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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A No. 1
Filed as Amendment to 8-K Document filed March 25, 1998,
Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 6, 1998
WHITNEY AMERICAN CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
0-22907 84-1070022
(Commission File Number) (I.R.S. Employer Identification Number)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices and Zip Code)
(703) 893-0582
(Registrant's telephone number, including area code)
12373 E. Cornell Avenue, Aurora, Colorado 80014
(Former name or former address, if changed since last report)
Item 1. CHANGE IN CONTROL.
Acquisition of Other Businesses
Whitney American Corporation, a Delaware corporation ("Company"), entered
into and consummated the following Stock Exchange Agreements (collectively,
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the "Agreements") dated March 6, 1998, among the Company and Kemron
Environmental Services, Inc., a New York corporation ("Kemron"), and its
shareholders ("Kemron Agreement"); Coastline International, Inc., a Delaware
corporation ("Coastline"), and its shareholders ("Coastline Agreement"); New
Horizons, Inc., a Delaware corporation ("New Horizons"), and its shareholders
("New Horizons Agreement"); and Exeter Group, Inc., a Florida corporation
("Exeter"), and its shareholders ("Exeter Agreement"). Pursuant to the
Agreements the Company acquired such corporations in a stock-for-stock exchange
with the shareholders of those corporations, issuing an aggregate of 8,000,000
common shares to consummate the acquisitions. These transactions are sometimes
collectively referred to below in this report as the "Exchange."
In connection with the Exchange, the Company has undergone a change of
control by virtue of changes in share ownership and changes in its management
and board of directors, both as described below. Neither of the companies
acquired pursuant to the Agreements nor their respective shareholders were
affiliates of the Company or known to own any of the shares of the Company prior
to the Exchange. Information concerning the Company's new executive officers,
directors and principal shareholders is set forth below, as is a description of
the business of the companies acquired.
The Company did not mail to shareholders or file with the Securities and
Exchange Commission any notice pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and Rule 14f-1 thereunder,
because it obtained the prior approval of its shareholders for the Exchange in
accordance with Section 228 of the Delaware General Corporation Law.
CHANGE IN MANAGEMENT
Issuance of Shares
At the time of consummating the Exchange, the Company had an aggregate of
362,515 common shares issued and outstanding. As called for in the Agreements,
the Company has issued an aggregate of 8,000,000 additional common shares.
Accordingly, the shareholders of Kemron, Coastline, New Horizons and Exeter, as
a group, own approximately 94% of the Company's 8,520,047 currently issued and
outstanding shares.
Change of Control
Prior to execution of the Purchase Agreement, Stephen M. Siedow was the
sole director and executive officer of the Company, as permitted by Delaware
law. Pursuant to the Agreements, Mr. Siedow resigned as an officer and director
of the Company, and the persons named below were elected to the respective
positions noted as the executive officers and directors of the Company.
Executive Officers and Directors
The current executive officers and directors of the Company are listed
below, all of whom assumed office effective March 10, 1998. Directors serve one-
year terms until the next annual meeting of shareholders, or until successors
have been elected and duly qualified. Officers hold office at the
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pleasure of the Board of Directors, absent any employment agreement, of which
none currently exist.
Juan J. Gutierrez DIRECTOR, Chairman, Chief Executive
Officer
Hector I. Hernandez, Sr. DIRECTOR, Executive Vice President,
Secretary
Heatherlynn Colburn DIRECTOR, Chief Operating Officer, Executive
Vice President
John Heishman DIRECTOR, Assistant Secretary, Treasurer
Michael Goldberg DIRECTOR
David Vandenberg DIRECTOR
John M. Dwyer DIRECTOR
Biographical Information
Following is a brief account of the business experience during at least the
past five years of each director and executive officer, including the principal
occupation and employment during that period.
JUAN J. GUTIERREZ, 56, is Chairman and CEO of the Company. He has been
Chairman and CEO of Kemron Environmental Services, Inc. since 1983, when he
purchased Kemron. He is also Chairman and CEO of InterAmerica Technologies,
Inc., a software development and systems integration company which he founded in
1971. Both companies have enjoyed rankings on the list of the 500 largest
Hispanic-owned businesses compiled by Hispanic Business magazine. Mr. Gutierrez
has received numerous achievements and community awards, including being
selected by the U.S. Hispanic Chamber of Commerce as the 1984 Hispanic
Businessman of the Year, and receiving the 1994 Small Business Administration's
Lifetime Minority Business Achievement Award. He is a graduate of Pan American
University at Edinburg, Texas.
HECTOR I. HERNANDEZ, SR., ESQ., 37, is an Executive Vice President,
Secretary, General Counsel and Director of the Company. Mr. Hernandez is a
licensed attorney, and received his Juris Doctor degree from Georgetown
University Law Center in Washington, DC, in 1986. From 1990 to 1993, Mr.
Hernandez served as officer and director of Sibir, Inc., U.S.A., a Virginia
corporation which in 1994 was liquidated pursuant to Chapter seven of the U.S.
Bankruptcy Code. From 1986 to 1990, Mr. Hernandez was an attorney with the U.S.
Department of State. Mr. Hernandez presently serves as a director of HDN, Inc.,
which filed a form S-1 Registration Statement with the Securities and Exchange
Commission on December 31, 1997.
HEATHERLYNN COLBURN, 28, is an Executive Vice President, Chief Operating
Officer and Director of the Company. She is also the Chairman of the Board and
CEO of Costa Real Corporation, a shareholder of the Company; and a
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director of HDN, Inc., a Delaware corporation which recently filed an S-1
Registration Statement with the Securities and Exchange Commission. Ms. Colburn
provides in-depth knowledge of the financial markets and financial communities,
and will play an integral role in the development of the Company's expansion of
its markets from regional to national.
JOHN M. DWYER, 37, is a Director of the Company, and a Vice President of
Kemron. Mr. Dwyer is responsible for the management and administration of
Kemron's Consulting and Engineering Division, including profit and loss
performance, and is Kemron's head of marketing. He has been with Kemron for over
17 years and brings a wealth of experience and expertise in the development,
design, and execution of small and large scale environmental programs involving
hazardous waste site investigations, remedial construction, environmental
assessments and permitting assistance services, as well as leaking underground
storage tanks. Mr. Dwyer holds an A.S. degree in computer and electrical
technology from the Southern Institute of Technology.
MICHAEL GOLDBERG, 48, is a Director of the Company and an officer of Exeter
Group, Inc. Mr. Goldberg graduated dean's list from the Pennsylvania State
University in 1971. Mr. Goldberg graduated as an Asper Fellow from the
University of Maryland Law School in 1974. In 1973 and 1974, Mr. Goldberg served
as an Asper Fellow with the United States Attorney's Office (Criminal Division)
in Washington, D.C. Mr. Goldberg worked on the Watergate case as well as other
major cases. From 1974 through 1977, Mr. Goldberg was an Assistant District
Attorney in Philadelphia, PA. Mr. Goldberg served in the Narcotics, Major Trials
and Homicide Division. From 1978 until 1986, Mr. Goldberg was in private
practice with his firm representing such clients as F. Lee Bailey, Mayor Frank
L. Rizzo, the Philadelphia Eagles and the City of Philadelphia. Mr. Goldberg
became Chairman, CEO and President of RX Medical Services Corp. (a publicly
traded company listed on the American Stock Exchange), in 1991, and oversaw the
growth of that company from $2.7 million to over $20 million in annual revenues.
Mr. Goldberg has received honors as Who's Who Leading American Executives in
1992; Adaptive Business Leaders Organization (ABL) in 1992; and Outstanding
Young Man of America in 1983.
DAVID VANDENBERG, 41, is a Director of the Company, and a Vice President of
Kemron. He is a 1979 graduate of the University of Wisconsin with degrees in
Chemistry and Business. With 19 years of experience in the environmental field,
he has been involved with the development and management of Kemron's business
through the changes in legislation, market conditions and growth of the
environmental service industry. He has managed the growth of a 3 person
environmental laboratory to a staff of over 70 professionals, and today Kemron's
Ohio Valley Laboratory is one of the nation's largest, most respected
environmental laboratories. Mr. Vandenberg is responsible for the laboratory's
sales and marketing strategies, operation oversight and profit and loss
performance.
JOHN S. HEISHMAN, 32, is the Assistant Secretary/Treasurer and a Director of
the Company, and is responsible for Finance and Contract Administration for the
Company. He has 10 years of finance and accounting experience in both commercial
and federal contracting. Mr. Heishman joined the KEMRON management team in 1996
and has brought vast experience in forecasting/budgeting, cash management,
financial analysis, corporate and operational accounting. Prior
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to joining KEMRON, Mr. Heishman worked for Computer Sciences Corporation, and in
public accounting with Ernst & Young. He has extensive knowledge of GAAP, FAR,
and CAS issues. He holds a BBA in accounting from James Madison University, and
is a Certified Public Accountant in Virginia.
Executive Compensation
During the fiscal year ended May 31, 1997, no director or executive officer
of the Company received cash or non-cash compensation for service to the
Company. Subsequent to the fiscal year end, the Company awarded shares of its
common stock to officer and director Stephen M. Siedow (150,000 shares) and to
Secretary and corporate counsel John D. Brasher Jr.(150,000 shares) under the
Company's 1997 Employee Stock Compensation Plan for services rendered to the
Company and not otherwise compensated. Such shares were valued at a price of
$.025 per share. Prior to issuance, these shares were registered under the Act
under cover of a registration statement on Form S-8. Mr. Brasher and Mr. Siedow
were in addition owed approximately $105,000 for services rendered and expenses
advanced on behalf of the Company, which the Company intends to pay.
On March 12, 1998, the Company awarded stock options to officers and
directors (Juan J. Gutierrez: 350,000; Hector I. Hernandez, Sr.: 350,000;
Heatherlynn Colburn: 400,000; Michael Goldberg: 100,000; John Dwyer: 25,000; and
David Vandenberg: 25,000) under the Company's 1997 Stock Option Plan. Such
options have an exercise price of $0.25 per share. Prior to issuance, these
shares were registered under the Act under cover of a registration statement on
Form S-8.
PRINCIPAL SHAREHOLDERS
Beneficial Ownership Following Acquisitions
The following table sets forth as of March 12, 1998, the names of persons
who own of record, or were known by the Company to own beneficially, more than
five percent of its total issued and outstanding common stock and the beneficial
ownership of all such stock as of that date by executive officers and directors
of the Company and all such executive officers and directors as a group. Except
as otherwise noted, each person listed below is the sole beneficial owner of the
shares and has sole investment and voting power as to such shares.
<TABLE>
<CAPTION>
Name and Address Amount & Nature Percent
of Beneficial of Beneficial of
Title of Class Owner Ownership Class
<S> <C> <C> <C>
Common Stock, *Juan J. Gutierrez 3,460,001 35.9% 1, 4
$.00001 par 8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME *Hector I. Hernandez 2,100,000 21.8% 2, 4
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SAME *Heatherlynn Colburn 2,150,000 22.4% 3, 4
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME *Michael Goldberg 100,000 1% 4
2008 Bayview Drive
Ft. Lauderdale, Florida 33305
SAME *David Vandenberg 191,666 1.9% 4
109 Starlite Park
Marietta, Ohio 45750
SAME *John M. Dwyer 191,666 1.9% 4
2987 Clairmont Road, Suite 150
Atlanta, Georgia 30329
SAME *John Heishman -0- -0-
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME Costa Real Corporation 1,750,000 18% 3
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME Twenty First Century Heritage Trust 1,750,000 18% 2
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME InterAmerica Technologies, Inc. 887,778 9.1% 1
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
*All executive officers and
directors as a group (7 persons) 8,193,333 85.2%
</TABLE>
1 Mr. Gutierrez is the sole owner of shareholder InterAmerica Technologies,
Inc., and claims beneficial ownership of shares held by that entity.
2 Mr. Hernandez is the administrator of Twenty First Century Heritage Trust
and claims beneficial ownership of shares held by the trust due to voting
control possessed.
3 Ms. Colburn is the president of Costa Real Corporation and claims
beneficial ownership of shares held by that entity due to voting control
possessed.
4 Includes common shares of the Company subject to purchase upon the
exercise of options granted under the Company's 1997 Compensatory Stock Option
Plan, including 350,000 (Juan Gutierrez), 350,000 (Hector Hernandez), 400,000
(Heatherlynn Colburn), 100,000 (Michael Goldberg), 25,000 (John Dwyer), and
25,000 (David Vandenberg).
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF UNRELATED COMPANIES
The Company entered into and consummated the following Stock Exchange
Agreements (collectively, the "Agreements") dated March 6, 1998, among the
Company and:
(a) Kemron Environmental Services, Inc., a New York corporation
("Kemron"), and its shareholders ("Kemron Agreement"), pursuant to which among
other things the Company acquired in a stock-for-stock exchange all of the
issued and outstanding shares of capital stock of Kemron and in exchange
therefor issued to the shareholders of Kemron an aggregate of 3,500,000 shares
of the Company's authorized but unissued common stock;
(b) Coastline International, Inc., a Delaware corporation ("Coastline"),
and its shareholders ("Coastline Agreement"), pursuant to which among other
things the Company acquired in a stock-for-stock exchange all of the issued and
outstanding shares of capital stock of Coastline and in exchange therefor issued
to the shareholders of Coastline an aggregate of 1,750,000 shares of the
Company's authorized but unissued common stock;
(c) New Horizons, Inc., a Delaware corporation ("New Horizons"), and its
shareholders ("New Horizons Agreement"), pursuant to which among other things
the Company acquired in a stock-for-stock exchange all of the issued and
outstanding shares of capital stock of New Horizons and in exchange therefor
issued to the shareholders of New Horizons an aggregate of 1,750,000 shares of
the Company's authorized but unissued common stock;
(d) Exeter Group, Inc., a Florida corporation ("Exeter"), and its share
holders ("Exeter Agreement"), pursuant to which among other things the Company
acquired in a stock-for-stock exchange all of the issued and outstanding
shares of capital stock of Exeter and in exchange therefor issued to the
shareholders of Exeter an aggregate of 1,000,000 shares of the Company's
authorized but unissued common stock;
The shares issued pursuant to the Agreements were not registered under
the Securities Act of 1933, as amended ("Act"), on the grounds that the sale,
issuance and delivery of such shares were transactions not involving any
public offering within the meaning of Section 4(2) of the Act. Accordingly,
all such shares are deemed "restricted securities" as defined in Rule 144(a)
under the Act. All certificates evidencing the shares issued pursuant to the
Agreements bear a customary form of investment legend, and a stop order has
been entered in the Company's transfer records in respect of such shares. No
person has been granted registration rights as to any of such shares, although
the Company is not prevented from registering any of such shares for resale at
a later date..
The four exchange agreements referred to above contained certain common
terms and provisions, as discussed below.
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Expenses
The Company, Kemron, Coastline, New Horizons and Exeter each bore their own
expenses incurred in connection with the Exchange. In the Kemron Agreement,
Kemron agreed to guarantee the payment by the Company of approximately $100,000
in outstanding payables of the Company.
Representations and Warranties
The exchange agreements contain customary representations and warranties
by the parties regarding due organization and good standing, capitalization,
no defaults, due authorization and similar matters. The shareholders of the
acquired companies made certain representations and warranties as to their
investment intent, the private nature of the transaction, the lack of any
general advertising or general solicitation, the quantity and quality of
information possessed by them regarding the Company, and other matters.
Indemnification
The shareholders of the acquired companies agreed to indemnify the Company,
and the Company agreed to indemnify those shareholders, from and against certain
damages occurring after the closing date but arising out of events prior to the
closing date, arising from breach of the exchange agreements or failure of or
breach of any representations and warranties in the exchange agreements.
However, the indemnity is available only to damages exceeding $10,000 in the
aggregate and as to which the party claiming indemnification has received actual
notice of the claim giving rise to the right to indemnification within twenty-
four months of the closing date.
Reverse Split Prohibition
In order to protect persons who were the Company's shareholders at the
closing, the parties agreed that, for a period of eighteen (18) months following
the closing, the Company is prohibited from effecting any reverse split of its
common stock or any corporate action that would change the number of common
shares of the Company into a smaller number of shares. However, this prohibition
does not prevent the Company from engaging in a merger, exchange, consolidation
or similar transaction with an unaffiliated entity which has the effect of
reducing the number of common shares.
BRIEF DESCRIPTION OF KEMRON ENVIRONMENTAL SERVICES, INC.
Kemron Environmental Services, Inc. ("Kemron"), a New York corporation,
was first incorporated under the name of Industrial Hygienics, Inc. (IHI) on
June 3, 1975. Between 1975 and 1981, IHI operated as a stand alone industrial
hygiene consulting and laboratory company on Long Island, New York. In 1981,
IHI acquired Kemron Environmental Services, a division of the Borg-Warner
Corporation, and changed its name to IHI-Kemron. The acquisition brought to
IHI-Kemron a network of industrial hygiene and environmental laboratories in
the midwest, the Ohio River Valley, and Louisiana. The Louisiana laboratory
was established as early as 1952 and was the premier ambient air and emissions
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testing facility in the Southeast. In 1982, IHI-Kemron acquired WAPORA, which at
the time was the leading Regional Mission contractor for the Environmental
Protection Agency with a staff of over 100 environmental scientists located in
five states throughout the eastern half of the U.S.
IHI-Kemron was not successful in merging and consolidating its operations
after the acquisitions and eventually ran into financial difficulties.
Consequently, IHI-Kemron was purchased in 1983 by Juan J. Gutierrez, a Virginia
based management consultant. Gutierrez reorganized the company, eliminated
unprofitable operations, and guided the company back to profitability. In 1988,
Gutierrez changed the name of the company from IHI-Kemron, to its name under
Borg-Warner, Kemron Environmental Services, Inc. In 1993, WAPORA, the wholly-
owned subsidiary, was merged with the parent company to form the present day
operating structure.
Kemron is a full service environmental engineering and consulting company
offering four distinct lines of service which include Site Investigations and
Engineering; Site Remediation and Construction; Environmental Management &
Permitting Assistance; and Analytical/Laboratory Services. Its consulting and
Engineering Division is comprised of three operating groups located in Atlanta,
GA, Marietta, OH, and Vienna, VA, serving a diverse client base such as Fortune
1000 companies, the Georgia State Department of Environmental Resources and the
U.S. Army Corp of Engineers. Kemron's laboratory, also located in the heart of
the Ohio River Valley in Marietta, OH, is housed in a 20,000+ square feet
facility, fully equipped with state-of-the-art testing equipment capable of
performing a full array of inorganic and organic testing in all types of media.
The laboratory's principal clients are Fortune 1000 clients representing several
sectors of the economy, as well as the U.S. Air Force and the Department of
Energy's Los Alamos National Laboratory located at Los Alamos, New Mexico. The
laboratory maintains a marketing office in San Antonio, Texas.
STRUCTURE OF KEMRON ENVIRONMENTAL SERVICES
Kemron has over 120 environmental scientist, engineers and chemists
organized into two operating divisions and an administrative unit. The two
operating divisions are its Consulting and Engineering (CE) Division and its
Laboratory Analytical (Lab) Division. The CE Division is headed by a Vice-
President and has three Regional Managers, one for each of the offices
identified above. The lab is a stand-alone operation also headed by a Vice-
President. The administrative unit consists of the President/CEO, a Director of
Finance and Contract Administration, a Director of Human Resources and support
personnel for the overall administrative function. The administrative unit is
based at the corporate headquarters in Vienna, VA.
DESCRIPTION OF KEMRON'S SERVICES
Site Investigation and Engineering Services
Kemron provides site investigations and assessment services at non-regulated
contaminated sites and at sites covered by RCRA and CERCLA regulations. These
investigations may included preliminary assessments, site investigations,
groundwater assessments, remedial investigations and
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feasibility studies, and remedial action. Kemron also provides services for
designing remedial action plans. Some of the plans designed and executed by
Kemron have include: Closure plans for in-place capping and clean closure
scenarios; Corrective action plans for groundwater programs; Plans for buried
waste excavation, removal and soil remediation; Plans for building
decontamination and demolition; Plans for lagoon closure; In-situ biological
treatment of soil and groundwater; Underground Storage Tanks ("UST") removal;
Asbestos abatement; Thermal treatment of contaminated soil; and Soil vapor
extraction and air sparging.
Site Remediation and Construction
Kemron performs site remediation and construction services at contaminated
sites regulated by RCRA and CERCLA regulation. Kemron has undertaken projects
requiring groundwater treatment, soil vapor extraction, air stripping, and
building decontamination, as well as more conventional methods involving soil
excavation, solidification, capping, treatment and disposal. Kemron also
utilizes bio-degradation technologies utilizing indigenous as well as
proprietary micro-organisms to maximize remediation abilities. Using this
approach, Kemron installed the first closed loop biological system permitted by
the Commonwealth of Virginia and the first system permitted in the state of
Maryland. Kemron also employs other approaches, such as air stripping, soil
venting, soil aeration, and in-situ air sparging to remove highly volatile
compounds.
Environmental Management and Permitting
Kemron provides environmental management services which include a full range
of ecological services including: environmental assessments; wetlands
delineation; endangered species studies; and terrestrial and aquatic ecological
surveys. Phase I Environmental Site Assessments (ESA) are also conducted by
Kemron.
KEMRON'S ANALYTICAL LABORATORY
Kemron operates an environmental testing laboratory in Marietta, Ohio
employing over 70 professionals. Kemron has experience in providing lab testing
services for varying analytical programs such as NPDES, RCRA, CERCLA and OSHA.
Kemron's laboratory has experience in the use of EPA, NIOSH, ASTM and APHA
standards and methods. These methods have been applied to soil, water, air,
biological samples, sludge and wastes.
Kemron participates in various certification and audit programs, when
available, including Federal and State Voluntary Proficiency Programs. Kemron's
laboratory is accredited by the American Association for Laboratory
Accreditation (A2LA), and certified by the U.S. Army Corps of Engineers,
Missouri River Division and approved to perform analytical work for the U.S. Air
Force AFCEE Program. Kemron is also certified by a multiple of state
certification programs which include, but are not limited to the following:
Arizona, Florida, Georgia, Kansas, Maryland, Massachusetts, New Jersey, North
Dakota, Ohio, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin.
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BRIEF DESCRIPTION OF NEW HORIZONS, INC.
The Company has acquired 100% of the issued and outstanding stock of New
Horizons, Inc., a Delaware corporation established in 1996 to provide oil and
gas well servicing to the energy sector. At the time of the acquisition of New
Horizons by the Company, New Horizons had no revenue nor operations. The Company
intends to raise capital through the sale of stock, the proceeds of which will
be used to capitalize the operations of New Horizons.
New Horizons does have a signed Letter of Intent to acquire all of the
assets of Vector Horizontal Ventures, L.L.C., a Nevada limited liability company
currently engaged in short radius horizontal drilling services, with rights to
utilize technology developed and patented by the Amoco Corporation. The Asset
Purchase will transfer to New Horizons all of Vector's tangible and intangible
assets, including drilling equipment, inventory of materials, existing and
future contracts to provide horizontal drilling services, Vector's existing
personnel, and the Amoco license. Amoco has agreed to the transfer of the Vector
license directly to New Horizons upon closing the Vector Asset Purchase. In
acquiring the Assets of Vector, the Company will assume approximately
$500,000.00 in trade-related debt and will issue common stock and options to the
present management of Vector.
Declining production and depletion of existing reserves within the United
States is causing increasing pressure on state and federal agencies to create
incentives for oil and gas operators and the investment community to drill for
new reserves and rework the hundreds of thousands of existing wells that are
either temporarily abandoned or marginally producing. The oil and gas industry
needs an inexpensive, low risk technology that will allow operators to increase
existing production levels and unlock new reserves.
Short radius horizontal drilling is rapidly becoming a chosen alternative in
the re-entry and completion of oil and gas wells, to exploit the vast quantities
of remaining reserves. Short radius horizontal drilling technologies, perfected
by Amoco Corporation over many years of testing and commercial development, have
proven to be reliable and very cost effective and are becoming widely accepted
by the petroleum industry as the preferred choice for a variety of applications.
In 1986, the United States had 635,015 producing oil wells. Daily production
averaged 14 bbl oil/well and has declined since then. Current estimates place
80% of oil wells in the "stripper" class, less than 10 bbl oil/day. There are
oil fields that still have energy and oil but do not produce due to some type of
engineering problem. Many of these are horizontal drilling targets. Every
sedimentary basin in the U.S. will have prospects. If 10% of the stripper wells
can be helped by horizontal drilling, there are about 45,000 target wells for
re-entry. If the industry re-enters these existing wells and drills 450
horizontal wells per year, it will take 100 years to drill all of these
prospects.
The most popular casing used by independent operators is 4.5 inch outside
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diameter casing. The Amoco system is the only short radius drilling system that
can drill 30 foot radii from inside 4.5 inch casing. Certainly, the potential
re-entry market is very large.
In addition to the re-entry market, there is the market for horizontal
completion of new wells. The recent increases in the price of oil and gas, and
the predicted future stability has increased drilling activity to levels not
seen in years. Horizontal completion of wells is becoming the chosen alternative
to conventional completion technologies. Industry analysts' predictions of an
upward trend in oil prices, modified by the short term market cycles should
provide service companies with stability and growth potential.
Now that the petroleum industry has become much more aware of the many
technical advantages and lower cost of the rotary steerable short radius
horizontal system, in comparison to alternative systems such as articulated mud
motors, demand for these services has suddenly skyrocketed. New Horizons will
offer a full range of services to the energy sector. The subsidiary will offer
turn-key services to its energy sector clientele, providing a vast array of
services depending on the customized needs of the client. Several contracts are
presently being negotiated for services including plugging of abandoned wells
and engineering of re-entry and stimulation activities designed to enhance
production. For specialized situations, the subsidiary will employ its Amoco
technology, as needed. The Amoco Technology, thereby, provides a potent tool in
the subsidiary's arsenal of modern technologies which will be offered to the
oil, gas and coal industries.
More traditional horizontal drilling methods will also be employed in those
situations where needed. The mud motors used in medium radius horizontal
drilling are in some cases the technology of choice, particularly in instances
where the rotary tools of the Amoco process will not suffice. Depending on the
needs of the client and the specific requirements of the formation and the
geology, New Horizons will provide the best technology available coupled with
efficient service.
With the Vector Acquisition, New Horizons will have the exclusive benefit of
a management team who originally fostered the successful development of these
patented and proprietary technologies from the very earliest experimental
prototypes nearly a decade ago. Even more importantly, the Company's senior
operating personnel and service technicians have been identified, trained, and
recruited on the basis of their experience and proven performance with the
technology in the field. New Horizons will combine the assets and personnel of
predecessor organizations in order to optimize the full range of skills and
services that can be made available from a single source.
New Horizons' personnel will have a combined experience of more than 50
years operating this short radius technology, including its early testing,
development and field application. In total, New Horizons' team has been
involved in the drilling of more than 200 test wells and more than 60 field
applications. New Horizons' personnel have drilled wells in Oklahoma, Texas,
Louisiana, Indiana, Illinois, Montana, Wyoming, North Dakota, Michigan, Ohio and
West Virginia.
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BRIEF DESCRIPTION OF COASTLINE INTERNATIONAL, INC.
Coastline International, Inc., a Delaware corporation, was incorporated
on November 6, 1996, to provide innovative bio-technologies applicable to the
energy and water sectors. At the time of the acquisition of Coastline by the
Company, Coastline had no revenue and no operations. The Company intends to
raise capital through the sale of stock, the proceeds of which will be used to
capitalize the operations of Coastline.
Coastline's licenses and distribution concessions include a unique bio-
technology for the treatment of paraffin, scale, corrosion and reservoir skin
damage; and a unique bio-technology for treatment of municipal, agricultural and
industrial wastewater. These two principal areas will become the focus of two
divisions within Coastline; Coastline Energy and Coastline Water, as further
described below.
Coastline Energy
Coastline has secured a license and distribution rights for a library of
facultative anaerobic microorganisms developed by Micro-Bac International, Inc.,
of Austin, Texas, which increase production in individual oil and gas wells and
in fields with skin damage, due to paraffin accumulations, corrosion, emulsion
and scale formation. The treatment is custom designed for each individual well
and field, and strains of bacteria are isolated through laboratory testing to
achieve optimum performance.
These neutrally charged marine organisms, in a saline solution of nutrients,
are naturally occurring, non-pathogenic, non-toxic, non-carcinogenic, non-
combustible and require no permits from the Environmental Protection Agency for
storage, transportation or disposal. Environmentally, these microorganisms are
as safe as any product in the industry to control and reduce skin damage.
Paraffin, corrosion, emulsion and scale formation have resulted in
significant economic losses, reducing profitability for producers and operators.
The resulting skin damage can be controlled and reduced through proper treatment
by locating microorganisms in the immediate formation, perforations, and in the
case of most problem preventing restrictions in production streams or failures
in lifting equipment. Traditional control methods for treatment involve
implementing techniques such as hot oiling, paraffin cutting, chemical and
condensate treatments. These techniques have been marginally successful,
economically prohibitive and temporary at best. Man y of these traditional
methods are dangerous from a safety standpoint and often have caused serious
long term damage to the productive life of the well, especially in the case of
hot oiling.
Paraffin skin damage can either be naturally occurring or man-made due to
repeated hot oil-hot water treatments down the annulus. Naturally occurring
paraffin is due to a formation temperature lower than the cloud point of the
fluids produced. Paraffins created by hot oil - hot water treatments can cause a
large amount of skin damage due to the liquids burning off the lighter
13
<PAGE>
hydrocarbons and pushing the heavier ends, possibly pulled from the bottom of a
stock tank, downhole. Both types of damage reduce the effective permeability and
porosity at or near the formation face while a hot oil treatment can cause
plugged perforations and restrictions in the wellbore.
Since the microorganisms thrive at the oil/water or water/paraffin contact,
they will naturally seek out the paraffin skin damage and gradually remediate
the high carbon chain paraffins with a cloud point above the formation
temperature. This remediation process will gradually biodegrade the skin damage
that is interfering with the natural inflow of fluids into the wellbore and
control formation of paraffin accumulations in the production system.
Depending on the type of oil and other reservoir characteristics, the
bacteria treatment will affect one or more of the following: API, viscosity,
melting point and interfacial tension. The bacteria have been used successfully
in the treatment of thousands of wells. A typical application will require
certain equipment including a surface pump, hoses, tanks, and a truck for
transportation. Depending on the proximity of the wells, one technician can
treat three to four wells per hour.
The technology is environmentally safe, is efficient and very cost
effective, thereby creating a service with high profit margins for the Company,
which at the same time enhances production and cures many of the prevalent
production problems and difficulties experienced by oil and gas producers.
Coastline Water Services
Coastline has secured the exclusive world-wide distribution rights to a
unique bio-technology developed by Greenwave Biotech, Inc., of Beaufort, South
Carolina, which has proven effective against a wide range of organic pollutant
problems, provides final effluent polishing, achieves sludge
digestion/stabilization tasks, and controls pathogens. The ability to reduce
volatile organic materials in domestic/industrial sludge provides a cost
effective solution for compliance with current regulatory waste disposal
requirements.
Many of this country's large cities are presently under cease and desist
orders from the Environmental Protection Agency, for failure to control sludge
and for emission of pathogens and volatile organics into the rivers and water
streams. In addition, pending legislation will impose new requirements on
agricultural wastewater, creating additional demand for Coastline's products and
services. For years the industry has been crying out for an effective solution
to the myriad of problems confronted by most municipal waste treatment plants.
Many cities and municipalities are spending hundreds of millions of dollars on
physical plant enhancements which for the most part do not provide a viable
solution to the underlying problems. After many years of searching for a
technology which will remedy these problems, the management of Coastline has
found a bacteria which is effective at reducing sludge and pathogens from human
and animal waste streams.
The acquisition of Coastline allows the Company to diversify into the
14
<PAGE>
energy services sector, which is presently one of the most vibrant sectors in
today's economy. The Coastline acquisition has provided to the Company licensed
and proprietary technologies for Microbial Enhanced Oil Production (MEOP); and
bio-degradation of sludge and pathogens in wastewater streams, and other bio-
technological solutions to common, everyday problems. The Company anticipates
synergies to be created from the cross marketing efforts of Coastline into both
the energy and environmental industries, although no assurances can be given
that such synergies will evolve.
BRIEF DESCRIPTION OF EXETER GROUP, INC.
Exeter Group, Inc., a Florida corporation, was incorporated in November
1996, and began operations in 1997. Exeter offers environmental consulting
services to companies bringing forth new and/or cutting edge technologies. This
entails negotiating any and all permits, licensing rights, government
registrations, of E.P.A, Interior, Food and Drug Administration, OSHA, NIOSH,
National Marine Fisheries Service, the US Forest Service and other regulatory
agencies dealing with natural resources, primarily at the Federal level.
Drawing from an extensive background in both the environmental sciences and
government procedures, the Exeter management team can tailor a business plan to
fit the unique requirements of a diverse clientele. The present trend towards
environmentally focused laws and regulations will require companies to seek
working relationships with companies such as Exeter to avoid costly delays and
other obstacles.
Exeter has the capability of doing fish and wildlife surveys, timber
cruising, wetland delineation, CERCLA site development and measurement,
superfund cleanup, RCRA activities dealing with development of waste dumps of
Sub title C, D, and E. TOSCA and Pesticide developmental work in terms of
registrations are a key part of our activities. We do work on clean water and
sludge regulatory development with water and sewer authorities. Work in foreign
countries include South Africa, Haiti, Dominican Republic, Bermuda, Grenada,
Cameroon and others are in developmental stages. Basically, if an environmental
problem exists we can analyze, set up corrective actions and execute the
solutions
15
<PAGE>
Item #7. Financial Statements and Exhibits.
The following documents are filed as exhibits to this report . They were filed
with the original 8-K filed March 25, 1998, and are hereby incorporated by
reference in that 8-K statement. They are listed on the March 25, 1998 8-K as
Exhibit:
10.1 Stock Purchase Agreement dated March 6, 1998, among the Company, Kemron
Environmental Services, Inc., A New York corporation, and the shareholders of
Kemron Environmental Services, Inc.
10.2 Stock Purchase Agreement dated March 6, 1998, among the Company, Coastline
International Inc., a Delaware corporation, and the shareholders of Coastline
International, Inc.
10.3 Stock Exchange Agreement dated March 6, 1998, among the Company, New
Horizons, Inc., a Delaware corporation, and the shareholders of New Horizons,
Inc.
10.4 Stock Exchange Agreement dated March 6, 1998, among the Company, Exeter
Group, Inc., a Florida corporation,and the shareholders of Exeter Group, Inc.
Whitney American Corporation (the "Company") previously reported its acquisition
of Kemron Environmental Services, Inc., Coastline International, Inc., New
Horizons, Inc., and Exeter Group, Inc. in Current Reports on Form 8-K filed with
the Securities and Exchange Commission on March 25, 1998. The Company is filing
this Current Report on Form 8-K/A No. 1 to include additional financial
statements of Kemron Environmental Services, Inc. and pro forma financial
information of the Company.
After reasonable inquiry, the Company is not aware of any material factors
relating to Kemron Environmental Services, Inc. that would cause the reported
financial information not to be necessarily indicative of future operating
results.
I. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
The audited balance sheet and statement of revenue and certain
operating expenses of Kemron Environmental Services, Inc. for the
year ended May 31, 1997 are included on pages 23 to 24.
(b) Pro Forma Financial Information.
Pro forma financial information which reflect's the Company's
acquisition of Kemron Environmental Services, Inc., Coastline
International, Inc., New Horizons, Inc., and Exeter Group, Inc.
for the period ended February 28, 1998 and for the year ended May
31, 1997 are included on pages 18 to 20.
(c) Exhibits.
Consent of Haymaker Berry Group
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITNEY AMERICAN CORPORATION
Date: May 22, 1998 By:
----------------- -------------------------------------
Juan J. Gutierrez, President
(Principal Executive Officer)
Date: May 22, 1998 By:
----------------- -------------------------------------
Hector I. Hernandez, Executive VP
WHITNEY AMERICAN CORPORATION
INDEX TO FINANCIAL STATEMENTS
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Unaudited Pro Forma Combined Condensed Balance Sheet
as of February 28, 1998................................................. 18
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Nine Months Ended February 28, 1998............................. 19
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Year Ended May 31, 1997......................................... 20
Notes and Management's Assumptions to Unaudited Pro Forma Combined
Condensed Financial Information......................................... 21
II. KEMRON ENVIRONMENTAL SERVICES, INC.
Report of Independent Public Accountants................................ 22
Balance Sheets as of May 31, 1997 and February 28, 1998................. 23
Statements of Operations for the Year Ended May 31, 1997
and the Nine Months Ended February 28, 1998............................. 24
Statements of Changes in Stockholder's Equity for the Year Ended
May 31, 1997 and the Nine Months Ended February 28, 1998................ 25
Statements of Cash Flows for the Year Ended May 31, 1997
and the Nine Months Ended February 28, 1998............................. 26
Notes to financial statements........................................... 27
III. EXHIBITS
Consent of Independent Public Accountants............................... 33
17
<PAGE>
SURVIVING CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF FEBRUARY 28, 1998
<TABLE>
<CAPTION>
WHITNEY KEMRON
ASSETS AMERICAN ENVIRONMENTAL
CORPORATION SERVICES EXETER COASTLINE
------------- --------------- --------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ - $ 1,000 $ 1,820 $ -
Accounts receivable, net - 3,172,199 8,300 -
Prepaid expenses and other assets - 194,864 - -
------------- --------------- --------- -----------
Total Current Assets - 3,368,063 10,120 -
PROPERTY AND EQUIPMENT, cost
Leasehold improvements - 148,849 4,200 -
Equipment - 2,537,223 17,851 -
Automobiles - 188,546 34,289 -
Furniture and fixtures - 42,232 5,895 -
------------- --------------- --------- -----------
- 2,916,850 62,235 -
Accumulated depreciation - (2,264,033) (14,222) -
------------- --------------- --------- -----------
Net Property and Equipment - 652,817 48,013 -
OTHER ASSETS
Intangibles, net of accumulated amortization
of $ 18,330 - 21,250 - -
Deferred tax asset - 491,673 - -
Deposits and other assets - 41,653 4,075 -
------------- --------------- --------- -----------
Total Other Assets - 554,576 4,075 -
------------- --------------- --------- -----------
Total Assets $ - $ 4,575,456 $ 62,208 $ -
============= =============== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ - $ 1,044,685 $ 34,462 $ -
Line of credit - 1,650,000 - -
Accounts payable - related party 105,745 33,662 - -
Notes payable - 84,038 319 -
Notes payable - related party - 61,728 - -
Notes payable - equipment - 67,261 - -
Capital lease liability - 1,744 7,906 -
------------- --------------- --------- -----------
Total Current Liabilities 105,745 2,943,118 42,687 -
LONG-TERM LIABILITIES
Notes payable - related
party, net of current maturities - - 60,014 -
Notes payable - equipment,
net of current maturities - 209,921 5,383 -
------------- --------------- --------- -----------
Total Long-term Liabilities - 209,921 65,397 -
------------- --------------- --------- -----------
Total Liabilities 105,745 3,153,039 108,084 -
STOCKHOLDERS' EQUITY
Preferred stock - - - -
Common Stock, net of subscriptions receivable 4 3 100 -
Contributions in excess of par 31,222 1,642,777 - -
Retained earnings (136,971) (220,363) (45,976) -
------------- --------------- --------- -----------
Total Stockholders' Equity (105,745) 1,422,417 (45,876) -
------------- --------------- --------- -----------
Total Liabilities and Stockholders' Equity $ - $ 4,575,456 $ 62,208 $ -
============= =============== ========= ===========
18
<PAGE>
<CAPTION>
PRO FORMA
ASSETS NEW ADJUSTMENTS PROFORMA
HORIZONS Debit/(Credit) COMBINED
---------- --------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ - $ - $ 2,820
Accounts receivable, net - - 3,180,499
Prepaid expenses and other assets - - 194,864
---------- --------------- -------------
Total Current Assets - - 3,378,183
PROPERTY AND EQUIPMENT, cost
Leasehold improvements - - 153,049
Equipment - - 2,555,074
Automobiles - - 222,835
Furniture and fixtures - - 48,127
---------- --------------- -------------
- - 2,979,085
Accumulated depreciation - - (2,278,255)
---------- --------------- -------------
Net Property and Equipment - - 700,830
OTHER ASSETS
Intangibles, net of accumulated amortization
of $ 18,330 - - 21,250
Deferred tax asset - - 491,673
Deposits and other assets - - 45,728
---------- --------------- -------------
Total Other Assets - - 558,651
---------- --------------- -------------
Total Assets $ - $ - $ 4,637,664
========== =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ - $ - $ 1,079,147
Line of credit - - 1,650,000
Accounts payable - related party - - 139,407
Notes payable - - 84,357
Notes payable - related party - - 61,728
Notes payable - equipment - - 67,261
Capital lease liability - - 9,650
---------- --------------- -------------
Total Current Liabilities - - 3,091,550
LONG-TERM LIABILITIES
Notes payable - related
party, net of current maturities - - 60,014
Notes payable - equipment,
net of current maturities - - 215,304
---------- --------------- -------------
Total Long-term Liabilities - - 275,318
---------- --------------- -------------
Total Liabilities - - 3,366,868
STOCKHOLDERS' EQUITY
Preferred stock - -
Common Stock, net of subscriptions receivable - (23)(2) 84
Contributions in excess of par - (182,924)(2) 1,491,075
Retained earnings - 182,947 (2) (220,363)
---------- --------------- -------------
Total Stockholders' Equity - - 1,270,796
---------- --------------- -------------
Total Liabilities and Stockholders' Equity $ - $ - $ 4,637,664
========== =============== =============
</TABLE>
See notes to proforma combined condensed financial statements
18
<PAGE>
SURVIVING CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
WHITNEY KEMRON PRO FORMA
AMERICAN ENVIRONMENTAL NEW ADJUSTMENTS PROFORMA
CORPORATION SERVICES EXETER COASTLINE HORIZONS Debit/(Credit) COMBINED
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE $ -- $ 7,890,514 $ 86,786 $ -- $ -- $ -- $ 7,977,300
DIRECT COSTS -- 5,987,926 103,314 -- -- -- 6,091,240
--------- ----------- --------- ------- ------- ---- -----------
GROSS PROFIT (LOSS) -- 1,902,588 (16,528) -- -- -- 1,886,060
--------- ----------- --------- ------- ------- ---- -----------
OPERATING EXPENSES
Overhead -- 855,544 51,199 -- -- -- 906,743
General and administrative 44,266 628,013 11,627 -- -- -- 683,906
--------- ----------- --------- ------- ------- ---- -----------
Total Operating Expenses 44,266 1,483,557 62,826 -- -- -- 1,590,649
--------- ----------- --------- ------- ------- ---- -----------
INCOME (LOSS) FROM OPERATIONS (44,266) 419,031 (79,354) -- -- -- 295,411
OTHER INCOME
Interest -- 1,957 -- -- -- -- 1,957
Other -- -- -- -- -- -- --
OTHER EXPENSES
Interest -- (181,782) -- -- -- -- (181,782)
--------- ----------- --------- ------- ------- ---- -----------
INCOME (LOSS) BEFORE TAXES (44,266) 239,206 (79,354) -- -- -- 115,586
========= =========== ========= ======= ======= ==== ===========
INCOME TAXES -- (93,058) -- -- -- -- (93,058)
NET INCOME (LOSS) $ (44,266) $ 146,148 $ (79,354) $ -- $ -- $ -- $ 22,528
========= =========== ========= ======= ======= ==== ===========
Basic net loss per common share $ (0.12) $ 463.96 $ (79.35) $ -- $ -- $ -- $ 0.00
========= =========== ========= ======= ======= ==== ===========
Weighted average common share outstanding 362,515 315 1,000 1,000 1,000 -- 8,520,047
========= =========== ========= ======= ======= ==== ===========
Diluted net loss per common share $ (0.12) $ 463.96 $ (79.35) $ -- $ -- $ -- $ 0.00
========= =========== ========= ======= ======= ==== ===========
Weighted average common share outstanding 362,515 315 1,000 1,000 1,000 -- 8,520,047
========= =========== ========= ======= ======= ==== ===========
</TABLE>
See notes to proforma combined condensed financial statements
19
<PAGE>
SURVIVING CORPORATION
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
WHITNEY KEMRON PRO FORMA
AMERICAN ENVIRONMENTAL NEW ADJUSTMENTS PROFORMA
CORPORATION SERVICES EXETER COASTLINE HORIZONS Debit/(Credit COMBINED
------------- ------------- ----------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE $ - $ 10,041,217 $ 74,466 $ - $ - $ - $ 10,115,683
DIRECT COSTS - 6,021,746 50,849 - - - 6,072,595
------------- ------------- ----------- --------- ---------- ------------- -------------
GROSS PROFIT - 4,019,471 23,617 - - - 4,043,088
------------- ------------- ----------- --------- ---------- ------------- -------------
OPERATING EXPENSES
Overhead - 3,250,004 23,860 - - - 3,273,864
General and administrative 57,819 1,215,066 1,640 - - - 1,274,525
------------- ------------- ----------- --------- ---------- ------------- -------------
Total Operating Expenses 57,819 4,465,070 25,500 - - - 4,548,389
------------- ------------- ----------- --------- ---------- ------------- -------------
LOSS FROM OPERATIONS (57,819) (445,599) (1,883) - - - (505,301)
OTHER INCOME
Interest - 250 - - - - 250
Other - 7,088 - - - - 7,088
OTHER EXPENSES
Interest - (241,417) - - - - (241,417)
------------- ------------- ----------- --------- ---------- ------------- -------------
LOSS BEFORE DISCONTINUED
OPERATIONS AND INCOME TAXES (57,819) (679,678) (1,883) - - - (739,380)
DISCONTINUED OPERATIONS - (617,303) - - - - (617,303)
------------- ------------- ----------- --------- ---------- ------------- -------------
INCOME BEFORE INCOME TAXES (57,819) (1,296,981) (1,883) - - - (1,356,683)
============= ============= =========== ========= ========== ============= =============
INCOME TAXES - 493,538 - - - - 493,538
NET LOSS $ (57,819) $ (803,443) $ (1,883) $ - $ - $ - $ (863,145)
============= ============= =========== ========= ========== ============= =============
Basic net loss per common share $ (0.16) $ (2,550.61) $ (1.88) $ - $ - $ - $ (0.10)
============= ============= =========== ========= ========== ============= =============
Weighted average common share
outstanding 362,515 315 1,000 1,000 1,000 - 8,520,047
============= ============= =========== ========= ========== ============= =============
Diluted net loss per common share $ (0.16) $ (2,550.61) $ (1.88) $ - $ - $ - $ (0.10)
============= ============= =========== ========= ========== ============= =============
Weighted average common share
outstanding 362,515 315 1,000 1,000 1,000 - 8,520,047
============= ============= =========== ========= ========== ============= =============
</TABLE>
See notes to proforma combined condensed financial statements
20
<PAGE>
SURVIVING CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
NOTE 1: The following unaudited pro forma combined condensed financial
information of Whitney American Corporation (the "Company") adjusts the
historical financial statements of the Company to give pro forma effect
to the Company's purchase of Kemron Environmental Services, Inc.,
Coastline International, Inc., New Horizons, Inc., and Exeter Group,
Inc. on March 6, 1998. The acquisition has been accounted for as a
stock-for-stock exchange with the additional issuance of common stock
to consummate the acquisition. The Unaudited Pro Forma Combined
Condensed Balance Sheets have been prepared as if the transaction
occurred as of February 28, 1998.
The Unaudited Pro Forma Combined Condensed Balance Sheets have
been prepared as of the beginning of the periods presented. The
unaudited pro forma combined condensed statements for the periods
presented do not purport to represent what the Company's results of
operations or financial position would actually have been had the
transaction occurred on the aforementioned dates, or to project the
Company's results of operations for any future periods. The pro forma
adjustments are based upon available information and upon certain
assumptions that the Company's management believes are reasonable under
the circumstances.
The Unaudited Pro Forma Combined Condensed Balance Sheets should
be read in conjunction with the historical financial statements and
related notes included elsewhere in this current report and the
Company's Form 10-KSB for the year ended May 31, 1997.
NOTE 2: To record the stock-for-stock exchange and issuance of preferred stock.
21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- ----------------------------
To the Stockholders and
Board of Directors
Kemron Environmental Services, Inc.
and Subsidiary
McLean, VA
We have audited the accompanying balance sheet of Kemron Environmental Services,
Inc. as of May 31, 1997, and the related statement of income, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position and cash flows of Kemron
Environmental Services, Inc. as of May 31, 1997, and the results of its
operations for the year then ended in conformity with generally accepted
accounting principles.
/s/ Haymaker Berry Group
- -------------------------
Washington, DC
July 17, 1997
22
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
FEBRUARY 28, 1998 MAY 31, 1997
----------------- ----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net 3,172,199 3,402,669
Prepaid expenses and other assets 194,864 183,894
Note receivable - discontinued operation - 49,516
----------------- ----------------
Total Current Assets 3,368,063 3,637,079
PROPERTY AND EQUIPMENT, cost
Leasehold improvements 148,849 134,136
Equipment 2,537,223 2,458,080
Automobiles 188,546 194,500
Furniture and fixtures 42,232 68,870
----------------- ----------------
2,916,850 2,855,586
Accumulated depreciation (2,264,033) (2,148,172)
----------------- ----------------
Net Property and Equipment 652,817 707,414
OTHER ASSETS
Intangibles, net 21,250 24,604
Deferred tax asset 491,673 585,110
Deposits 41,653 41,871
----------------- ----------------
Total Other Assets 554,576 651,585
----------------- ----------------
Total Assets $ 4,575,456 $ 4,996,078
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,044,685 $ 1,691,272
Line of credit 1,650,000 1,530,000
Due to related parties 33,662 31,123
Notes payable 84,038 -
Notes payable - related party 61,728 90,618
Notes payable - equipment 67,261 81,899
Capital lease liability 1,744 16,501
----------------- ----------------
Total Current Liabilities 2,943,118 3,441,413
LONG-TERM LIABILITIES
Notes payable - related party, net of current maturities - 45,992
Notes payable - equipment, net of current maturities 209,921 262,881
----------------- ----------------
Total Long-term Liabilities 209,921 308,873
----------------- ----------------
Total Liabilities 3,153,039 3,750,286
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000 shares authorized,
315 shares issued and outstanding 3 3
Capital in excess of par 1,642,777 1,612,300
Retained deficit (220,363) (366,511)
----------------- ----------------
Total Stockholders' Equity 1,422,417 1,245,792
----------------- ----------------
Total Liabilities and Stockholders' Equity $ 4,575,456 $ 4,996,078
================= ================
</TABLE>
See notes to financial statements.
23
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1997 AND
NINE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 MAY 31, 1997
-------------------- --------------------
(unaudited)
<S> <C> <C>
REVENUE $ 7,890,514 $ 10,041,217
DIRECT COSTS 5,987,926 6,021,746
--------------------- --------------------
GROSS PROFIT 1,902,588 4,019,471
--------------------- --------------------
OPERATING EXPENSES
Overhead 855,544 3,250,004
General and administrative 628,013 1,215,066
--------------------- --------------------
Total Operating Expenses 1,483,557 4,465,070
--------------------- --------------------
INCOME FROM OPERATIONS 419,031 (445,599)
OTHER INCOME
Interest 1,957 250
Other - 7,088
--------------------- --------------------
OTHER EXPENSES
Interest (181,782) (241,417)
--------------------- --------------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND INCOME TAXES 239,206 (679,678)
--------------------- --------------------
DISCONTINUED OPERATIONS - (617,303)
--------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAXES 239,206 (1,296,981)
--------------------- --------------------
INCOME TAXES (93,058) 493,538
--------------------- --------------------
NET INCOME (LOSS) $ 146,148 $ (803,443)
===================== ====================
BASIC NET INCOME (LOSS) PER COMMON SHARE $ 463.96 $ (2,550.61)
===================== ====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 315 315
===================== ====================
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 463.96 $ (2,550.61)
===================== ====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 315 315
===================== ====================
</TABLE>
See notes to financial statements.
24
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 1997 AND
NINE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
Number
of shares Capital in Retained
issued and Common excess of earnings
outstanding stock par value (deficit) Total
----------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1996 315 $3 $1,612,300 $ 436,932 $2,049,235
Net loss (803,443) (803,443)
------ --- ---------- --------- ----------
Balance, May 31, 1997 315 3 1,612,300 (366,511) 1,245,792
Redemption of Stock (16)
Stock Issuance 16 30,477 30,477
Net income 146,148 146,148
------ --- ---------- --------- ----------
Balance, February 28, 1998 315 $3 $1,642,777 $(220,363) $1,422,417
====== === ========== ========= ==========
</TABLE>
See notes to financial statements.
25
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1997 AND
NINE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATIONS: February 28, 1998 May 31, 1997
---------------------- ---------------------
(unaudited)
<S> <C> <C>
Net Income (Loss) $ 146,148 $ (803,443)
Adjustments to reconcile net income to net cash:
Depreciation 234,694 352,873
Loss on sale of assets - 14,098
Allowance for doubtful accounts 17,276 138,615
receivable
Changes in operating assets and liabilities:
accounts receivable 213,194 1,736,210
tax refund - 241,855
accounts receivable - related party - 12,714
prepaid expenses (10,970) 24,937
deposits 218 (17,976)
deferred tax asset 93,437 (487,232)
accounts payable and accrued expenses (646,587) (597,840)
accounts payabe - related party 2,539 13,364
---------------------- ---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,949 628,175
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (176,742) (160,864)
Proceeds received from discontinued 49,516 375,484
operations
Investment in related entity - 23,761
---------------------- ---------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (127,226) 238,381
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment) proceeds on line of credit 120,000 (626,218)
Payment of notes payable - equipment (83,561) (187,321)
Proceeds of notes payable - equipment 100,000 67,009
Payments on related party advances (74,882) (40,926)
Principal payments under capital lease obligations (14,757) (79,100)
Proceeds from stock sale 30,477 -
---------------------- ---------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 77,277 (866,556)
NET CHANGE IN CASH - -
CASH, BEGINNING 1,000 1,000
---------------------- ---------------------
CASH, ENDING $ 1,000 $ 1,000
Supplemental disclosure of cash flows information:
====================== =====================
Cash paid during the year for interest $ 176,594 $ 269,317
====================== =====================
</TABLE>
See notes to financial statements.
26
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
NOTE 1: CORPORATE DATA
The Company was incorporated under the laws of the State of New York on
June 3, 1975. The Company provides a broad range of environmental
consulting, engineering, and laboratory services.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
----------------------------
The Company provides services to customers in multiple industries such
as oil and gas, metals, chemical, textile and automotive. Approximately
35% of the company's customer base is comprised of the federal and state
government. The majority of the company's customers are located in the
midwest, northeast, and southeast regions. The company establishes an
allowance for doubtful accounts based upon several factors such as
credit risk and analysis of specific customer accounts.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives of the
asset. Amortization of leasehold improvements is computed on the term of
the lease or its useful life, whichever is less.
Contract Revenue
----------------
Revenue from service contracts is accrued as time is spent and work is
performed. Revenue under cost-plus-fixed-fee contracts is recorded on
the basis of direct cost and overhead, plus an allocable portion of the
fixed fee.
Revenue from fixed price contracts is accrued on the percentage-of-
completion method. Percentage of completion is determined by computing
the ratio of total cost incurred on each contract as of the balance
sheet date to total anticipated cost for the entire contract. As the
contracts extend into future reporting periods, revisions in cost and
profit estimates during the course of the work will be reflected in the
accounting period in which the facts which require the revision become
known. If a loss is projected during work-in-progress, the entire amount
of the estimated loss is accrued.
Amounts retained by customers until final acceptance of a completed
contract are included in accounts receivable.
Estimates
---------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were assumed in preparing the financial statements.
Income Taxes
------------
As of February 28, 1998 and May 31, 1997, the Company has a net
operating loss carryforward of approximately $491,673 and $585,110,
respectively, for income tax purposes, that expires in 1998 through
2012, which may be used to reduce future taxable income and tax
liabilities.
27
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts reported for income tax
purposes
Net Income (Loss) per Common Share
----------------------------------
Net income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during the period. The
Company implemented Statement of Financial Accounting Standards (SFAS)
No. 128 which requires presentation of basic and diluted earnings per
share amounts and a reconciliation of the respective calculations. The
Company's capital structure consists only of common stock and no other
securities exist whose conversion or exercise would be dilutive.
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------------------ -------------
(unaudited)
<S> <C> <C>
Billed (includes retention of $267,769 and
$290,614, respectively) $2,807,011 $2,782,989
Unbilled 621,079 858,295
Less allowance for doubtful accounts (255,891) (238,615)
---------- ----------
$3,172,199 $3,402,669
========== ==========
</TABLE>
The unbilled receivables on long-term contracts consists primarily of
month-end revenue accrued but not billed on February 28, 1998 and May
31, 1997. Such billings are made the following month.
NOTE 4: NOTES PAYABLE:
Notes payable at February 28, 1998 and May 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------------------ ------------
(unaudited)
<S> <C> <C>
Note payable, bank, $1,800,000 line-of-credit,
demand, interest at 10.5%, secured by accounts
receivable and personal guarantee of majority $1,650,000 $1,530,000
stockholder ========== ==========
Note payable, bank, $100,000 term loan, monthly
principal payments of $8,333 plus interest at 10.5%,
secured by equipment and personal guarantee of
majority stockholder 84,038 -
========== ==========
</TABLE>
28
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
Maturities of long-term debt payments for the years succeeding
February 28, 1998 are as follows:
<TABLE>
<CAPTION>
February 28, 1999
-----------------
<S> <C>
$ 1,734,038
===========
</TABLE>
NOTE 5: NOTES PAYABLE - EQUIPMENT:
Notes payable for equipment at February 28, 1998 and May 31, 1997 are as
follows:
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------------------ ------------
(unaudited)
<S> <C> <C>
Equipment notes bearing interest ranging from
9.5% to 10.75%. Interest is payable monthly with
aggregate monthly principal payments of $ 8,903
with maturities through November 1999. The notes
are collateralized by equipment. $277,182 $344,780
Less current maturities 67,261 81,899
-------- --------
$209,921 $262,881
======== ========
</TABLE>
Maturities of long-term debt payments for each of the five years
succeeding February 28, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
February 28, 1999 $ 67,261
February 28, 2000 209,921
--------
$277,182
========
</TABLE>
NOTE 6: COMMITMENTS AND CONTINGENCIES
The company conducts its operations in leased facilities under operating
leases expiring at various dates through 2007. Approximate minimum
rental commitments for five years as of February 28, 1998 and May 31,
1997, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
February 28, 1999 $ 377,704 May 31, 1998 $ 390,756
2000 303,888 1999 327,014
2001 303,888 2000 281,484
2002 303,888 2001 281,484
2003 303,888 2002 281,484
</TABLE>
29
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
Other facilities are leased under short-term agreements. Rent expense
for all leases for the nine months ended February 28, 1998 and the year
ended May 31, 1997, was $ 314,461 and $448,082, respectively.
The company has entered into various equipment operating leases expiring
between March 1998 and April 2000. Lease expense for the nine months
ended February 28, 1998 and the year ended May 31, 1997, was $ 167,713
and $299,782, respectively. A schedule of the future minimum lease
commitments for five years as of February 28, 1998 and May 31, 1997 are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
February 28, 1998 $152,025 May 31, 1998 $207,080
1999 114,363 1999 72,848
2000 4,556 2000 39,191
2001 - 2001 10,017
2002 - 2002 10,017
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLAN
The company participates in a 401(k) plan, the InterAmerica/Kemron
401(k) Plan and Trust. The plan is available to all employees who are at
least 21 years old, with certain exceptions, primarily for leased
employees and those covered by collective bargaining agreements. The
company will make compensation deferral contributions for the benefit of
all eligible employees in the amount directed by each employee up to the
limits set by the Internal Revenue Service.
The company will make annual matching contributions of two percent of
the employee's Matched Compensation Deferral. The plan provides for a
vesting of company contributions to the employee over a period of five
years. During the nine months ended February 28, 1998 and the year ended
May 31, 1997, the company's matching contributions totaled $ 39,510 and
$71,762, respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
Due to Related Parties
----------------------
An affiliated company provides computer and other services to the
company at cost. Certain expenses at headquarters facilities such as
rent, postage, and administrative labor are shared among the companies.
In addition, a liability to the majority shareholder exists that is non-
interest bearing and payable upon demand. Amounts due to affiliate and
stockholder are as follows:
<TABLE>
<CAPTION>
February 28, 1998 May 31, 1997
------------------ ------------
(unaudited)
<S> <C> <C>
Due to affiliate $15,903 $13,364
Due to stockholder 17,759 17,759
------- -------
$33,662 $31,123
======= =======
</TABLE>
30
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
Notes Payable - Related Party
-----------------------------
The company issued two promissory notes payable to the company's
majority stockholder in the original amounts of $600,000. The notes bear
interest at the rate of 10% per annum with monthly installments of
principal and interest of $8,350. The amount of interest expense for the
nine months ended February 28, 1998 and the year ended May 31, 1997, was
$ 8,040 and $6,624, respectively. There was no accrued interest payable
at February 28, 1998 and May 31, 1997.
Rent Expense - Related Party
----------------------------
The company leases its Marietta, Ohio office from a related party. The
amount of rent expense paid to the related party for the nine months
ended February 28, 1998 and the year ended May 31, 1997, was $ 93,978
and $ 102,900, respectively.
NOTE 9 - MAJOR CUSTOMERS
Earned revenue and the related accounts receivable from major customers
are as follows:
<TABLE>
<CAPTION>
Earned Accounts
Revenue Receivable
----------- ----------
<S> <C> <C>
As of February 28, 1998
-----------------------
Private sector (3 customers) $3,595,159 $822,380
========== ========
Public sector (7 customers) $3,692,084 $865,205
========== ========
As of May 31, 1997
------------------
Private sector (6 customers) $3,372,548 $507,379
========== ========
Public sector (4 customers) $3,104,519 $706,105
========== ========
</TABLE>
NOTE 10 - DISCONTINUED OPERATIONS
During fiscal year 1997, the company discontinued its wholly-owned
subsidiary, Kemron Construction Corporation. This construction company
was established at the beginning of the fiscal year, but as a result of
significant startup costs for the new business as well as the low profit
margins experienced, the operation was terminated. In addition, the
Cincinnati consulting office which has historically demonstrated erratic
profit with little contract backlog was shutdown. The Cincinnati office
performed in areas of NEPA services and cultural resource
investigations, which were not an important component of the consulting
group's strategy.
31
<PAGE>
KEMRON ENVIRONMENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND FEBRUARY 28, 1998
(INFORMATION AS OF AND FOR THE NINE MONTHS
ENDED FEBRUARY 28,1998 IS UNAUDITED)
Losses at May 31, 1997, from discontinued operations are as follows:
<TABLE>
<CAPTION>
Construction
Corporation Cincinnati Total
------------ ---------- ---------
<S> <C> <C> <C>
Loss from operations $442,326 $ 30,145 $472,471
Interest expense 6,233 21,677 27,900
Accrued losses - 70,078 70,078
Lease termination - 46,854 46,854
-------- -------- --------
Total loss from discontinued
operation before taxes $448,559 $168,754 $617,303
======== ======== ========
</TABLE>
32
<PAGE>
Whitney American Corporation
Gentlemen:
We hereby consent to use in the Form 8-K/A, No. 1, relating to
the merger of Kemron Environmental Services, Inc., Coastline International,
Inc., New Horizons, Inc., and Exeter Group, Inc., with and into Whitney
American Corporation of our report dated July 17, 1997, related to the
financial statements of Kemron Environmental Services, Inc. as of May 31,
1997 and for the year then ended, which is contained therein.
/s/ Haymaker Berry Group
-------------------------
Haymaker Berry Group
Washington, DC
May 22, 1998
33
