SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22922
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THE WESTERN SYSTEMS CORP.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 06-0995978
- ---------------------------- ----------------------------
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organi- Number)
zation)
c/o Janney Montgomery Scott Inc., 26 Broadway, New York, NY 10004
- ----------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 510-0688
--------------
The Western Transmedia Company, Inc., 475 Sansome St., San Francisco, CA 94111
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: May 8, 1997 there
were outstanding 7,869,833 shares of the issuer's Common Stock, $.60 par value.
<PAGE>
THE WESTERN SYSTEMS CORP.
-------------------------
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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INDEX
Page(s)
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PART 1. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1997
(unaudited) and December 31, 1996 3.
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1996 (unaudited) 4.
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996 (unaudited) 5.
Notes to Interim Consolidated Financial Statements
(unaudited) 6.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
PART 2. Other Information 12.
SIGNATURES 13.
EXHIBITS: Exhibit 11 - Computation of Earnings (Loss) Per Share
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Press Release
<PAGE>
THE WESTERN SYSTEMS CORP.
-------------------------
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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CONSOLIDATED BALANCE SHEETS
---------------------------
- ASSETS -
<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 9,558,676 $ 2,073,697
Deferred tax asset (Note 3) - 857,000
Accounts receivable - 107,717
Rights to receive - net - 3,335,763
Prepaid expenses and other current assets 27,874 194,800
----------- -----------
TOTAL CURRENT ASSETS 9,586,550 6,568,977
----------- -----------
PROPERTY AND EQUIPMENT - NET - 81,871
----------- -----------
OTHER ASSETS:
Franchise agreement - net - 423,800
Security deposits - 9,483
Other assets - 34,941
----------- -----------
- 468,224
----------- -----------
TOTAL ASSETS $ 9,586,550 $ 7,119,072
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable - rights to receive $ - $ 633,436
Accrued liabilities 58,449 202,112
Income taxes payable (Note 3) 783,000 -
Capitalized lease obligations - current portion - 3,576
----------- -----------
TOTAL CURRENT LIABILITIES 841,449 839,124
----------- -----------
LONG-TERM DEBT:
Capitalized lease obligations - 12,026
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized;
none issued or outstanding - -
Common stock, $.60 par value,
25,000,000 shares authorized;
7,903,421 shares issued and outstanding 4,742,053 4,742,053
Additional paid-in capital 5,542,062 5,542,062
Retained earnings (deficit) (1,539,014) (4,016,193)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,745,101 6,267,922
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,586,550 $ 7,119,072
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
Page 3.
<PAGE>
THE WESTERN SYSTEMS CORP.
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(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
For the Three Months
Ended March 31,
---------------
1997 1996
---------- ----------
NET SALES $ 54,396 $ 2,591,458
COST OF SALES 36,263 1,713,600
----------- -----------
GROSS PROFIT 18,133 877,858
----------- -----------
OPERATING EXPENSES:
Franchise costs 7,254 359,225
Operating expenses 100,915 540,830
----------- -----------
108,169 900,055
----------- -----------
LOSS FROM OPERATIONS (90,036) (22,197)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 114,359 35,321
Interest (expense) -- (981)
Gain on sale of franchise -
net of purchase expenses (Note 2) 4,092,856 --
----------- -----------
4,207,215 34,340
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,117,179 12,143
----------- -----------
INCOME TAXES (NOTE 3):
Provision for income taxes:
Current 783,000 --
Deferred 857,000 --
----------- -----------
1,640,000 --
----------- -----------
NET INCOME $ 2,477,179 $ 12,143
=========== ===========
EARNINGS PER COMMON SHARE $.31 $0.00
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,956,941 7,950,803
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 4.
<PAGE>
THE WESTERN SYSTEMS CORP.
-------------------------
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1997 1996
------------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from franchisor for
cardholder restaurant spending $ 179,359 $ 2,600,564
Cash paid for franchise fees (24,251) (360,927)
Cash paid for rights to receive -- (2,164,476)
Cash paid to suppliers and employees (238,968) (488,712)
Interest received 114,359 35,321
Interest paid -- (982)
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES 30,499 (379,212)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (1,125)
Cash received from sale of operating assets 7,454,480 --
Security deposits -- (45)
----------- -----------
NET CASH (UTILIZED) BY INVESTING ACTIVITIES 7,454,480 (1,170)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations -- (654)
----------- -----------
NET CASH (UTILIZED) BY FINANCING ACTIVITIES -- (654)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,484,979 (381,036)
Cash and cash equivalents, at beginning of year 2,073,697 3,040,620
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 9,558,676 $ 2,659,584
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(UTILIZED) BY OPERATING ACTIVITIES:
Net income $ 2,477,179 $ 12,143
Adjustments to reconcile net income to
net cash provided (utilized) by
operating activities:
Deferred taxes 857,000 --
Allowance for unrealizable rights to receive -- 52,038
Depreciation and amortization -- 15,048
Net book value of assets transferred to buyer 534,493 --
Changes in assets and liabilities:
Decrease in accounts receivable 107,717 9,007
Decrease (increase) in rights to receive 3,335,763 (1,009,235)
Decrease in prepaid expenses and other current assets 166,926 14,825
(Decrease) increase in accounts payable - rights to receive (633,436) 550,238
(Decrease) in accrued expenses (143,663) (23,276)
Increase in income taxes payable 783,000 --
----------- -----------
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES $ 7,484,979 $ (379,212)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5.
<PAGE>
THE WESTERN SYSTEMS CORP.
-------------------------
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------
(UNAUDITED)
NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION:
Through January 3, 1997, the Company was operating under a franchise
agreement with Transmedia Network, Inc. ("Network") which granted to
the Company the right to operate a franchise in California,
Washington, Oregon and certain parts of Nevada, the primary business
of which was the acquisition of Rights to Receive food and beverage
credits from restaurants that accept the Transmedia restaurant card
(a private restaurant charge card marketed and issued by Network).
See Note 2 below regarding sale of the franchise and certain assets
of the Company.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of The Western Systems Corp.
formerly The Western Transmedia Company, Inc. (the "Company") and its
subsidiary TM West Corp. ("TM West") contain all adjustments
necessary (consisting of normal recurring accruals or adjustments
only) to present fairly the Company's financial position as of March
31, 1997 and the results of its operations and cash flows for the
three month periods ended March 31, 1997 and 1996.
The accounting policies followed by the Company are set forth in Note
2 to the Company's consolidated financial statements included in its
Annual Report on Form 10-K for the year ended December 31, 1996,
which is incorporated herein by reference. Specific reference is made
to this report for a description of the Company's securities and the
notes to consolidated financial statements included therein.
NOTE 2 - SALE OF OPERATING ASSETS:
On January 3, 1997, the Company sold its Transmedia Network franchise
for the states of California, Oregon, Washington and parts of Nevada
and substantially all of its operating assets, other than cash and
cash equivalents, to its franchisor, Network, for cash of
approximately $7,500,000. The Company also transferred its
obligations under capital and operating leases entered into, to
Network. In connection with the Asset Sale, the Company and Network
exchanged general releases of all liabilities and obligations under
the franchise agreement. However, pursuant to the terms of the
contract, should the Rights to Receive of a certain restaurant group
become uncollectible within 12 months of the closing date, the
Company is obligated to repurchase those Rights to Receive from
Network, at the time the determination is made that such Rights to
Receive are uncollectible, at the then outstanding full cash amount.
The Company would then have the right to recover damages, including
the amount paid to Network, from the restaurant group and guarantors.
At March 31, 1997 the cash equivalent of such Rights to Receive
totaled approximately $90,000.
Page 6.
<PAGE>
THE WESTERN SYSTEMS CORP.
-------------------------
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
-----------------------------------------------
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------
(UNAUDITED)
NOTE 3 - INCOME TAXES:
As of the year end of December 31, 1996 the Company established a
deferred tax asset of $857,000, based primarily upon available net
operating losses, to offset the anticipated gain from the sale of
substantially all of its assets on January 3, 1997. This gain
resulted in approximately $4,117,000 of income for the quarter ended
March 31, 1997 and accordingly, the liability resulting from the
$1,640,000 provision for income taxes has been offset by the deferred
tax asset.
NOTE 4 - SUBSEQUENT EVENTS:
On April 30, 1997, the Company entered into an agreement with
American Country Insurance Company and its' wholly-owned subsidiary,
American Country Financial Services (collectively "American") whereby
the Company will acquire substantially all the assets and assume
substantially all the liabilities of American for cash of
approximately $40,000,000. Financing for the purchase will be
provided by the sale of approximately 24 million newly issued shares
of the Company for approximately $27,000,000, by the Company's cash
on hand of approximately $9,000,000 and the balance by a bank term
loan. The transaction is subject to shareholder and regulatory
approval and is expected to close in the third quarter of 1997.
Page 7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On January 3, 1997, the Company sold its Transmedia Network franchise
(the "Franchise") covering the States of California, Oregon,
Washington and parts of Nevada and substantially all of its operating
assets other than cash and cash equivalents (the "Asset Sale") to its
franchisor, Transmedia Network Inc. ("Network"), for a cash payment of
approximately $7,500,000. Upon consummation of the Asset Sale, and at
March 31, 1997, the Company's assets consisted principally of cash and
cash equivalents aggregating approximately $9,600,000. These assets
(less approximately $800,000 of taxes on the gain resulting from the
Asset Sale) will be utilized by the Company to acquire, merge,
consolidate, invest in transactions or otherwise combine with an
operating business (any such transaction, a "Business Combination").
The Company intends to enter into transactions which will use
substantially all of the Company's available cash in one or two
transactions and structure such Business Combinations so that the
current management of the target business will remain in place. There
can be no assurance, however, the Company will be able to effectuate a
Business Combination, or that any such Business Combination will be
profitable. In anticipation of the sale, in the fourth quarter of
1996, the Company initiated activities to seek such an acquisition or
affiliation.
On April 30, 1997, the Company entered into an agreement with American
Country Insurance Company and its' wholly-owned subsidiary, American
Country Financial Services (collectively "American") whereby the
Company will acquire substantially all the assets and assume
substantially all the liabilities of American for cash of
approximately $40,000,000. Financing for the purchase will be provided
by the sale of approximately 24 million newly issued shares of the
Company for approximately $27,000,000, by the Company's cash on hand
of approximately $9,000,000 and the balance by a bank term loan. The
transaction is subject to share holder and regulatory approval and is
expected to close in the third quarter of 1997.
Pending a business combination, the Company's assets will be invested
as management of the Company deems prudent, which may include, but
will not be limited to, certificates of deposit, mutual funds,
money-market accounts, stocks, bonds or United States Government or
municipal securities, provided, however, that the Company will attempt
to invest the net proceeds in any manner which will not result in the
Company being deemed to be an investment company under the Investment
Company Act of 1940.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1996
As discussed above in "Recent Developments" the Company sold its
Transmedia Network franchise on January 3, 1997, and therefore,
operated its Transmedia Franchise for only two days during the
three-month period ended March 31, 1997. Accordingly, the results of
operations for the three month period ended March 31, 1997 are not
comparable to the three month period ended March 31, 1996.
The following information relates primarily to the business carried on
by the Company prior to the Asset Sale.
Page 8.
<PAGE>
Net sales for the two days of operation, during the three month period
ended March 31, 1997, were $54,396. Net sales were $2,591,458 during
the three month period ended March 31, 1996.
The Company incurred franchise costs of approximately 14% of net
sales. Franchise costs were $7,254 and $359,225 for the three month
periods ended March 31, 1997 and 1996, respectively.
The Company operated with an approximate 33% gross profit margin from
net sales of Rights to Receive to Cardholders. The Company's net sales
contributed $18,133 and $877,858 in gross profit for the three month
periods ended March 31, 1997 and 1996, respectively.
Operating expenses (selling, general and administrative expenses)
aggregated $100,915 and $540,830 for the three month periods ended
March 31, 1997 and 1996, respectively. The approximately $440,000
decrease in operating expenses for the respective three month periods
is primarily because upon completion of the Asset Sale, on January 3,
1997, the Company's operating overhead was limited to the
administrative, accounting and legal costs of compliance with public
reporting and tax requirements.
For the three month period ended March 31, 1997, operating expenses
consisted primarily of salaries and payroll-related expenses ($52,500)
and professional and consulting fees ($45,000).
For the three month period ended March 31, 1996, operating expenses
consisted primarily of salaries and payroll expenses ($298,000),
professional and consulting fees ($32,000), rent and office expenses
($67,000), the Company's reserve for unrealizable Rights to Receive
($52,000), advertising and promotional expenses in connection with
attracting and maintaining California cardholders ($13,000 net of
Transmedia Network reimbursement), and marketing expenses in
connection with attracting and maintaining participating California
restaurants ($46,000).
Interest income was approximately $114,000 and $35,000 for the three
month periods ending March 31, 1997 and 1996, respectively. The
approximately $79,000 increase in interest income earned by the
Company for the respective three month periods is because of the
additional interest earned on the approximately $7,454,000 gross
proceeds received from the Company's Asset Sale.
For the three month period ended March 31, 1997, the Company generated
income before provision for income taxes of $4,117,179 compared to
income of $12,143 for the three month period ended March 31, 1996. The
increase was primarily attributable to the Company's gain on the Asset
Sale.
For the three month period ended March 31, 1997 the Company
established a financial statement provision for income taxes of
$1,640,000. The $1,640,000 amount is the full theoretical tax expense
on the Company's approximately $4,117,000 pretax income at an assumed
40% combined Federal and California effective tax rate. The tax
provision does not give effect to the Company's $1,950,000 net
operating loss carryforwards and other deductible temporary
differences. Of the total $1,640,000 financial statement tax expense
the $783,000 current portion is the actual projected net "tax return"
tax payable by the Company after utilizing the Company's net operating
loss carryforwards. The $857,000 deferred portion is not actually
payable and is required under the provisions of SFAS 109 to reverse
the $857,000 tax asset recognized during the year ended December 31,
1996. This asset, which recorded the tax benefit of the Company's
$1,950,000 net operating carryforwards, was required at the end of
1996 because it was more likely than not at that time that the losses
would be utilized. For the years ended December 31, 1995 and earlier,
the Company did not record such a tax credit because at that time
there was no assurance that the Company would generate future taxable
income.
Page 9.
<PAGE>
For the three month period ended March 31, 1997, the Company earned
net income of $2,477,179 or $.31 per share. The net income was
primarily attributable to the Company's gain on the Asset Sale net of
taxes and expenses. For the three month period ended March 31, 1996
the Company earned income before provision for income taxes and net
income of $12,143 or $.00 per share. The Company incurred no provision
for income taxes for the three months ended March 31, 1996 because the
income taxes on the Company's $12,143 pretax profit were eliminated by
the Company's net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was approximately $8,745,000 at March
31, 1997 and $5,730,000 at December 31, 1996. The approximately
$3,015,000 increase is primarily attributable to the Company's gain on
the Asset Sale net of expenses and accrued taxes.
The Company's cash balances were approximately $9,559,000 and
$2,074,000 at March 31, 1997 and December 31, 1996, respectively. The
approximately $7,485,000 increase is primarily attributable to the
cash proceeds from the Company's gain on the Asset Sale.
At March 31, 1997, the Company's had no debt, its net worth was
approximately $8,745,000 and its current ratio was 11.4:1.
Cash provided by operating activities for the three month period ended
March 31, 1997 was approximately $7,485,000. During the three month
period ended March 31, 1997 the Company received approximately
$7,454,000 gross proceeds from the Company's Asset Sale, cash
generated from cardholder restaurant spending net of franchise fees
was approximately $155,000 and interest income was approximately
$114,000. Operating expenditures during the three month period ending
March 31, 1997 consisted of approximately $239,000 paid to suppliers
and employees.
Cash flow used in operating activities for the three month period
ended March 31, 1996 was approximately $379,000. During the three
month period ended March 31, 1996 cash generated from cardholder
restaurant spending net of franchise fees was approximately $2,240,000
and interest income was approximately $35,000. Operating expenditures
during the three month period ending March 31, 1996 consisted of
approximately $2,164,000 paid to purchase Rights to Receive and
$489,000 paid to suppliers and employees.
Cash flow used in investing activities for the three month period
ended March 31, 1996 was $1,170 primarily for the purchase of office
furniture and equipment. The Company did not have any cash flows from
investing activities during the three month period ended March 31,
1997.
Cash flow used in financing activities for the three month period
ended March 31, 1996 was $654 for the payment of capital lease
obligations. The Company did not have any cash flows from financing
activities during the three month period ended March 31, 1997.
During the year ending December 31, 1997 and until a business
acquisition or affiliation is effected the Company expects to generate
interest income in excess of its minimal operating expenses, exclusive
of any due diligence and professional fees incurred in connection with
the identification and consummation of one or more Business
Combinations.
Page 10.
<PAGE>
The Company presently has outstanding 2,052,987 warrants which expire
December 31, 1997. These warrants will be adjusted (upon completion of
the acquisition discussed earlier), pursuant to their anti-dilution
provisions, to entitle the holder of each warrant to purchase
approximately 2.1 shares at approximately $1.85 per share. No
assurance can be given, however, that the Company will raise
additional capital from the exercise of its Warrants or obtain
additional financing. The Company presently has no other unused
internal sources of liquidity other than cash (or equivalents) on hand
and no external sources of liquidity such as a line of credit or
otherwise from a financial institution.
The Company intends to enter into transactions which will use
substantially all of the Company's available cash in one or two
transactions and structure such Business Combinations so that the
current management of the target business will remain in place. There
can be no assurance, however, that the Company will be able to
effectuate a Business Combination, or that any such Business
Combination will be profitable. In anticipation of the sale, in the
fourth quarter of 1996, the Company initiated activities to seek such
an acquisition or affiliation. See discussion re: Recent Developments.
INFLATION AND SEASONALITY
Inflation did not significantly impact the Company's business during
1996 nor the three months ended March 31, 1997. The Company does not
believe that its business was seasonal.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements and information
that is based on management's beliefs and assumptions, as well as
information currently available to management. When used in this
document, the words "anticipate," "expect," "intend," and similar
expressions are intended to identify forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or expected.
Page 11.
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On May 1, 1997, the Company entered into a definitive agreement to
purchase the assets of American Country Insurance Company of Chicago and/or
affiliated company for $40,250,000. The Company anticipates closing the
acquisition in July 1997, subject to regulatory approval and approval by
stockholders of the Company. A more detailed description of the transaction is
contained in the Company's Press Release dated May 1, 1997 filed as an exhibit
to the Quarterly Report on Form 10-Q and incorporated herein by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
Exhibit 11 - Computation of Earnings (Loss) Per Share
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Press Release dated May 1, 1997
b) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the quarter
ended March 31, 1997.
Page 12.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTERN SYSTEMS CORP.
Date: May 12, 1997
By:/s/ William J. Barrett
-------------------------------------
William J. Barrett Chief Executive Officer and
Director (Principal Executive Officer, Acting
Principal Financial Officer and Acting
Principal Accounting Officer)
Page 13.
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
(UNAUDITED)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
NET INCOME APPLICABLE TO COMMON STOCK $2,477,179 $ 12,143
========== ==========
SHARES:
Weighted average number of
common shares outstanding 7,903,421 7,903,421
Assumed conversions of stock options 53,520 47,382
---------- ----------
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING 7,956,941 7,950,803
========== ==========
PRIMARY EARNINGS PER COMMON SHARE $ .31 $ .01
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the three months ended March 31, 1997 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,558,676
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,586,550
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,586,550
<CURRENT-LIABILITIES> 841,449
<BONDS> 0
<COMMON> 4,742,053
0
0
<OTHER-SE> 4,003,048
<TOTAL-LIABILITY-AND-EQUITY> 9,586,550
<SALES> 54,396
<TOTAL-REVENUES> 54,396
<CGS> 36,263
<TOTAL-COSTS> 43,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,117,179
<INCOME-TAX> 1,640,000
<INCOME-CONTINUING> 2,477,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,477,179
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
New York, NY -- May 1, 1997 -- The Western Systems Corp. (Nasdaq Small
Cap: WTSM) announced today that it has entered into an agreement to purchase the
assets of American Country Insurance Company of Chicago and an affiliated
company for $40,250,000. American Country is a privately-held specialty property
and casualty insurance company. For the year ended December 31, 1996, American
Country and its affiliated company had total revenues of approximately $60
million. Financing for the purchase will be provided by the sale of
approximately 24 million newly issued shares of Western common stock to three
investors (two private investors and a publicly-traded, specialty property and
casualty insurance company) for approximately $27 million, by approximately $9
million of Western cash on hand and the balance by a bank term loan. The
transaction is subject to regulatory and Western shareholder approval.
If the proposed transaction is completed, the exercise terms of Western's
outstanding common stock purchase warrants (Nasdaq Small Cap: WTSMW) which
expire December 31, 1997, will be adjusted pursuant to their anti-dilution
provisions to entitle the holder of each warrant to purchase approximately 2.1
shares at approximately $1.85 per share. Currently, each warrant entitles the
holder to purchase 1 share at $4.00 per share.
Giving effect to timely regulatory and Western shareholder approval, Western
anticipates closing the transaction in July 1997.
