UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number: 0-29027
Whitehall Limited, Inc.
(Exact name of small business issuer as specified in its charter)
| Florida | 84-1092599 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 290 Cocoanut Avenue, Sarasota, Florida 34236 |
| Address of principal executive offices |
| 941-954-1181 |
| (Issuer’s telephone number) |
| Not applicable |
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 14,182,977
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
Part I
Financial Information
Item 1. Financial Statements
See financial statements beginning on page F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Form 10-QSB, other than historical financial information, may consist of forward-looking statements that include risks and uncertainties, including, but not limited to, statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such statements are based upon many assumptions and are subject to risks and uncertainties. Actual results could differ materially from the results discussed in the forward-looking statements due to a number of factors, including, but not limited to, those identified in this document and the Company’s other filings with the Securities and Exchange Commission. The Company disclaims any intent or obligation to update these forward-looking statements.
Overview:
The Company builds quality homes with custom features at moderate prices. The homes are designed principally for the entry level or “moving up” home buyers’ market, as well as the retirement segment of such market. Residences constructed and marketed by the Company generally range in size from 1,600 to 4,000 square feet and have purchase prices ranging from $150,000 to $1,500,000. In the past, certain of the Company’s projects consisted of smaller units and were geared more to the lower-end buyer. The current focus of the Company is on middle- to higher-end homes, including luxury condominiums and townhomes in several upscale developments. The Company markets the residences through commissioned employees and independent real estate brokers in the Company’s market area, which consists of the West Coast of the State of Florida, primarily, Sarasota, Manatee, Collier, Pasco and Hillsborough Counties and more recently two multi-family developments on the East Coast of Florida. Residential unit sales are usually conducted from sales offices located in furnished models in each subdivision where the Company is active. The Company also typically constructs a limited number of speculative homes in each residential subdivision in which it is active in order to enhance marketing and sales activities.
Critical Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Revenue Recognition:
Income from sales is recorded when title to the property is conveyed to the buyer subject to the buyer’s financial commitment being sufficient to provide economic substance to the transaction.
Results of Operations:
Results of operations for the six and three months ended September 30, 2004 as compared to the six and three months ended September 30, 2003 were as follows:
Revenues:
Home and Lot Sales:
The Company’s Home and Lot sales increased by approximately $21,181,000 to approximately $34,623,000 for the six months ended September 30, 2004 as compared to approximately $13,442,000 for the six months ended September 30, 2003. The Company’s Home and Lot sales increased by approximately $11,340,000 to approximately $19,306,000 for the three months ended September 30, 2004 as compared to approximately $7,966,000 for the three months ended September 30, 2003. The increase in revenues is primarily attributable to the type of project we are currently developing and the cyclical nature of these projects.
1
During the six month period ended September 30, 2004, the Company closed 76 homes as compared to 39 homes in the six month period ended September 30, 2003. The average selling price of those homes was $272,000 as compared to $290,000 for the six month period ended September 30, 2003. Lot sales during six months ended September 30, 2004 generated $4,334,000 in revenues as compared to lot sales aggregating approximately $2,135,000 during the six months ended September 30, 2003. In addition to closing more lots during the six month period ending September 30, 2004, the average selling price of those lots was $65,000 as compared to $59,000 for the six month period ending September 30, 2003.
During the three month period ended September 30, 2004, the Company closed 28 homes as compared to 25 homes in the three month period ended September 30, 2003. The average selling price of those homes was $273,000 as compared to $255,000 for the three month period ended September 30, 2003. Lot sales during the three months ended September 30, 2004 generated $2,026,000 in revenues as compared to lot sales aggregating approximately $1,590,000 during the three months ended September 30, 2003. Despite closing more lots during the three month period ending September 30, 2004, the average selling price of those lots was $58,000 as compared to $57,000 for the three month period ending September 30, 2003.
Also, during the six and three months ended September 30, 2004, the Company sold in bulk the 119 lots located in the Red Hawk Reserve Project for approximately $10,346,000.
Costs and expenses:
Cost of sales:
Cost of sales increased by approximately $8,403,000 to approximately $19,010,000 for the six months ended September 30, 2004 as compared to approximately $10,607,000 for the six months ended September 30, 2003. Cost of sales increased by approximately $633,000 to approximately $6,919,000 for the three months ended September 30, 2004 as compared to approximately $6,286,000 for the three months ended September 30, 2003. The cost as a percent of sales approximated 76% and 72% for the six and three months ended September 30, 2004, respectively, as compared to 79% in both the six and three months ended September 30, 2003. A major community under development, Edgewater Moorings at Lakewood Ranch, experienced its first closings consisting primarily of premium lake homes in the first quarter of fiscal 2004. Of the 136 units at Edgewater Moorings, 27 units were closed in the first six months of fiscal 2005, compared with 8 in the first six months of fiscal 2004. The margins on these multi-family units were significantly greater than in other developments involving single-family units.
In addition to the aforementioned cost of sales, during the six and three months ended September 30, 2004, the Company incurred cost relative to the Red Hawk Reserve Project of approximately $9,952,900.
Selling, general and administrative:
Selling, general and administrative expenses increased by approximately $1,407,000 to approximately $3,437,000 for the six months ended September 30, 2004 as compared to approximately $2,030,000 for the six months ended September 30, 2003. Selling, general and administrative expenses increased by approximately $561,000 to approximately $1,594,000 for the three months ended September 30, 2004 as compared to approximately $1,033,000 for the three months ended September 30, 2003. General and administrative costs increased approximately $315,000 for the six months ended September 30, 2004 as compared to six months ended September 30, 2003. Selling expenses increased approximately $1,092,000 during the same period due to increased use of outside realtors and promotional expenses associated with several new developments, including Miramar, a new multi-family development in Lakewood Ranch, as well as two new multi-family developments on the East Coast of Florida. For the three months ended September 30, 2004, general and administrative expenses increased by approximately $179,000, as compared to the three months ended September 30, 2003. In addition, during the same period, selling expenses also increased by approximately $382,000. These increases were primarily due to increased level of sales contract activity which resulted in higher commissions and increased project staffing requirements during the quarter related to new communities under development.
Interest:
Interest decreased for the six months ended September 30, 2004 as compared to the six months ended September 30, 2003 by approximately $13,000. Interest increased for the three months ended September 30, 2004 as compared to the three months ended September 30, 2003 by approximately $3,000. The decrease in interest for the six month period was attributable to the reduction in outstanding borrowings which was offset more recently by an increase in interest rates. The majority of the debt for the current period relates to projects under development. As a result, most of the interest expense for the period is capitalized as opposed to expensed.
Net Income (loss):
As a result of the aforementioned, the Company’s net income after taxes and allocation of the income (loss) to the joint venture partner was approximately $740,000 ($.05 per share) and $273,000 ($.02 per share) for the six months ended September 30, 2004 and 2003, respectively. The Company’s net income was approximately $404,000 ($.03 per share) and $389,000 ($.03 per share) for the three months ended September 30, 2004 and 2003, respectively.
2
Liquidity and Capital Resources:
As of September 30, 2004, the Company had net assets of approximately $3,814,000 including cash and cash equivalents of approximately $1,805,000. During the six months ended September 30, 2004, the Company’s cash position decreased by approximately $101,000.
Its operating activities provided approximately $10,867,000 of cash. This was primarily caused by the Company experiencing a decrease in inventories of approximately $11,569,000, representing the divestiture of inventories in the amount of approximately $9,011,000 associated with the Red Hawk Reserve project as well as a decrease in inventories of approximately $2,558,000 associated with homes scheduled to close in future periods, income applicable to the interest of the joint venture partner of approximately $1,272,000, and net income of $740,432 offset by a decrease of approximately $1,042,000 in customer deposits, and a decrease of approximately $1,727,000 in accounts payable and accrued expenses.
In addition, our investing activities utilized approximately $59,000 of cash through the purchase of property and equipment.
The Company’s financing activities used approximately $10,909,000 of cash principally from the proceeds of its mortgages and notes payable of approximately $17,269,000 and the proceeds of related party notes payable of approximately $298,000, offset by repayments of approximately $27,067,000, including approximately $190,000 of repayments of related party notes payable. Included in these repayments were the satisfaction of mortgages and notes payable related to the Red Hawk Reserve property divestiture of approximately $9,646,000.
The Company’s principal source of financing has historically been construction financing which is based on the value of the underlying projects. The Company has additional committed bank lines of credit of approximately $9,474,000 to finance projects currently under development.
As a result of the cyclical nature of the projects we are currently developing, the Company continues to maintain a significant backlog of homes expected to be delivered in the current and next fiscal year. As of September 30, 2004, contracts are in place for closing 337 homes, of which 135 are scheduled to close in the current fiscal year. The anticipated revenue associated with these contracts totals approximately $101,173,000, of which approximately $38,113,000 is associated with units scheduled to close in the fiscal year ending March 31, 2005, and the remaining approximately $63,060,000 is associated with units scheduled to close in the fiscal year ending March 31, 2006. The table below summarizes the contracts and associated revenue in place as of September 30, 2004:
| To Close | To Close | |||||||||||||||||||||||
| Units Under | Contract Price | As of 3/31/05 | As of 3/31/06 | |||||||||||||||||||||
| Project | Contract | Total | Units | $ | Units | $ | ||||||||||||||||||
| Calumet Reserve at Lely Resort | 8 | $ | 2,338,721 | 7 | $ | 2,002,698 | 1 | $ | 336,023 | |||||||||||||||
| Ancient Oaks | 30 | $ | 7,007,787 | 10 | $ | 1,699,447 | 20 | $ | 5,308,340 | |||||||||||||||
| Heron Creek Golf | ||||||||||||||||||||||||
| & Country Club | 12 | $ | 4,206,075 | 7 | $ | 2,365,633 | 5 | $ | 1,840,442 | |||||||||||||||
| Lake Jovita | 7 | $ | 2,120,780 | 5 | $ | 1,404,191 | 2 | $ | 716,589 | |||||||||||||||
| Waterchase | 34 | $ | 10,262,678 | 20 | $ | 5,705,420 | 14 | $ | 4,557,259 | |||||||||||||||
| Shadow Moss | 53 | $ | 8,030,618 | 18 | $ | 2,681,326 | 35 | $ | 5,349,292 | |||||||||||||||
| Cayo Costa | 25 | $ | 4,743,251 | 12 | $ | 1,089,500 | 13 | $ | 3,653,751 | |||||||||||||||
| Miramar at Lakewood Ranch | 114 | $ | 38,324,093 | 30 | $ | 9,306,364 | 84 | $ | 29,017,729 | |||||||||||||||
| The Oaks | 1 | $ | 1,400,000 | 1 | $ | 1,400,000 | — | $ | — | |||||||||||||||
| The Moorings at Lakewood Ranch | 53 | $ | 22,738,982 | 25 | $ | 10,458,262 | 28 | $ | 12,280,720 | |||||||||||||||
| 337 | $ | 101,172,986 | 135 | $ | 38,112,841 | 202 | $ | 63,060,145 | ||||||||||||||||
Item 3. Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this quarterly report. Based upon their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings.
During the three-month period ended September 30, 2004, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
3
Part II
Other Information
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits.
| 31.1 | Certification of the President and Chief Executive Officer | |
| 31.2 | Certification of the Chief Financial Officer | |
| 32.1 | Certificate of the President and Chief Executive Officer pursuant to 18 U.S.C. § 1350. | |
| 32.2 | Certificate of the Chief Financial Officer pursuant to 18 U.S.C. § 1350. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Whitehall Limited, Inc. | ||
| November 15, 2004 | /s/ | Ronald Mustari |
| Ronald Mustari, President and Chief Executive Officer (Principal Executive Officer) | ||
| November 15, 2004 | /s/ | Kay Carter |
| Kay Carter, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) | ||
5
WHITEHALL LIMITED, INC. AND SUBSIDIARIES
I N D E X
| PAGE | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
* * *
F-1
WHITEHALL LIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
| ASSETS | ||||
| Cash and cash equivalents | $ | 1,804,693 | ||
| Inventories | 37,045,495 | |||
| Property and equipment, net | 463,105 | |||
| Other assets | 514,854 | |||
| Total | $ | 39,828,147 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Liabilities: | ||||
| Mortgages and notes payable | $ | 20,940,194 | ||
| Notes payable — related party | 808,854 | |||
| Accounts payable and accrued expenses | 5,876,379 | |||
| Customer deposits and advances | 4,877,911 | |||
| Total liabilities | 32,503,338 | |||
| Interest of joint venture partners | 3,510,884 | |||
| Commitments and contingencies | ||||
| Stockholders’ equity: | ||||
| Preferred stock: | ||||
| Series A, $.10 par value; 100,000,000 shares authorized; none issued | — | |||
| Series B, $.10 par value; 2,500,000 shares authorized; none issued | — | |||
| Common stock, $.10 par value; 500,000,000 shares authorized; 14,182,977 shares issued and outstanding | 1,418,298 | |||
| Additional paid-in capital | (278,539 | ) | ||
| Retained earnings | 2,674,166 | |||
| Total stockholders’ equity | 3,813,925 | |||
| Total | $ | 39,828,147 | ||
See Notes to Condensed Consolidated Financial Statements.
F-2
WHITEHALL LIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
| Six Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Revenue: | ||||||||||||||||
| Home and lot sales | $ | 34,623,468 | $ | 13,441,619 | $ | 19,305,712 | $ | 7,966,444 | ||||||||
| Other income | 64,711 | 59,985 | 7,544 | 37,908 | ||||||||||||
| Totals | 34,688,179 | 13,501,604 | 19,313,256 | 8,004,352 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of sales | 28,655,797 | 10,606,550 | 16,564,931 | 6,286,297 | ||||||||||||
| Selling | 2,402,151 | 1,310,185 | 1,003,896 | 622,033 | ||||||||||||
| General and administrative | 1,035,116 | 719,606 | 590,347 | 410,894 | ||||||||||||
| Interest | 89,516 | 103,353 | 46,049 | 43,381 | ||||||||||||
| Totals | 32,182,580 | 12,739,694 | 18,205,223 | 7,362,605 | ||||||||||||
| Income from operations | 2,505,599 | 761,910 | 1,108,033 | 641,747 | ||||||||||||
| Income (loss) applicable to interest of joint venture partners | 1,272,167 | 298,240 | 416,503 | (3,742 | ) | |||||||||||
| Income before income taxes | 1,233,432 | 463,670 | 691,530 | 645,489 | ||||||||||||
| Provision for income taxes | 493,000 | 190,500 | 287,076 | 256,900 | ||||||||||||
| Net income | $ | 740,432 | $ | 273,170 | $ | 404,454 | $ | 388,589 | ||||||||
| Basic earnings per share | $ | .05 | $ | .02 | $ | .03 | $ | .03 | ||||||||
| Basic weighted average shares outstanding | 14,182,977 | 14,292,741 | 14,182,977 | 14,300,669 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements.
F-3
WHITEHALL LIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
| 2004 | 2003 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 740,432 | $ | 273,170 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | 25,755 | 21,858 | ||||||
| Cost of services paid through issuance of common stock | 25,430 | |||||||
| Income applicable to interest of joint venture partners | 1,272,167 | 298,240 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventories | 11,568,500 | (3,638,501 | ) | |||||
| Other assets | 29,324 | (72,114 | ) | |||||
| Accounts payable and accrued expenses | (1,726,899 | ) | 114,215 | |||||
| Customer deposits and advances | (1,042,148 | ) | 2,317,821 | |||||
| Net cash provided by (used in) operating activities | 10,867,131 | (659,881 | ) | |||||
| Investing activities — purchase of property and equipment | (58,679 | ) | (19,974 | ) | ||||
| Financing activities: | ||||||||
| Distribution to joint venture partner | (1,409,939 | ) | (252,066 | ) | ||||
| Proceeds from mortgages and notes payable | 17,269,350 | 10,454,326 | ||||||
| Repayments of mortgages and note payable | (26,876,850 | ) | (9,550,384 | ) | ||||
| Proceeds from notes payable — related party | 298,000 | 237,985 | ||||||
| Repayment of notes payable — related party | (190,000 | ) | (579,000 | ) | ||||
| Net cash provided by (used in) financing activities | (10,909,439 | ) | 310,861 | |||||
| Net decrease in cash and cash equivalents | (100,987 | ) | (368,994 | ) | ||||
| Cash and cash equivalents, beginning of period | 1,905,680 | 2,753,721 | ||||||
| Cash and cash equivalents, end of period | $ | 1,804,693 | $ | 2,384,727 | ||||
| Supplemental disclosure of cash flow data: | ||||||||
| Interest paid, net of amount capitalized | $ | 89,516 | $ | 103,353 | ||||
See Notes to Condensed Consolidated Financial Statements.
F-4
WHITEHALL LIMITED, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Basis of presentation:
| In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Whitehall Limited, Inc. and Subsidiaries (the “Company”) as of September 30, 2004, their results of operations for the six and three months ended September 30, 2004 and 2003 and their cash flows for the six months ended September 30, 2004 and 2003. Pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed in or omitted from these financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed financial statements should be read in conjunction with the audited financial statements as of and for the year ended March 31, 2004 and the notes thereto and the other information included in the Company’s Annual Report on Form 10-KSB (the “Form 10-KSB”) for the year ended March 31, 2004 that was previously filed with the SEC. |
| The results of the Company’s operations for the six and three months ended September 30, 2004 are not necessarily indicative of the results of operations to be expected for the full year ending March 31, 2005. | ||||
| Significant accounting policies and line of business have not changed from those described in the 2004 Form 10-KSB. | ||||
Note 2 — Earnings (loss) per common share:
| The Company presents basic earnings (loss) per share and, if appropriate, diluted earnings per share in accordance with the provisions of Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). Diluted per share amounts have not been presented in the accompanying unaudited condensed consolidated statements of operations for the six and three months ended September 30, 2004 and 2003 because there were no dilutive securities outstanding. |
F-5
Exhibit Index
| 31.1 | Certification of the President and Chief Executive Officer | |
| 31.2 | Certification of the Chief Financial Officer | |
| 32.1 | Certificate of the President and Chief Executive Officer pursuant to 18 U.S.C. § 1350. | |
| 32.2 | Certificate of the Chief Financial Officer pursuant to 18 U.S.C. § 1350. |
