<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER 0-22907
WHITNEY AMERICAN CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 84-1070022
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices) (Zip Code)
(703) 893-0582
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements for the past
90 days.
Yes No X
---------- -----------
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, was not
determinable.
At February 28, 1999, a total of 4,241,020 shares of common stock were
outstanding.
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net of allowance 3,649,952 3,336,701
Prepaid expenses and other assets 102,235 50,627
------------- -------------
Total Current Assets 3,753,187 3,388,328
PROPERTY AND EQUIPMENT, cost
Leasehold improvements 216,070 158,052
Equipment 2,250,122 2,326,841
Automobiles 253,631 188,546
Furniture and fixtures 36,600 42,232
------------- -------------
2,756,423 2,715,671
Accumulated depreciation (1,893,650) (1,930,126)
------------- -------------
Net Property and Equipment 862,773 785,545
OTHER ASSETS
Intangibles, net of amortization 18,237 20,133
Deferred tax asset - -
Deposits 62,614 62,804
Note receivable 24,924 34,593
------------- -------------
Total Other Assets 105,775 117,530
------------- -------------
Total Assets $ 4,721,735 $ 4,291,403
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,218,707 $ 968,926
Accrued payroll and related liabilities 316,998 361,705
Line of credit 1,000,000 1,490,000
Accounts payable - related party 109,318 147,174
Note payable - 59,568
Notes payable - related party - 45,992
Notes payable - equipment 52,296 61,873
Capital lease liability 116,963 52,912
------------- -------------
Total Current Liabilities 2,814,282 3,188,150
LONG-TERM DEBT
Notes payable - related party, net of current maturities - -
Notes payable - equipment, net of current maturities 159,913 201,557
</TABLE>
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
---- ----
<S> <C> <C>
Capital lease liability, net of current maturities 219,816 85,890
------------- -------------
Total Long-term Liabilities 379,729 287,447
------------- -------------
Total Liabilities 3,194,011 3,475,597
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value, 5,000,000 shares
authorized, none issued - -
Common Stock, net of subscriptions receivable, at November
30, 1998, $.00001 par value, 50,000,000 shares
authorized, 4,241,020 shares issued and outstanding 42 42
Additional paid-in capital 1,654,984 1,654,984
Accumulated deficit (127,302) (839,220)
------------- -------------
Total Stockholders' Equity 1,527,724 815,806
------------- -------------
Total Liabilities and Stockholders' Equity $ 4,721,735 $ 4,291,403
============= =============
</TABLE>
See notes to financial statements
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY
(Unaudited)
Nine Months Ended
February 28,
1999 1998
---- ----
REVENUE FROM SERVICES $ 9,874,870 $ 7,890,514
COST OF SERVICES 7,207,123 5,987,926
------------ ------------
GROSS PROFIT 2,667,747 1,902,588
------------ ------------
OPERATING EXPENSES
Overhead 1,070,430 855,544
General and administrative 747,062 672,279
------------ ------------
Total Operating Expenses 1,817,492 1,527,823
------------ ------------
INCOME FROM OPERATIONS 850,255 374,765
OTHER INCOME
Interest - -
Other 9,549 (3,231)
OTHER EXPENSES
Interest (147,850) (176,594)
------------ ------------
INCOME BEFORE INCOME TAXES 711,954 194,940
INCOME TAXES - -
------------ ------------
NET INCOME $ 711,954 $ 194,940
============ ============
Basic net income per common share $ 0.17 $ 0.06
============ ============
Weighted average common share outstanding 4,294,536 3,500,000
============ ============
Diluted net income per common share $ 0.15 $ 0.06
============ ============
Weighted average common share outstanding 4,742,536 3,500,000
============ ============
See notes to financial statements
<PAGE>
WHITNEY AMERICAN CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
CASH FLOWS FROM OPERATIONS: 1999 1998
---- ----
<S> <C> <C>
Net Income $ 711,954 $ 194,940
Adjustments to reconcile net income to net cash:
Depreciation and amortization 359,487 281,617
Gain on sale of assets (7,372) -
Changes in operating assets and liabilities:
accounts receivable (313,251) 230,470
prepaid expenses (51,608) 25,464
deposits 190 218
accounts payable and accrued expenses 249,781 (453,357)
accrued payroll and related liabilities (44,707) (137,231)
accounts payable - related party (37,856) 39,305
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 866,618 181,426
=========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (444,447) (223,667)
Proceeds received from sale of fixed assets 17,000 -
Proceeds received from note receivable 9,669 13,082
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (417,778) (210,585)
=========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment) proceeds on line of credit (490,000) 64,000
Payment of note payable (60,211) (15,962)
Payment of notes payable - equipment (51,222) (67,216)
Proceeds of note payable 24,800 100,000
Proceeds of note payable - equipment 55,000 -
Proceeds from equipment under capital lease 183,398 -
Payments on related party advances (45,992) (74,881)
Principal payments under capital lease obligations (64,613) (14,756)
Proceeds from issuance of common stock - 37,974
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (448,840) 29,159
=========== ===========
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 $ 106,270 $ 121,335
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
WHITNEY AMERICAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Basis of Presentation and Consolidation
---------------------------------------
The accompanying unaudited condensed consolidated financial statements of
Whitney American Corporation (the "Company") and its wholly owned
subsidiary, Kemron Environmental Services, Inc. ("Kemron") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q. In
the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. The company acquired
Kemron during fiscal year 1998 (see NOTE 2) and began presenting results on
a consolidated basis. All significant intercompany balances and
transactions have been eliminated in consolidation. Operating results for
the nine months ended February 28, 1999 are not necessarily indicative of
the results that may be expected for the fiscal year ending May 31, 1999 or
for any other future period. Additional information is contained in the
Annual Report on Form 10-KSB for the year ended May 31, 1998, which should
be read in conjunction with this quarterly report.
Use of 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.
Federal Income Taxes
--------------------
No federal income tax has been provided for the nine months ended February
28, 1999 due to the existence of unused net operating loss carryforwards.
Reclassification
----------------
Certain prior year balances have been reclassified to conform with the 1998
presentation.
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.
Revenue Recognition
-------------------
The Company recognizes revenue generally at the time services are
performed. On fixed price contracts, revenue is recognized on the basis of
the estimated percentage of completion of services rendered. On cost
reimbursement contracts, revenue is recognized as costs are incurred and
includes applicable fees earned essentially in the proportion that costs
incurred bear to total estimated final costs. Materials and subcontract
costs reimbursed by client are included in gross revenue. Anticipated
losses are recognized in the period in which the losses are reasonably
<PAGE>
determinable. Substantially all unbilled receivables are expected to be
collected within the next 12 months and retention balances to be
collected at the close of the respective project.
A portion of contracts with the United States Government and State
Agencies, are subject to audit and adjustment. Revenue has been recorded
in amounts expected to be realized on final settlement. Included in
accounts receivable are revenues from claims where recovery is probable
in the opinion of management.
NOTE 2 - MERGER
On March 10, 1998, Kemron Environmental Services, Inc. ("Kemron") merged
with and into Whitney American Corporation (the "Company"). Pursuant to
the merger agreement, each outstanding share of Kemron common stock was
converted into shares of the outstanding common stock of the Company.
Upon consummation of the Merger, the stockholders of Kemron became the
owners in the aggregate of approximately 86% of the outstanding common
stock of the Company; and the directors and officers of Kemron became
directors and officers of the Company. Prior to the Merger, the Company
had no operating activities.
The Merger was structured as a tax-free reorganization and was accounted
for using the pooling-of-interests method. The Company has reflected in
its consolidated financial statements the assets, liabilities and equity
of Kemron at its historical book value. Accordingly, the consolidated
results of operations and financial position of the Company for periods
and dates prior to the Merger are the combined historical results of
operations and financial position of Kemron for such periods and dates.
All historical shares of common stock and per share amounts for periods
prior to the Merger have been retroactively adjusted to reflect the
Company shares issued to the Kemron shareholders at the time of the
Merger.
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
As of February 28, 1999, the Company's working capital balance increased from
$200,178 at May 31, 1998 to $938,905. This increase was the result of profits
generated during the nine month period. The current liabilities decreased by
$373,868 and was mostly offset by the increase in accounts receivable by
$313,251. The increase in accounts receivable is primarily due to increased
revenues and billing activity during the first three quarters.
The Company maintains a line of credit of $1.8 million with a bank, secured by
the Company's accounts receivable. The line of credit has provided a
significant source of the Company's cash requirements. The actual balance on
the line of credit will fluctuate during the period based on financing
activities. There are no significant working capital requirements pending at
February 28, 1999. The Company's available line of credit is expected to be
sufficient to meet the Company's needs for the foreseeable future.
RESULTS OF OPERATIONS
Revenues for the first three quarters were $9,874,870, 25.1% higher than last
year's first three quarter revenues of $7,890,514. The increase was the result
of increased services performed for the core clients of the consulting
operation, the State of Georgia and Union Carbide Corporation. In addition,
the Company
<PAGE>
has been awarded a contract with Landrum & Brown for performing a Phase I Audit
at Cleveland Hopkins Airport, $488,000 of the work has been completed through
February 28, 1999. Furthermore, federal sector work with the Company's
analytical service clients has increased, particularly AFCEE work with Brooks
AFB and work with Los Alamos National Laboratory which combine for $358,000 of
additional analytical services revenue for the nine months of this year versus
prior year.
Gross profit was 27.0% and 24.1% of revenues for the nine months ending February
28, 1999 and 1998, respectively. The Company considers gross margin of 27.0% to
be within the range for normal operations. Net income improved significantly
for the nine months ended February 28, 1999 with a 7.2% profit as compared to
2.5% for last year. The improvements of both gross profit and net income are
attributed to the increased contract backlog of the consulting operation. These
operations experienced both growth in staff resources and increased labor
utilitization. A large portion of the consulting operation performs services
under time and material contracts which can create changes in profit margins
based on the Company's ability to maintain the necessary contract backlog to
keep labor utilization at the optimal level.
SG&A expense was $747,062, up 11.1% from last year's first nine months. The
increase is attributed to the additional administrative support and marketing
efforts that accompanied the company growth during the first nine months of this
year.
Interest expense was $147,850 for the nine months ended February 28, 1999, a
decrease of 16.3% as compared to last year. The company continues to
strengthen its financial position, thereby reducing the borrowings from the
lender's line of credit.
YEAR 2000
The company is in process of upgrading its computer applications to ensure
functionality with respect to the Year 2000. The Year 2000 issue affects most
corporations and concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date-sensitive
information relating to the Year 2000 and beyond. The Company believes it is
pursuing appropriate courses of action to identify and address Year 2000
readiness.
The principal operating functions that are dependent on information systems have
been identified, primarily the accounting system and operating systems that
support the laboratory instruments. Most of the related information systems
have already been converted and tested for Year 2000 compliance. Any remaining
Year 2000 initiatives are scheduled to be complete by mid-year 1999.
The Company is giving consideration to the status of compliance by third party
suppliers. Failure by third party suppliers to become Year 2000 compliant could
impact the Company's ability to obtain products or services as scheduled, which
could potentially result in delays in meeting clients orders. The Company has
undertaken initiatives to review the Year 2000 readiness of clients which are
material to the Company's business. Failure by material customers to become
Year 2000 compliant could result in the company's inability to obtain or perform
work on a timely basis for such customers, leading to delays in receipt of
revenue.
A formal contingency plan will not be formulated unless the Company identifies
specific areas where there is substantial risk of Year 2000 problems occurring,
and no such areas have been identified as of this date.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information relating to the
Company that are based on the beliefs of its management as well as assumptions
made by and information currently available to its management. When used in
this report, the words "anticipate", "believe", "estimate", "expect", "intend",
plan and similar expressions, as they relate to the Company or its management,
are intended to identify forward-looking statements. These statements reflect
management's current view of the Company with
<PAGE>
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results my vary materially from
those described in this report as anticipated, estimated or expected. The
Company's realization of its business aims will depend in the near future
principally on the successful completion of its acquisition of operations as
discussed below.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended February 28, 1999, the Company's line of credit
decreased by $490,000 to $1,000,000.
Cash flows provided by operating activities totaled $866,618 for the nine
months. Cash inflows consist primarily of net income for the nine months of
$711,954. Additional cash inflows stem from an increase in trade payables by
$249,781. The change in trade payables was mostly offset by cash outflows in
accounts receivable which increased $313,251. The increases in both trade
payable and accounts receivable is primarily the result of increased
subcontractor and vendor support charged to projects for which receivable
collections has yet to occur.
Cash used in investing activities totaled $417,778 for the first nine months.
The significant cash outflow relates to the continued commitment of the Company
to provide the laboratory with instrumentation and equipment that is on the
leading edge of technology. $444,447 of equipment purchases were incurred during
the first nine months.
PART II - OTHER INFORMATION
Item 6 - Exhibits and 8-K Filings
(a) The Company filed the following Current Reports on Form 8-K during the
three months ended February 28, 1999.
Filing of Form 8-K on January 5, 1999 for the resignation of
Heatherlynn Colburn from the Board of Directors.
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.
WHITNEY AMERICAN CORPORATION
By /s/ JUAN J. GUTIERREZ
----------------------
JUAN J. GUTIERREZ
PRESIDENT AND CEO
DATED: SEPTEMBER 9, 1999
<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.
WHITNEY AMERICAN CORPORATION
By /s/ JUAN J. GUTIERREZ
----------------------
JUAN J. GUTIERREZ
PRESIDENT AND CEO
DATED: SEPTEMBER 10, 1999
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Juan J. Gutierrez Chief Executive Officer, President September 10, 1999
- ------------------------ and Chairman of the Board
Juan J. Gutierrez
/s/ John M. Dwyer Executive Vice President September 10, 1999
- ------------------------ and Director
John M. Dwyer
/s/ Dave Vandenberg Executive Vice President September 10, 1999
- ------------------------ and Director
Dave Vandenberg
/s/ John S. Heishman Secretary, Treasurer September 10, 1999
- ------------------------ and Director
John S. Heishman
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1.000
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 4,068,568
<ALLOWANCES> 206,651
<INVENTORY> 0
<CURRENT-ASSETS> 3,753,187
<PP&E> 2,756,423
<DEPRECIATION> 1,893,650
<TOTAL-ASSETS> 4,721,735
<CURRENT-LIABILITIES> 2,814,282
<BONDS> 379,729
0
0
<COMMON> 42
<OTHER-SE> 1,527,682
<TOTAL-LIABILITY-AND-EQUITY> 4,721,735
<SALES> 9,874,870
<TOTAL-REVENUES> 9,874,870
<CGS> 7,207,123
<TOTAL-COSTS> 7,207,123
<OTHER-EXPENSES> 1,817,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,850
<INCOME-PRETAX> 711,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 711,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711,954
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.15
</TABLE>
