<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 AUGUST 31, 1998 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)
<TABLE>
<S> <C>
DELAWARE 84-1070022
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(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 August 31, 1998, a total of 4,241,020 shares of common stock were
outstanding.
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net of allowance 3,697,738 3,336,701
Prepaid expenses and other assets 94,250 50,627
--------------- ---------------
Total Current Assets 3,792,988 3,388,328
PROPERTY AND EQUIPMENT, cost
Leasehold improvements 170,026 158,052
Equipment 2,260,580 2,326,841
Automobiles 186,055 188,546
Furniture and fixtures 36,600 42,232
--------------- ---------------
2,653,261 2,715,671
Accumulated depreciation (1,782,119) (1,930,126)
--------------- ---------------
Net Property and Equipment 871,142 785,545
OTHER ASSETS
Intangibles, net of amortization 19,015 20,133
Deposits 51,124 62,804
Note receivable 34,593 34,593
--------------- ---------------
Total Other Assets 104,732 117,530
--------------- ---------------
Total Assets $ 4,768,862 $ 4,291,403
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,391,599 $ 968,926
Accrued payroll and related liabilities 281,879 361,705
Line of credit 1,425,000 1,490,000
Accounts payable - related party 147,522 147,174
Note payable 34,450 59,568
Notes payable - related party 21,892 45,992
Notes payable - equipment 58,843 61,873
Capital lease liability 94,132 52,912
--------------- ---------------
Total Current Liabilities 3,455,317 3,188,150
LONG-TERM DEBT
Notes payable - equipment, net of current maturities 184,246 201,557
Capital lease liability, net of current maturities 181,063 85,890
--------------- ---------------
</TABLE>
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
---- ----
<S> <C> <C>
Total Long-term Liabilities 365,309 287,447
--------------- ---------------
Total Liabilities 3,820,626 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 (706,790) (839,220)
--------------- ---------------
Total Stockholders' Equity 948,236 815,806
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 4,768,862 $ 4,291,403
=============== ===============
</TABLE>
See notes to financial statements
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Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATION OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1998 1997
---- ----
<S> <C> <C>
REVENUE FROM SERVICES $ 3,334,898 $ 3,005,283
COST OF SERVICES 2,575,837 2,319,677
----------------- -----------------
GROSS PROFIT 759,061 685,606
----------------- -----------------
OPERATING EXPENSES
Overhead 321,197 272,086
General and administrative 248,916 230,661
----------------- -----------------
Total Operating Expenses 570,113 502,747
----------------- -----------------
INCOME FROM OPERATIONS 188,948 182,859
OTHER INCOME
Interest - -
Other - -
OTHER EXPENSES
Interest (56,516) (69,493)
----------------- -----------------
INCOME BEFORE INCOME TAXES 132,432 113,366
INCOME TAXES - -
----------------- -----------------
NET INCOME $ 132,432 $ 113,366
================= =================
Basic net income per common share $ 0.03 $ 0.03
================= =================
Weighted average common share outstanding 4,226,515 3,500,000
================= =================
Diluted net income per common share $ 0.03 $ 0.03
================= =================
Weighted average common share outstanding 4,623,705 3,500,000
================= =================
</TABLE>
See notes to financial statements.
<PAGE>
WHITNEY AMERICAN CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
CASH FLOWS FROM OPERATIONS: 1998 1997
---- ----
<S> <C> <C>
Net Income (Loss) $ 132,432 $ 86,991
Adjustments to reconcile net income to net cash:
Depreciation and amortization 120,449 84,667
Loss on sale of assets 5,188
Allowance for doubtful accounts receivable
Changes in operating assets and liabilities:
accounts receivable (361,037) (456,158)
accounts receivable - taxes - -
accounts receivable - related party - -
prepaid expenses (43,623) (48,178)
deposits 11,680 -
accounts payable and accrued expenses 422,673 (22,413)
accrued payroll and related liabilities (79,826) 249,695
accounts payable - related party 348 30,579
deferred rent - -
---------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 203,096 (69,629)
================ ===============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (204,930) (84,309)
Proceeds received from sale of fixed assets - -
Proceeds received from discontinued operations - 12,057
Notes receivable funded (25,000) -
Investment in related entity - -
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (229,930) (72,252)
================ ===============
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment) proceeds on line of credit (65,000) 180,000
Payment of note payable (25,118) -
Payment of notes payable - equipment (20,342) (16,600)
Proceeds of note payable -
Proceeds from equipment under capital lease 153,411
Payments on related party advances (24,100) (11,450)
Principal payments under capital lease obligations (17,017) (10,069)
Proceeds from issuance of common stock 25,000
Equity adjustment due to stock agreement -
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,834 141,881
================ ===============
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 $ 56,520 $ 64,309
================ ===============
</TABLE>
See notes to financial statements.
<PAGE>
WHITNEY AMERICAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1998
(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 quarter ended August 31, 1998
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 three months ended
August 31, 1998 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") 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 August 31, 1998, the Company's working capital balance increased from
$200,178 at May 31, 1998 to $337,671. This increase was the result of the
profits generated during three month period. The current liabilities increased
by $267,167 but was more than offset by the increase in accounts receivable by
$361,037. The increase in accounts receivable is primarily due to increased
revenues during the first quarter.
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 during this quarter. 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 August 31, 1998. 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 quarter were $3,334,898, 11% higher than last year's
first quarter revenues of $3,005,283. The increase was the result of increased
services performed for the core clients of the
<PAGE>
consulting operation, State of Georgia and Union Carbide Corporation. The
Company has been awarded additional work through expanded scope of services as
well as additional project sites.
Gross profit was 22.8% of revenues for both quarters ending August 31, 1998 and
1997. The Company considers gross margin of 22.8% to be within the range for
normal operations. Consistent trends in the income from operations was
experienced with 5.7% for August 31, 1998 as compared to 6.1% in last year's
first quarter. The minor percentage decrease was attributed to startup costs
incurred for a new emerging technologies business unit launched during the first
quarter.
SG&A expense was $248,916, up 7.9% from last year's first quarter. This increase
was primarily the result of reinstating full salary levels for executive
management. Salary reductions were mandated for executive management during the
prior year in an effort to realign the company's operation to profitable status.
Interest expense decreased by 18.7%, down to $56,516 in the quarter ending
August 31, 1998. The company has strengthened 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 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended August 31, 1998, the Company's line of credit
decreased by $65,000 to $1,425,000.
Cash flows provided by operating activities totaled $203,096 for the three
months. Cash inflows included the net income for the first quarter of $132,432
and an increase in trade payables by $422,673 related to the timing of payments
to subcontractors and vendors. The cash inflows were partially offset by cash
outflows of $361,037 increase in accounts receivables related to significant
amount of billing occurring towards the end of the first quarter. Receivable
collections for these billings will be likely to occur in the next quarter.
Cash used in investing activities totaled $229,930 for the three 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. $204,930 of equipment purchases were incurred during the
first quarter.
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 August 31, 1998.
Filing of Form 8-K/A No. 2 on June 23, 1998 for Change in Certifying
Accountants.
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> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 3,896,616
<ALLOWANCES> 198,422
<INVENTORY> 0
<CURRENT-ASSETS> 3,792,988
<PP&E> 2,653,261
<DEPRECIATION> 1,782,119
<TOTAL-ASSETS> 4,768,862
<CURRENT-LIABILITIES> 3,455,317
<BONDS> 365,309
0
0
<COMMON> 42
<OTHER-SE> 948,194
<TOTAL-LIABILITY-AND-EQUITY> 4,768,862
<SALES> 3,334,898
<TOTAL-REVENUES> 3,334,898
<CGS> 2,575,837
<TOTAL-COSTS> 2,575,837
<OTHER-EXPENSES> 570,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,516
<INCOME-PRETAX> 132,432
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,432
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
