands of common
shareholders, and two, place the new company in a position to maintain a
$71,000,000 plus tax loss carryforward. Due to Mr. Alvarez' efforts, the Company
made the acquisitions necessary for this to come to fruition. Additionally, he
has made several more acquisitions and now the Company is a viable entity. At
present, Mr. Alvarez is working closely with the Company's Board of Directors on
several more acquisitions.
The Company reported in its Form QSB for the quarter ended December 31,
1999 and through press releases in February 2000 that directors and consultants
were issued options to purchase 26,037,000 shares of common stock at an exercise
price of $0.30 per share. As discussed above, the options were originally issued
and computed at an exercise price of $0.03 per share which was consistent with
the closing share price of October 22,1999, the day of the Board Meeting.
During the review of all documents related to the issuance of the
options, our auditors pointed out that the Board had not formally resolved, nor
issued proper documents, to effect the change in exercise price from $0.03 to
$0.30. Furthermore, such resolution, if currently carried out by the Board would
misrepresent current and future results of operations. First, current earnings
would not include the compensation accounted for at the issuance of the options,
notwithstanding that services already rendered would have no value.
Consequently, net income and equity would incorrectly increase by $761,000.
Second, the original option documents issued after the Board Meeting of October
22, 1999 would need to be changed, and this action would render the options as
variable in accordance with Financial Accounting Standards Board Interpretation
<PAGE>
44, Accounting for Certain Transactions Involving Stock Compensation. This
consequence was never intended by the Board as accounting for variable options
has the possibility of misrepresenting future results of operations.
Consequently, the Board took no action to resolve the change in
exercise price from $0.03 to $0.30 because of the following reasons:
Y The options were originally issued and computed at an exercise price of $0.03
per share which was consistent with the closing share price of October 22,1999,
the day of the Board Meeting.
Y Current results of operations would be misrepresented by not showing the
$761,000 accounted for the issuance of the options.
Y Future results of operations would be misrepresented as the options would be
accounted for as variable in accordance with Financial Accounting Standards
Board Interpretation 44, Accounting for Certain Transactions Involving Stock
Compensation.
OPTION EXERCISES AND VALUES AT YEAR END
The following table summarizes the options awarded during the year. The options
are exercisable at $0.03 per share for a five year period (computed based on
$0.03 which was consistent with the closing price per share on October 22, 1999,
the day of the Board Meeting).
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Option/SARs Option/SARs
at FY-End (#) at FY-End
Shares
Acquired on Value Exercisable/ Exercisable
Name Exercise (#) Realized Unexercisable Unexercisable
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joe Lebovics - - 200,000 -0-
Mary Lou Foy - - 200,000 -0-
Carlos M. Trueba - - 600,000 -0-
Rodriguez, Trueba & Co. - - 2,167,000 -0-
Atlas, Pearlman, Trop
& Borkson, PA - - 1,500,000 -0-
Leslie Miller - - 1,270,000 -0-
Vincent Landis - - 2,100,000 -0-
Luis Alvarez - - 18,000,000 -0-
----------
26,037,000
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See discussion in Part I-Item 1 and Part II-Item 6 relative to
Agreement for the purchase of the common stock of MBM, ALG, DF MiB and HBI.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.
(b) Reports on Form 8-K
The Company filed Form 8-K reports dated February 10, 2000 (item 8) and
May 10, 2000 (item 1).
(c) Exhibits
Exhibit
Number Description of Document
----------------------------------------------------
3.01 Articles of Incorporation1
3.01(a) Certificate of Amendment to Certificate of Incorporation5
3.01(b) Certificate of Amendment to Certificate of Incorporation7
3.01(c) Certificate of Amendment to Certificate of Incorporation24
3.01(d) Certificate of Amendment to Certificate of Incorporation
3.02 By-Laws5
4.01 Specimen of Common Stock certificate1
10.02 Warrant Agent Agreement1
10.03 Line of Credit Agreement1
<PAGE>
10.04 Stock Purchase Agreement between Texas American Group, Inc.
and Daniel M. Boyar2
10.05 Stock Purchase Agreement for acquisition of Financial
Standards Group, Inc.2
10.06 Stock Purchase Agreements for acquisition of Mount Vernon
Distribution, Inc. and Eau Gallie Properties, Inc.2
10.06.1 Amendments to Stock Purchase Agreements referred to in Exhibit
10.067
10.07 Stock Purchase Agreement for acquisition of Bibbins & Rice
Electronics, Inc. and Rice Electronics,Inc.3
10.08 Investment Banking Consulting Agreement with H.D. Vest
Investment Securities, Inc.7
10.09 Sales and Service Agreement with Corroon & Black
Administrative Services, Inc.7
10.10 Agreement with Arkansas Credit Union League and Service
Corporation7
10.11 Agreement with HCU Services Corporation (Hawaii)7
10.12 Agreement with KYCUL Services Incorporated (Kentucky)7
10.13 Agreement with League Services Corporation (Michigan)7
10.14 Selling Agent Agreement with Meridian Associates, Inc.7
10.15 Financial Consulting Agreement with Meridian Associates, Inc.7
10.16 Lock-Up Agreement with Selling Security Holders7
10.17 Rescission Offer Responses7
10.18 Agreement with Computer Concepts Corp.8
10.19 Agreement with Greg Paige and Paige & Associates Corp.9
10.20 Agreements with Computer Concepts Corp.13
10.21 Agreement with Comstator, S. A.13
10.22 Agreement with Allan J. Ontai10
10.23 Letter of Agreement with Servicecorp (Indiana Credit Union
League)13
10.24 Agreement and Plan of Merger with Membership Realty Ltd., Inc.
and other parties described therein10
10.25 Agreement with Stenton Leigh Capital Corp.10
10.26 Agreement with Universal Solutions, Inc., Investor Resource
Services, Inc. and SMI Capital Corp.12
10.27 Amendment No. 1 to Agreement and Plan of Merger with
Membership Realty Ltd., Inc.14
10.28 Agreement with Computer Concepts Corp.15
10.29 Agreement and Plan of Merger with Elfworks, Inc.16
10.30 Stock Purchase Agreement and Assignments with Administracion
de Seguros, S.A.17
10.31 Letter of Intent to Purchase and Sell between Jalmark Realty,
Inc. and Membership Realty Holding Corp.19
10.32 Amendment No. 4 To Agreement and Plan of Merger with
Membership Realty Ltd., Inc.20
10.33 Agreement with JRL Acquisition, Inc.20
<PAGE>
10.34 Financial Advisory and Consulting Agreement with Coleman and
Company20
10.35 Stock Purchase and Exchange Agreement with American Indemnity
Company Limited21
10.36 Stock Purchase Agreement with U.S. Mortgage Network Corp.22
10.37 Stock Purchase Agreement with Maraval & Associates22
10.38 Stock Purchase and Exchange Agreement with American Indemnity
Company Limited and Global RE., Ltd.23
10.39 Agreement wit Real Estate Services Network Holding Corp., U.S.
Mortgage Network Corp., Intervest, Inc. and Sidney A. Lewis24
10.40 Agreement with Total National Telecommunications, Inc.25
10.41 Agreement with Global RE., Ltd. and American Indemnity
Company, Ltd.26
10.42 Stock Purchase Agreement with Southwestern Telecom, Inc.27
10.43 Stock Purchase Agreement for the purchase of NETTouch
Communications, Inc. and Common Stock Purchase Warrant28
10.44 Note Purchase Agreement with GFL Advantage Fund Limited,
Registration Rights Agreement and Promissory Note28
10.45 Stock purchase agreement for the purchase of all issued and
outstanding shares of Mega Blow Moulding Limited from 1299004
Ontario Corporation29
10.46 Audited financial statements of business acquired. Audited
financial statements of MBM as of and for the period ended
November 30, 199829
10.47 Pro-forma combined financial data. Unaudited pro forma
combined balance sheet and statements of operations of the
Company and MBM is filed herewith29
10.48 Stock purchase agreement for the purchase of all issued and
outstanding shares of Alternative Lending Group, Inc., an
Illinois corporation, from R. Jeffrey Mertz.30
10.49 Audited financial statements of business acquired. Audited
financial statements of ALG as of and for the years ended
December 31, 1999 and 199831
10.50 Pro-forma combined financial data. Unaudited pro forma
combined balance sheet and statements of operations of the
Company and ALG31
10.51 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 Corporation32
<PAGE>
10.52 Audited financial statements of business acquired. Audited
financial statements of DF as of and for the period ended
December 31, 1999 and 199832
10.53 Pro-forma combined financial data. Unaudited pro forma
combined balance sheet and statements of operations of the
Company and DF32
10.54 Agreement for the sale of Mega Blow Moulding Limited, a
Canadian Corporation to Global Financial Investment, LLC,
("Global") a limited liability company incorporated under the
laws of Arizona is filed herewith.33
10.55 Agreement For The Purchase of License of Software Known as
"DocPal Medical Review" from Windmill Scientific Corporation
is filed herewith.33
10.56 Stock Purchase Agreement for the purchase of all issued and
outstanding shares of MiB from Scott J. Weaver and Michael
Beasley is filed herewith.33
16.01 Letter from Samson, Robbins & Associates to the Securities and
Exchange Commission4
16.02 Letter from Grau & Registrant to the Securities and Exchange
Commission6
16.03 Letter from Arthur Andersen & Co. to the Securities and
Exchange Commission11
16.04 Letter from Grant Thornton to the Securities and Exchange
Commission18
16.05 Letter from Millward & Co. to the Securities and Exchange
Commission30
-----------------
<PAGE>
1Incorporated by reference from the Registrant's Registration Statement, as
amended, on Form S-18 filed with the Securities and Exchange Commission on
January 27, 1989 and declared effective on February 28, 1989. 2Incorporated by
reference to the Registrant's report on Form 8-K filed with the Securities and
Exchange Commission dated January 11, 1991.
3Incorporated by reference to the Registrant's report on Form 8-K filed with the
Securities and Exchange Commission dated March 4, 1991. 4Incorporated by
reference to the Registrant's report on Form 8 filed with the Securities and
Exchange Commission dated February 27, 1991.
5Incorporated by reference to the Registrant's report on Form 10-K filed with
the Securities and Exchange Commission dated April 30, 1991. 6Incorporated by
reference to the Registrant's report on Form 8-K filed with the Securities and
Exchange Commission dated February 6, 1992.
7Incorporated by reference to the Registrant's Registration Statement, as
amended, on Form S-1 filed with the Securities and Exchange Commission on May
14, 1992 and declared effective on November 12, 1992. 8Incorporated by reference
to the Registrant's report on Form 8-K filed with the Securities and Exchange
Commission dated January 15, 1993.
9Incorporated by reference to the Registrant's report on Form 10-K filed with
the Securities and Exchange Commission dated May 5, 1993. 10Incorporated by
reference to the Registrant's report on Form 8-K filed with the Securities and
Exchange Commission dated April 8, 1994.
11Incorporated by reference to the Registrant's report on Form 8-K/A filed with
the Securities and Exchange Commission dated January 17, 1994. 12Incorporated by
reference to the Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on March 23, 1994.
13Incorporated by reference to the Registrant's report on Form 10-KSB filed with
the Securities and Exchange Commission dated December 31, 1993. 14Incorporated
by reference to the Registrant's report on Form 8-K filed with the Securities
and Exchange Commission dated April 21, 1994.
15Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated May 31, 1994. 16Incorporated by
reference to the Registrant's report on Form 8-K filed with the Securities and
Exchange Commission dated July 19, 1994.
17Incorporated by reference to the Registrant's report on Form 10-QSB filed with
the Securities and Exchange Commission dated September 20, 1994.
<PAGE>
18Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated September 12, 1994.
19Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated March 1, 1995.
20Incorporated by reference to the Registrant's report on Form 10-QSB filed with
the Securities and Exchange Commission dated August 17, 1995.
21Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated December 21, 1995.
22Incorporated by reference to the Registrant's report on Form 10-KSB filed with
the Securities and Exchange Commission dated September 30, 1995.
23Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated December 21, 1995. 24Incorporated
by reference to the Registrant's report on Form 8-K filed with the Securities
and Exchange Commission dated February 21, 1996.
24Incorporated by reference to the Registrant's report on Form 10-QSB filed with
the Securities and Exchange Commission dated March 31, 1996.
25Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated May 28, 1996.
26Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated June 11, 1996.
27Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated October 29, 1996.
28Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated November 8, 1996.
29Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated May 10, 1999.
30Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated February 10, 1999.
31Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated June 13, 2000.
32Incorporated by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated June 16, 2000.
33Incorporated by reference to the Registrant's report on Form 10-KSB filed with
the Securities and Exchange Commission dated January 16, 2001.
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on this 16 day of January, 2001.
WHITEHALL ENTERPRISES, INC.
By:/s/Luis Alvarez
--------------------------------
President
In accordance with the Exchange, this Report has been signed below by
the following person on behalf of the Registrant, and in the capacities and on
the date indicated.
<PAGE>
EDGAR/97-14127/07-07-98
Signature Title Date
--------- ----- -----
/s/Luis Alvarez President and Director January 16, 2001
----------------------
Luis Alvarez
/s/Carlos M. Trueba Director January 16, 2001
----------------------
Carlos M. Trueba
/s/Vincent Landis Director January 16, 2001
----------------------
Vincent Landis
/s/Mary Lou Foy Director January 16, 2001
----------------------
Mary Lou Foy
/s/Leslie Miller Director January 16, 2001
----------------------
Leslie Miller
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
TABLE OF CONTENTS
PAGE NO.
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
<PAGE>
SEWELL AND COMPANY, PA
CERTIFIED PUBLIC ACCOUNTANTS
7705 DAVIE ROAD EXTENSION
HOLLYWOOD, FL 33024
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Whitehall Enterprises, Inc. and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Whitehall
Enterprises, Inc. and subsidiaries (a Delaware corporation) as of September 30,
2000, and 1999, and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Whitehall
Enterprises, Inc. and subsidiaries as of September 30, 2000, and 1999, and the
results of their operations and their cash flows for each of the years in the
two year period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/S/ Sewell and Company, PA
---------------------------
SEWELL AND COMPANY, PA
Hollywood, Florida
December 20, 2000
F-1
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
2000 1999
----------- -----------
Assets
Current assets
Cash $ 57,380 $ 2,264
Accounts receivable 265,410 577,477
Loans inventory 3,339,309
Interest receivable 1,894 --
Inventory -- 448,361
Prepaid expenses 13,352 73,949
----------- -----------
Total current assets 3,677,345 1,102,051
Property and equipment, net 161,784 520,182
Other assets
Notes receivable, net 2,434,531 1,608,853
Deferred costs -- 279,337
Due from related party 179,093 --
Goodwill and other intangible assets, net 3,666,021 350,000
Other assets 15,039 1,166
----------- -----------
6,294,684 2,239,356
----------- -----------
$10,133,813 $ 3,861,589
=========== ===========
See notes to consolidated financial statements.
F-2
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 474,629 $ 995,586
Income taxes payable -- 30,413
Note payable bank -- 525,624
Lines of credit 3,322,889
Current portion of capital lease obligations 10,000 --
Current portion of note payable 377,573 536,510
----------- -----------
Total current liabilities 4,185,091 2,088,133
----------- -----------
Long term liabilities
Deferred income taxes -- 54,171
Capital lease obligations 61,032 --
Convertible debentures 2,150,000 --
Note payable 33,114 629,771
Loan payable - related party 626,070 17,395
----------- -----------
2,870,216 701,337
----------- -----------
Shareholders' equity
Preferred stock, $0.001 par value, 4 million shares
authorized, issued and outstanding 4,000 4,000
Common stock, $0.0001 par value, 200 million shares
authorized, 138,107,945 and 124,927,647 issued and
outstanding 13,812 12,493
Additional paid in capital 2,795,764 981,258
Retained earnings since 9/30/98 after quasi-
reorganization 264,931 74,368
----------- -----------
3,078,507 1,072,119
----------- -----------
$10,133,813 $ 3,861,589
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEPTEMBER 30, 2000 AND 1999
2000 1999
----------- -----------
Revenues
Sales, net of discounts and returns $ -- $ --
Commissions on loan origination fees 3,583,474 --
Consulting fees -- 88,067
----------- -----------
Gross profit 3,583,474 88,067
Expenses
Sales, general and administration 5,003,413 85,007
Depreciation and amortization 44,946 6,693
Bad debt expense 1,000,000
----------- -----------
6,048,359 91,700
Other income and expenses
Other income 15,002 --
Dividends 7,007 --
Interest income 21,293 --
Interest expense (141,557) --
----------- -----------
(98,255) --
----------- -----------
Net loss from continuing operations (2,563,140) (3,633)
Discontinued operations
Net income from discontinued operations
(net of income tax effect) 2,526 78,003
Gain on discontinued operations 2,751,177
----------- -----------
2,753,703 78,003
----------- -----------
Net income $ 190,563 $ 74,370
=========== ===========
Basic income per common share
Loss from continuing operations $ (0.0191) $ (0.0000)
Discontinued operations 0.0205 0.0006
----------- -----------
$ 0.0014 $ 0.0006
=========== ===========
Dilutive income per common share
Loss from continuing operations $ (0.0098) $ (0.0000)
Discontinued operations 0.0106 0.0003
----------- -----------
$ 0.0008 $ 0.0003
=========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1998 $ -- $ -- 124,927,647 $ 12,493 $ 17,394 $ -- $ 29,887
Acquisition of Mega Blow Moulding 4,000,000 4,000 669,259 673,259
Acquisition of Hairbiotech 312,000 312,000
Net Income September 30, 1999 74,368 74,368
------------------------------------------------------------------------------------------------
Balance September 30, 1999 4,000,000 4,000 124,927,647 12,493 998,653 74,368 1,089,514
Acquisition of Hairbiotech 2,755,298 276 (276) --
Compensation in exchange for stock
options 781,110 781,110
Shares issued in exchange for shares of
Alternative Lending Group 8,000,000 800 399,200 400,000
Shares issued in exchange for shares of
Direct Financial LLC 2,125,000 213 531,037 531,250
Compensation in exchange for warrants 26,250 26,250
------------------------------------------------------------------------------------------------
Sub-total 4,000,000 $ 4,000 137,807,945 $ 13,782 $ 2,735,974 $ 74,368 $ 2,282,124
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sub-total 4,000,000 $ 4,000 137,807,945 $ 13,782 $ 2,735,975 $ 74,368 $ 2,828,1244
Shares issued to two officers as signing
bonus 300,000 30 32,790 32,820
Officer compensation 27,000 27,000
Net income September 30, 2000 190,563 190,563
------------------------------------------------------------------------------------------------
Balance September 30, 2000 4,000,000 $ 4,000 138,107,945 $ 13,812 $ 2,795,764 $ 264,931 $ 3,078,507
================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 190,563 $ 74,370
----------- -----------
Adjustments to reconcile net profit to net
cash provided by operating activities:
Depreciation & amortization 44,946 139,038
Bad debt 1,000,000 --
Amortization of deferred costs -- 60,894
Compensation in exchange for stock options and warrants 867,180 --
Income taxes -- 23,407
(Increase) decrease in accounts receivable 312,067 (3,838)
(Increase) decrease in loan inventory (3,339,309) --
(Increase) decrease in interest receivable (1,894) --
(Increase) decrease in inventories 448,361 136,937
(Increase) decrease in prepaid expenses 60,597 13,230
(Increase) decrease in notes receivable (3,434,531) --
(Increase) decrease in other assets 1,695,224 (666)
Increase (decrease) in accounts payable and accrued expenses (1,076,995) 17,494
Increase (decrease) in income tax liabilities (54,171) 29,710
Increase (decrease) in line of credit 3,322,889 --
Increase (decrease) in other payables 1,465,436 --
----------- -----------
Total adjustments 1,309,800 416,206
----------- -----------
Net cash used by operating activities 1,500,363 490,576
----------- -----------
Cash flows from investing activities:
Acquisition of intangible assets (2,621,228) (38,000)
Disposition of equipment 549,910 (71,210)
----------- -----------
Net cash provided (used) by investing activities (2,071,318) (109,210)
----------- -----------
Cash flows from financing activities:
Net borrowings -- 322,637
Decrease in deferred costs -- (289,311)
Increase in loans receivable -- (435,678)
Proceeds from related party 626,070 --
----------- -----------
Net cash provided by financing activities 626,070 (402,352)
----------- -----------
Net decrease in cash and cash equivalents 55,115 (20,986)
Cash and cash equivalents, beginning of period 2,265 23,251
----------- -----------
Cash and cash equivalents, end of period $ 57,380 $ 2,265
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for interest expense $ 141,557 $ 95,839
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
Supplemental disclosure of non-cash financing activities:
---------------------------------------------------------
On January 25, 2000, the Company issued 8,000,000 shares of common stock in
connection with the acquisition of ALG, at $400,000. The value of $0.05 per
share was established at the quoted market price value (See Note 13).
On March 23, 2000, the Company issued 2,125,000 shares of common stock in
connection with the acquisition of DF, at $531,250. The value of $0.25 per share
was established at the quoted market price value (See Note 13).
On September 1, 2000, the Company issued 300,000 shares of common stock, valued
$0.1094 at grant date, as a signing bonus to two officers of Palm Desert, a
California office of ALG. Compensation of $32,820 will be recognized into
operations over the five-year term of the agreement. Compensation expense for
the year ended September 30, 2000 was $547.
F-8
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Whitehall Enterprises, Inc. ("the Company"), 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 Mega
Blow Moulding, Limited ("MBM") was effective December 1, 1998. The Company sold
the operations of MBM on June 30, 2000. The acquisition of Hairbiotech, Inc. was
effective September 30, 1999. The acquisition of Alternative Lending Group, Inc.
("ALG") was effective January 25, 2000, and the acquisition of Direct Financial,
LLC ("DF") by ALG, effective March 23, 2000 (See Note 13).
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the accounts of
Whitehall Enterprises, Inc. and its subsidiaries. All significant intercompany
accounts and transactions were eliminated upon consolidation.
Use of 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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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.
Accounts and Notes Receivable
-----------------------------
Accounts receivable consists of commissions and fees due. No allowance has been
provided on accounts receivable, as management believes all amounts are
collectible.
Notes receivable consists of notes related to the sale of MBM (See Note 4). An
allowance has been established based on management's estimate of possible bad
debts.
Inventories
-----------
Inventories from MBM, consisting of raw materials, packaging and skids, and
finished goods, are valued at the lower of cost or market. Cost is determined by
the first-in first-out method (FIFO) except for finished goods, which are
accounted for on a retail inventory method.
Loans Inventory
---------------
Loans inventory consists of mortgages originated or purchased which are held for
sale. Loan inventory consists primarily of sub-prime mortgages. Inventory is
recorded at the lower of cost or market value. Market value is determined using
quoted market prices. Gains and losses on the sale of loan inventory are
determined using the specific identification method.
F-9
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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
-----------
Furniture and fixtures 3-5 years
Machinery and equipment 5 years
Leasehold improvements 5 years
Goodwill and Other Intangible Assets
------------------------------------
Goodwill was established as a result of certain acquisitions (See Notes 5 and
13). Other intangible assets include patents and licenses.
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, licenses, and other intangible assets 17 years
Long Lived Assets
-----------------
The Company continually evaluates the carrying value of property and equipment,
goodwill and other intangible assets to determine whether there are any
impairment losses. If indicators of impairment are present in intangible assets
used in operations, and future cash flows are not expected to be sufficient to
recover the assets' carrying amount, an impairment loss would be charged to
expense in the period identified.
No reduction for impairment of long lived assets was necessary at September 30,
2000.
Deferred Costs
--------------
Deferred costs included deferred financing costs and corporate transaction costs
and were stated at cost less accumulated amortization. These costs were
amortized between five and seven years using the straight-line method. Deferred
costs were eliminated in conjunction with the sale of MBM. (See Note 14).
Revenue Recognition
-------------------
The products of MBM are manufactured to specific customer orders, and revenues
are recognized when the products are shipped. Revenue is reduced for estimated
customer returns and allowances.
Origination fees in ALG and DF for warehouse loans are recognized as revenue
when loans are made, to the extent they represent reimbursement of loan
origination costs. Revenues, in the form of origination points and services
release premiums on other fees, are recognized upon funding of the mortgage loan
by the ultimate lender. Sales of loan inventory are generally without recourse
and are recorded when proceeds are received by the Company. Other revenues are
recognized as income when earned.
F-10
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Advertising
-----------
The Company expenses the cost of advertising as incurred or when the advertising
initially takes place. No advertising costs were capitalized at September 30,
2000 or 1999.
Advertising expense was $239,290, and $.00 for the years ended September 30,
2000 and 1999, respectively.
Stock Options and Warrants
--------------------------
The Company elected to account for stock options and warrants issued to
employees and to non-employees in accordance with SFAS 123.
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.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to concentration of
credit risk are primarily accounts receivables. The Company extends credit based
on an evaluation of the customer's financial condition, generally 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.
Loan inventories in ALG are fully collateralized mortgages pending sale to
investors. The Company uses a warehouse line of credit facility from a national
banking institution (See Note 7). Management believes the credit risk associated
with these loans, with specific borrowers and geographic concentration, is not
significant.
Net Income (Loss) per Share
---------------------------
Basic net income (loss) per share for each year is computed by dividing net
income (loss) by the weighted average number of shares outstanding. Diluted
income (loss) per share includes the effects of common stock equivalents to the
extent they are dilutive. Additionally, approximately 179,000 weighted average
shares, issuable pursuant to the convertible debenture obligation, have been
excluded from the earnings per share at September 30, 2000 since such shares are
anti-dilutive.
F-11
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Net Income (Loss) per Share
---------------------------
Basic weighted and dilutive average number of shares outstanding is as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Basic weighted average number
of shares outstanding 131,502,989 124,927,647
Effect of dilutive securities
Stock options 17,709,601 --
Warrants 3,281,250 --
Convertible preferred stock 108,000,000 108,000,000
------------- -------------
Dilutive weighted average shares outstanding 260,493,840 232,927,647
============= =============
NOTE 2 INVENTORY
Inventory consisted of the following:
2000 1999
------------- -------------
Raw materials $ -- $ 134,871
Packing and skids -- 23,062
Finished goods -- 290,428
------------- -------------
$ -- $ 448,361
------------- -------------
The inventory was subsequently sold in conjunction with the sale of MBM (See
Note 14)
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 and 1999 consisted of the
following:
2000 1999
------------- -------------
Furniture and fixtures $ 146,496 $ 143,751
Machinery and equipment 154,057 2,514,860
Leasehold improvement 3,700 3,942
------------- -------------
304,253 2,662,553
Less: accumulated depreciation (142,469) (2,142,371)
------------- -------------
$ 161,784 $ 520,182
============= =============
</TABLE>
Depreciation expense for the years ended September 30, 2000 and 1999 was $18,534
and $139,038, respectively. In 1999, depreciation expense of $132,345 was
reclassified as discontinued operations (See Note 14).
F-12
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 4 NOTES RECEIVABLE
The notes receivable are from one company and in conjunction with the sale of
MBM (See Note 14). The notes are secured by real estate. Detail of notes
receivable are as follows:
Note receivable with an interest rate of 8%; due on
November 15, 2000; subject to the approval of the
medical Software Business Plan of Windmill
Scientific Corp. $ 999,633
-----------
Note receivable with an interest rate of 8%;
receivable in 24 monthly installments, including
accrued interest beginning June 30, 2002. 500,000
Note receivable with an interest rate of 8%;
receivable in 15 monthly installments of
$43,333.33; due October 30, 2001. 537,898
Promissory note assigned by the purchaser 1,397,000
-----------
3,434,531
Less allowance for doubtful accounts: (1,000,000)
------------
$ 2,434,531
============
NOTE 5 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets at September 30, 2000 and 1999 consisted of
the following:
2000 1999
------------ ------------
Goodwill $ 687,621 $ --
Patents and licenses 2,971,228 350,000
Other intangible assets 33,584 -
------------ ------------
3,692,433 350,000
Less: accumulated amortization (26,412) ( --)
------------ ------------
$ 3,666,021 $ 350,000
============= ============
Amortization expense for the years ended September 30, 2000 and 1999 was $26,412
and $0, respectively. Patents acquired in connection with Hairbiotech, Inc. and
licenses acquired in conjunction with Windmill Scientific Corp. (See Note 13)
are still in the development and planning stages and not used in operation,
therefore those patents and licenses were not amortized.
F-13
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 6 INCOME TAXES
Deferred tax assets and liabilities consist of the following:
September 30, September 30,
2000 1999
-------------- --------------
Current deferred tax asset $ 0 $ 0
Valuation allowance 0 0
-------------- --------------
$ 0 $ 0
============== ==============
Non-current tax asset $24,160,000 $ 24,225,000
Valuation allowance (24,160,000) (24,225,000)
-------------- --------------
$ 0 $ 0
============== ==============
The non-current deferred tax asset results from the net operating loss
carryforward, which approximates $71,032,718 at September 30, 2000, and
$71,249,531 at September 30, 1999. The net operating loss carryforward, which is
subject to annual limitations prescribed by the Internal Revenue Code, is
available to offset future taxable income through 2012. A 100% valuation
allowance has been recorded to offset the net deferred tax asset due to
uncertainty of the Company generating future taxable income.
The Company's income tax expense for the years ended September 30, 2000 and 1999
differed from the statutory federal rate of 34% as follows:
September 30, September 30,
2000 1999
-------------- --------------
Statutory rate applied to income
before income taxes $ 65,000 $ 25,000
State income taxes, net of
federal income tax effect 3,800 1,500
Decrease in valuation allowance (68,800) (26,500)
-------------- --------------
Income Tax Expense $ 0 $ 0
============== ==============
NOTE 7 LINES OF CREDIT
ALG has warehouse lines of credit from two financial institutions totaling
$7,500,000. The interest rate for the lines of credit is prime plus 2%. As of
September 30, 2000, ALG owes $3,297,385 against both lines. The lines of credit
are collateralized by assignment of mortgage notes and deeds of trust of the
respective loans.
ALG has a line of credit with a financial institution in the amount of $25,504.
The interest rate for the lines of credit is prime plus 2%. The line is
unsecured and was acquired as part of the acquisition of DF.
Interest expense for the year ended September 30, 2000 was $124,245.
F-14
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 8 LONG-TERM NOTE PAYABLE
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Term loan $ -- $ 536,510
Note payable with an interest rate of 12% per annum;
Interest only monthly; principal due October 1, 2004 -- 629,771
Convertible debenture with an interest rate of 5% per
annum; due on February 28, 2002, principal and
interest accrued; convertible at the option of the
maker or payee on or before February 28, 2002 into
shares of common stock at an exercise price of $1
Subsequent to its maturity date, the Company has
the right to issue its common stock in full payment
(principal and accrued interest after February 28, 2002)
at a conversion price equal to the average
closing bid price per share for the five trading days
prior to the notice of conversion
(See Note 14) 2,150,000 --
Note payable with an interest rate of 8% per annum,
payable in 15 installments of $33,333.33; due on October
15, 2001. (See Note 14) 410,687 --
----------- -----------
2,560,687 1,166,281
Less current portion (377,573) (536,510)
----------- -----------
$ 2,183,114 $ 629,771
=========== ===========
</TABLE>
On December 14, 1999, the term loan in the amount of $536,510 was repaid with
the proceeds from the sale of plastic injection molding equipment. The Company
leased back the equipment for $681,570, at an interest rate of 9.35% per annum,
repayable in 72 monthly installments of $12,627, including principal and
interest. The term loans and equipment lease liability were subsequently
disposed of in conjunction with the sale of the MBM. Interest expense for the
years ended September 30, 2000 and 1999 was $6,123 and $95,839, respectively.
NOTE 9 RELATED PARTY TRANSACTION
The Company has unsecured loans payable to a related individual. The notes are
due on demand with no interest rate. At September 30, 2000 and 1999, the balance
on these notes was $626,070 and $17,395, respectively.
F-15
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 10 LEASE COMMITMENTS
The Company leases office space, vehicles, and office furniture and equipment
under non-cancelable operating leases, which have initial terms in excess of one
year.
At September 30, 2000, future minimum annual lease payments under these
operating leases for the next 5 years are as follows:
2001 $ 289,600
2002 194,300
2003 135,100
2004 91,600
2005 and thereafter 0
----------
$ 710,600
==========
Total lease expense for the years ended September 30, 2000 and 1999 was
$254,100, and $147,700, respectively.
NOTE 11 SHAREHOLDERS' EQUITY
Preferred Stock
---------------
There are 4,000,000 authorized shares of Series I convertible preferred stock at
$.001 par value per share. At September 30, 2000 and 1999 there were 4,000,000
shares of Series I convertible preferred stock issued and outstanding, which
were held by the prior parent of MBM. There is a five (5) year restriction on
the conversion of preferred shares to common shares pursuant to the Agreement.
In October, 1999, the Company, by a resolution of the board of directors,
decreased the conversion rate of the preferred stock from 100 shares to 27
shares of common stock for each share of preferred stock.
On July 30, 1999, the prior parent of MBM issued to an officer of the company an
irrevocable option to purchase the 4,000,000 preferred shares at an exercise
price of $0.0388. The option will expire July 30, 2001.
Common Stock
------------
There are 200,000,000 authorized shares of common stock, at $.0001 per value per
share. The total shares issued and outstanding in 2000 was 138,107,945, and
124,927,647 shares in 1999.
On January 25, 2000, the Company issued 8,000,000 shares of common stock in
connection with the acquisition of ALG, at $400,000. The value of $0.05 per
share was the average quoted market price during the acquisition period (See
Note 13).
F-16
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 11 SHAREHOLDERS' EQUITY- continued
On March 23, 2000, the Company issued 2,125,000 shares of common stock in
connection with the acquisition of DF, at $531,250. The value of $0.25 per share
was the average quoted market price during the acquisition period (See Note 13).
On September 1, 2000, the Company issued 300,000 shares of common stock, valued
$0.1094 at grant date, as a signing bonus to two officers of Palm Desert, a
California office of ALG. Compensation of $32,820 will be recognized into
operations over the five-year term of the agreement. Compensation expense for
the year ended September 30, 2000 was $547.
NOTE 12 STOCK OPTIONS
On October 22, 1999, the Company granted stock options to purchase shares of
common stock to officers, directors and consultants of the Company. Options
granted are non-qualified and are granted at a price equal to the fair market
value of the common stock at the date of grant. Options granted have a term of 5
years from the date of the grant.
The Company has elected to account for stock options under SFAS No. 123.
Accordingly, $781,110 was charged to operations in 2000. The fair value for
these options was established at the date of grant using a Black-Scholes option
pricing model with the following assumptions for the year ended September 30,
2000.
Expected dividend yield 0%
Risk free interest rate 4.86%
Expected time of exercise 2-5 years
Expected volatility 413%
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Percent of
Number of total options Value of Options
securities granted to at grant date
Underlying employees in Exercise or Expiration using an option-
options fiscal year base price date pricing model
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Directors 2,200,000 - $ 0.03 10/22/2004 $ 66,000
CEO 18,000,000 69% 0.03 10/22/2004 540,000
Consultants 5,837,000 - 0.03 10/22/2004 175,110
---------- -------------
26,037,000 $ 781,110
========== =============
</TABLE>
F-17
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 11 STOCK OPTIONS - continued
No options were exercised at September 30, 2000. Changes during the year are
presented as follows:
<TABLE>
<CAPTION>
Weighted
Average
Stock Options Number of Options Exercise Price
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period 0 $ 0
Granted 26,037,000 0.03
Exercised 0 0
Forfeited 0 0
---------- ---------
Balance at end of period 26,037,000 $ 0.03
========== =========
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------------
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable at Exercise
Price at 09/30/00 Contracted Life Price 09/30/00 Price
---------- --------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.03 26,037,000 4 $ 0.03 26,037,000 $ 0.03
</TABLE>
NOTE 12 WARRANTS
In a contract agreement for financial services dated July 7, 1999, the Company
issued 3,750,000 warrants at an exercise price of 1/8 of the market price at the
exercise date with a due date of December 31, 2006. At September 30, 2000 and
1999 no warrants had been exercised.
For financial statement disclosure purposes and for purposes of valuing
warrants, the Company has elected to account for warrants under SFAS No. 123.
Accordingly, $26,250 was charged to operations in 2000. The fair market value
for these warrants was established at the date of grant using a Black-Scholes
option pricing model with the following assumptions for the year ended September
30, 2000.
Expected dividend yield 0%
Risk free interest rate 4.55%
Expected time of exercise 5 years
Expected volatility 436%
F-18
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 12 WARRANTS - continued
No warrants were exercised at September 30, 2000. Changes during the year are
presented as follows:
<TABLE>
<CAPTION>
Weighted
Average
Stock Options Number of Options Exercise Price
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period 0 $ 0
Granted 3,750,000 0.03
Exercised 0 0
Forfeited 0 0
--------- ---------
Balance at end of period 3,750,000 $ 0.03
========= =========
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
------------------------------------------- ------------------------------------
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable at Exercise
Price at 09/30/00 Contracted Life Price 09/30/00 Price
----------- -------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.03 3,750,000 4 $ 0.03 3,750,000 $ 0.03
</TABLE>
NOTE 13 ACQUISITIONS
Mega Blow Moulding, Limited (MBM)
On December 1, 1998, the Company acquired 100% of the outstanding common stock
of MBM, a Canadian plastic manufacturing company, from 1299004 Ontario
Corporation. The acquisition took place under conditions and terms prescribed
and approved by the Bankruptcy Court in the Company's Chapter XI Reorganization.
The purchase price of $673,259 was paid with for 4,000,000 shares of Series I
convertible preferred stock based on the average quoted market price at the time
of the acquisition of $0.1683 per share. The acquisition was accounted for under
the purchase method in accordance with APB-16. The results of operations of the
acquired company were included in the consolidated results of the Company from
the respective acquisition date.
F-19
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 13 ACQUISITION - continued
Mega Blow Moulding, Limited (MBM)
---------------------------------
The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
Accounts receivable $ 548,917
Inventories 563,262
Loan receivables 1,112,931
Fixed assets 557,736
Other assets 127,524
Bank indebtedness (500,740)
Accounts payable (936,263)
Long-term debt (800,108)
---------
$ 673,259
=========
The Company acknowledged that all assets owned by MBM are subject to a security
issued by MBM to the Royal Bank of Canada as collateral for bank notes
aggregating approximately $1,762,000.
The Company carries, as an asset, a $1,112,931 loan receivable from a public
company, which, until November 30, 1998, was its ultimate parent.
Hairbiotech, Inc.
-----------------
On September 30, 1999, the Company acquired 100% of all the outstanding common
stock of Hairbiotech, Inc., a Nevada corporation with three unique patents for
hair growth and hair loss prevention technologies. Hairbiotech, Inc. was
considered to be in the development stage. The purchase price of $350,000
consisted of $38,000 in cash, common stock of the Company, the value equivalent
to $301,450, based on a five day trading at the time of issuance of $0.114 or
2,644,298 shares; 96,000 shares of restricted common stock, and 15,000 shares of
common stock exchanged for services rendered by Campbell and Associates based on
the average quoted market price at the time of the acquisition of $0.03 per
share.
The acquisition was accounted under the purchase method in accordance with
APB-16. Accordingly, the Company allocated the purchase price of Hairbiotech,
Inc. based on the fair value of the assets acquired, identified as intangible
assets. The intangible assets include three patents. These intangibles will be
amortized over estimated useful lives of 17 years.
Alternative Lending Group, Inc. (ALG)
-------------------------------------
On January 25, 2000, the Company acquired 100% of the shares of common stock of
ALG, a mortgage broker. The purchase price of $400,000 was paid for with
8,000,000 shares of common stock of the Company. The common stock value was
established using the average quoted market price at the time of the acquisition
of $0.05 per share. The acquisition of ALG was accounted for under the method
purchase in accordance with APB-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.
F-20
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 13 ACQUISITION - continued
Alternative Lending Group, Inc. (ALG)
-------------------------------------
The estimated fair market value of assets acquired and liabilities assumed is
summarized as follows:
Current assets $ 1,354,313
Property & equipment 45,783
Other assets 122,203
Goodwill 176,644
Current liabilities (1,263,800)
Obligation under capital lease (17,143)
Deferred income taxes (18,000)
-------------
$ 400,000
=============
Unaudited pro-forma combined results of operations, assuming the acquisition had
taken place at the beginning of the 1999 fiscal year, are summarized as follows:
Net sales $ 6,282,686
Income from continuing operations
before income taxes $ 146,267
Income taxes $ 56,115
Income from continuing operations $ 90,152
Per diluted share $ 0.0007
Direct Financial, LLC (DF)
On March 23, 2000, ALG, a wholly owned subsidiary of Whitehall Enterprises, Inc.
acquired 100% of DF, a mortgage banking and broker business. The purchase price
of $531,250 was paid for with 2,125,000 shares of the Company's common stock.
The common stock value was established using the average quoted market price at
the time of the acquisition of $0.25 per share. The acquisition of ALG was
accounted for under the purchase method in accordance with APB-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 market value of assets acquired and liabilities assumed is
summarized as follows:
Current assets $ 58,615
Property & equipment 97,329
Other assets 4,012
Goodwill 510,977
Current liabilities (83,936)
Obligation under capital lease (55,747)
--------------
$ 531,250
==============
The goodwill of $510,977 will be amortized over an estimated useful life of 15
years.
F-21
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 13 ACQUISITION - continued
Direct Financial, LLC (DF)
--------------------------
Unaudited pro-forma combined results of operations, assuming the acquisition had
taken place at the beginning of the 1999 fiscal year, are summarized as follows:
Net sales $ 6,538,355
Income from continuing operations
before income taxes $ 203,008
Income taxes $ 53,115
Income from continuing operations $ 149,893
Per diluted share $ 0.0012
License - Medical Software DocPal
---------------------------------
On August 23, 2000, the Company acquired 100% of the proprietary rights of the
license of a medical software known as DocPal Medical Review. The purchase price
was $2,650,000, which included a note payable for $500,000 and a convertible
debenture of $2,150,000 (See Note 8).
The acquisition was accounted under the purchase method in accordance with
APB-16. Accordingly, the Company allocated the purchase price of the license,
identified as an intangible asset, which will be amortized over an estimated
useful life of 17 years.
NOTE 14 DISCONTINUED OPERATIONS
On June 27, 2000, the board of directors approved management's plan to sell its
wholly owned subsidiary, MBM. On June 30, 2000, the Company sold the Canadian
plastics manufacturing subsidiary, MBM, to a shareholder in exchange for notes
receivable totaling $3,504,965 (See Note 4). Accordingly, the Company reported
the results of the operations of MBM, and the gain on the disposal, as
discontinued operations.
A summary of financial data of the sale is as follows:
Financial Position
------------------
Current assets $ 870,033
Loan receivables 1,379,313
Deferred finance cost 578,234
Property, plant & equipment 602,085
Current liabilities (1,243,961)
Long-term debt (1,432,116)
-------------
$ 753,788
=============
F-22
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 14 DISCONTINUED OPERATIONS - continued
The 1999 balance sheet has not been restated. At September 30, 2000, there were
no assets related to discontinued operations . MBM had net sales of $3,826,000,
and net income of $2,526 through June 30, 2000. For the fiscal year ended
September 30, 1999, net sales were $4,170,370, and net income was $78,003. As
part of the agreement for the sale of MBM, the purchaser agreed to pay certain
liabilities of the Company. The prior year statement of operations has been
restated for comparison purposes.
NOTE 15 EMBEZZLEMENT AND CONTINGENCIES
During the fiscal year, Whitehall officers discovered an embezzlement
perpetrated by an officer of ALG and his wife, also an ALG employee. ALG had
invested in a split-dollar life insurance policy on the life of this officer.
Under the terms of the policy, the premiums paid by the company are recoverable
upon the death of the insured on termination of the policy, and are carried on
the balance sheet as an asset. In September 2000, the insured officer received
the entire cash surrender value of the policy, $152,105, including the amount
that the company had invested as premiums. This officer and employee were
terminated in November 2000. It was subsequently discovered that certain
personal expenses of the officer and the employee were charged to ALG using a
company credit card. As of September 30, 2000, the amount of personal charges
was determined to be $26,988. In October, 2000, approximately $20,000 additional
personal charges were discovered subsequent to an internal investigation. The
investigation is continuing, and management believes that the total amount of
personal expenses charged to the company by this officer and the employee is in
excess of $200,000. In addition, management believes this officer did not
disclose liabilities of ALG in excess of $150,000 that were in existence at the
time of the acquisition, and subsequently authorized payment by ALG.
A complaint has been filed with the Superior Court of the State of Arizona,
County of Maricopa, against the officer and his spouse. Management is still
investigating to determine the total amount of the embezzlement.
It is the opinion of management that the full amount of the embezzlement will be
recovered, including the amounts referred to above, plus any additional expenses
resulting from these losses. However, the full extent of the losses is not known
at this time, and uncertainty exists as to the outcome of the court action.
NOTE 16 SEGMENT INFORMATION
The Company is a holding company that operates three segments, each of which is
a strategic business that is managed separately. The segments and the
descriptions of the businesses are as follows: a) mortgage and banking services;
b) medical software; and c) hair growth and hair loss prevention technology. The
medical software and hair loss prevention businesses are considered to be in the
development stage, therefore no segment information is presented.
F-23
<PAGE>
WHITEHALL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 16 SEGMENT INFORMATION - continued
Financial information for the mortgage and banking services segment is as
follows:
Revenue $ 3,583,474
Segment loss $ (488,347)
Total assets $ 4,211,135
Capital expenditures $ 939,018
Depreciation and amortization $ 44,399
NOTE 17 SUBSEQUENT EVENT
On October 3, 2000, the Company entered into an agreement to acquire a 100%
interest of MiB Financial Services and MiB Group, Ltd. (both Indiana
corporations) in exchange for 900,000 shares of the common stock of the Company.
On October 31, 2000, by resolution of the board of directors, the Company
approved the issuance of 23,108,468 shares of common stock to a related party in
exchange for loans payable in the amount of $669,425. The market price of the
shares at the grant date was $0.1094.
F-24
