<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 29, 2000
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 54-1956957
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8150 Leesburg Pike, Suite 1200, 22182
Vienna, Virginia (Zip Code)
(Address of Principal Executive Offices)
(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 X No ___________
-----------
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 29, 2000, a total of 4,217,020 shares of common stock were
outstanding.
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net of allowance 4,076,942 3,775,797
Prepaid expenses and other assets 156,928 94,989
------------ -----------
Total Current Assets 4,234,870 3,871,786
PROPERTY AND EQUIPMENT, cost
Leasehold improvements 259,848 244,566
Equipment 2,761,243 2,412,945
Automobiles 368,770 251,930
Furniture and fixtures 46,739 36,186
------------ -----------
3,436,600 2,945,627
Accumulated depreciation (2,286,760) (1,944,316)
------------ -----------
Net Property and Equipment 1,149,840 1,001,311
OTHER ASSETS
Intangibles, net of amortization 16,265 17,744
Deposits 65,261 58,409
Note receivable - -
------------ -----------
Total Other Assets 81,526 76,153
------------ -----------
Total Assets $ 5,466,236 $ 4,949,250
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,167,310 $ 1,572,344
Accrued payroll and related liabilities 240,999 412,216
Line of credit 1,124,703 350,000
Accounts payable - related party 105,745 105,745
Note payable 4,121 3,829
Notes payable - equipment 99,354 205,930
Capital lease liability 201,878 142,127
------------ -----------
Total Current Liabilities 2,944,110 2,792,191
LONG-TERM DEBT
Notes payable, net of current maturities 15,939 19,343
Notes payable - equipment, net of current maturities 99,079 44,146
Capital lease liability, net of current maturities 277,079 274,420
------------ -----------
</TABLE>
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
---- ----
<S> <C> <C>
Total Long-term Liabilities 392,097 337,909
----------- -----------
Total Liabilities 3,336,207 3,130,100
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value, 5,000,000 shares
authorized, none issued - -
Common Stock, net of subscriptions receivable, at February 29,
2000, $.00001 par value, 50,000,000 shares authorized,
4,217,020 shares issued and outstanding 42 42
Additional paid-in capital 1,658,684 1,658,684
Accumulated earnings 471,303 160,424
----------- -----------
Total Stockholders' Equity 2,130,029 1,819,150
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,466,236 $ 4,949,250
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATION OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 29, February 28,
2000 1999
---- ----
<S> <C> <C>
REVENUE FROM SERVICES $ 9,199,069 $ 9,874,870
COST OF SERVICES 6,745,708 7,207,123
---------------- ----------------
GROSS PROFIT 2,453,361 2,667,747
---------------- ----------------
OPERATING EXPENSES
Overhead 1,144,657 1,070,430
General and administrative 918,726 747,062
---------------- ----------------
Total Operating Expenses 2,063,383 1,817,492
---------------- ----------------
INCOME FROM OPERATIONS 389,978 850,255
OTHER INCOME
Interest - -
Other 31,612 9,549
OTHER EXPENSES
Interest (110,924) (147,850)
---------------- ----------------
INCOME BEFORE INCOME TAXES 310,666 711,954
INCOME TAXES - -
---------------- ----------------
NET INCOME $ 310,666 $ 711,954
================ ================
Basic net income per common share $ 0.07 $ 0.17
================ ================
Weighted average common share outstanding 4,217,020 4,294,536
================ ================
Diluted net income per common share $ 0.07 $ 0.15
================ ================
Weighted average common share outstanding 4,665,020 4,742,536
================ ================
</TABLE>
See notes to financial statements.
<PAGE>
WHITNEY AMERICAN CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
February 29, February 28,
CASH FLOWS FROM OPERATIONS: 2000 1999
---- ----
<S> <C> <C>
Net Income $ 310,666 $ 711,954
Adjustments to reconcile net income to net cash:
Depreciation and amortization 380,425 359,487
Gain on sale of assets (31,554) (7,372)
Changes in operating assets and liabilities:
accounts receivable (301,145) (313,251)
prepaid expenses (61,939) (51,608)
deposits (6,852) 190
accounts payable and accrued expenses (405,034) 249,781
accrued payroll and related liabilities (171,217) (44,707)
accounts payable - related party - (37,856)
--------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (286,650) 866,618
=============== =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (529,332) (444,447)
Proceeds received from sale of fixed assets 33,617 17,000
Proceeds received from note receivable - 9,669
--------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (495,715) (417,778)
=============== =============
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment) proceeds on line of credit 774,703 (490,000)
Payment of note payable (3,107) (60,211)
Payment of notes payable - equipment (70,954) (51,222)
Proceeds of note payable - 24,800
Proceeds of note payable - equipment 19,314 55,000
Proceeds from equipment under capital lease 196,266 183,398
Payments on related party advances - (45,992)
Principal payments under capital lease obligations (133,857) (64,613)
--------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 782,365 (448,840)
=============== =============
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 $ 110,922 $ 106,270
=============== =============
</TABLE>
See notes to financial statements.
<PAGE>
WHITNEY AMERICAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000
(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 29, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending May 31, 2000 or
for any other future period. Additional information is contained in the
Annual Report on Form 10-KSB for the year ended May 31, 1999, 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
--------------------
Federal income tax has been provided for the nine months ended February 29,
2000 based on estimates that include the existence of unused net operating
loss carryforwards along with taxable income in excess of the available net
operating loss carryforwards.
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
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.
<PAGE>
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 AND SUBSEQUENT UNWINDING AGREEMENT
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-interest method.
On November 29, 1999, the Company entered into an unwinding and stock
exchange agreement with Kemron that calls for the desire of the
shareholders to surrender the Company shares acquired in the March 10, 1998
merger agreement. These shares will then be cancelled in exchange for the
returned shares of Kemron stock to the rescinding shareholders.
Ultimately, the Company and Kemron will substantively return to the
ownership position that existed prior to the original merger agreement. The
approval for the unwinding and stock exchange agreement was scheduled for
vote at a special stockholder meeting on January 20, 2000 in order to
finalize the agreement. The stockholder vote was postponed indefinitely
until an acceptable resolution could be reached on the tax implications
identified to the former shareholders of Kemron. Subsequent to the
November 29, 1999 unwinding agreement, it was determined through tax
research that the treatment of this stock exchange would differ from the
original structure of the March 10, 1998 agreement which was a tax-free
exchange. A significant tax liability is believed to occur upon
consummation of the unwinding agreement such that the substance of the
agreement would be materially altered. The agreement continues to be
evaluated and it is uncertain as to the probability of achieving a mutually
acceptable agreeement.
NOTE 3 - SEGMENT INFORMATION
The Company's reportable segments are strategic business units that offer
different services. The Company has two reportable segments: analytical and
consulting services. Analytical services include lab testing services for
varying analytical programs such as NPDES, RCRA, CERCLA and OSHA. Consulting
services provide investigations and assessment services at non-regulated
contaminated sites and at sites covered by RCRA and CERCLA regulations, which
investigations may include preliminary assessments, site investigations,
groundwater assessments, remedial investigations, feasibility studies, and
remedial action plans. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (note 1).
Sales, operating income and identifiable assets by reportable segment for the
nine months ended February 29, 2000 and February 28, 1999 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
------------------- ------------------
<S> <C> <C>
Sales to unaffiliated customers:
Analytical services $ 5,255 $ 4,973
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Consulting services 3,944 4,902
------------------- ------------------
Total $ 9,199 $ 9,875
=================== ==================
Operating income:
Analytical services $ 229 $ 426
Consulting services 82 286
------------------- ------------------
Total $ 311 $ 712
=================== ==================
Identifiable Assets:
Analytical services $ 2,330 $ 2,074
Consulting services 1,443 1,788
------------------- ------------------
Total $ 3,773 $ 3,862
=================== ==================
</TABLE>
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
As of February 29, 2000, the Company's working capital balance increased from
$1,079,595 at May 31, 1999 to $1,290,760. This increase was the result of
profits generated during the nine month period. The current liabilities
increased by $151,919 while the accounts receivables increased by $301,145. The
increase in accounts receivable is primarily due to increased revenues and
billing activity during the first nine months ended March 29, 2000.
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 29, 2000. 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 nine months ended February 29, 2000 were $9,199,069, which
represents a decrease of 6.2% from the last year's nine month revenues of
$9,874,870. The revenue decrease is the result of project delays experienced
with the commencement of work at several client sites. Some of these projects
are considered significant remediation sites. The revenue decreases were only
experienced with the consulting operations, the laboratory operation continues
to produce positive sales growth with 5.7% increase for the nine months ended
February 29, 2000 as compared to the same period in prior year.
The laboratory received significant project awards during the first nine months
of the current year, one existing client accounted for $410,000 of increased
sales for the laboratory. There has been some volatility of sales with other
existing clients for the first nine months of the current year as acquisitions
and reorganizations of the Company's client base have made sales and marketing
efforts more difficult. However, the Company has remained well positioned to
continue supporting these clients with the same, if not increased, level of
laboratory services.
<PAGE>
The consulting services reported a significant decline in revenues for the first
nine months of fiscal year 2000, a $958,000 decrease when compared to the same
period ended February 28, 1999. The decrease can be attributed to two specific
projects that were significantly completed in the fiscal year ended May 31,
1999; a project for work at Cleveland Hopkins Airport and a state funded
substance removal contract. The work at Cleveland Hopkins Airport has dropped
off since fiscal year 1999. The contract for substance removal work ended prior
to the first quarter of the current fiscal year. Both of these projects required
extensive subcontractor support and, although they accounted for a combined
$644,000 decrease of revenues for the nine months ended February 29, 2000 versus
a year earlier, a large portion of these revenues were purchased services from
outside subcontractors. As a result, the consulting services operation
experienced minimal profit deterioration from this lost contract revenue.
Gross profit was 26.7% and 27.0% of revenues for the nine months ending February
29, 2000 and February 28, 1999, respectively. The Company considers gross margin
of 26.7% to be within the range for normal operations. Net income decreased for
the nine months ended February 29, 2000 with a 3.4% profit as compared to 7.2%
for the same period in the prior year. The improvement of gross profit is
attributed to the increased sales volume generated by the laboratory operation.
The laboratory experiences significant increases in profit margins as a result
of increased sales. The decline in net income is the result of both client
delays with commencing several remediation projects as well as additional labor
activities of the Company in proposal efforts.
SG&A expense was $918,726 for the nine months ended February 29, 2000, up 22.9%
from the first nine months of 1999. The increase is attributed to the additional
marketing efforts as well as the recognition of the profit sharing plan that was
implemented during fiscal year 1999.
Interest expense was $110,924 for the nine months ended February 29, 2000, a
decrease of 25.0% as compared to the same period for prior year. The company
continues to strengthen its financial position, thereby reducing the borrowings
from the lender's line of credit. Although the line of credit had dropped
considerably at the end of fiscal year 1999, the decline in borrowing occurred
almost entirely in the final quarter of fiscal year 1999. The average
outstanding balance of the line over the nine month period ending February 28,
1999 was approximately $300,000 higher than the same period ending February 29,
2000. This resulted in interest savings for the current fiscal year.
YEAR 2000
The company experienced a near flawless Year 2000 transition with the various
computer applications and hardware. The necessary courses of action were put
forth over the past 18 months under the company's Year 2000 readiness program.
As of the filing date, there were no other compliance issues identified with the
company's third party suppliers.
The most substantial risk areas have been assessed with the entry to Year 2000
and there is no indication that there has been any impairment to the company's
operation that resulted from computer applications inability to process date-
sensitive information. Any undetected errors that may still exist are not
believed to be a significant risk to the company's operation.
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
<PAGE>
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 29, 2000, the Company's line of credit
increased by $774,703 to $1,124,703. This was the result of increased payment
activity with vendors and suppliers as illustrated by the $405,034 reduction in
trade payables for the nine months of the current year. In addition, the
purchases of capital equipment for the same period has required additional
borrowings from the line of credit.
Cash flows used in operating activities totaled $286,650 for the nine months
ended February 29, 2000. Cash outflows consist primarily of reductions in
accounts payable and accrued expenses for the nine months as described above.
Cash used in investing activities totaled $495,715 for the current year's 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. $529,332 of equipment purchases was incurred
during the first nine months ended February 29, 2000.
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 nine
months ended February 29, 2000.
Filing of Form 8-K on December 10, 1999 for the unwinding and stock
exchange agreement between the Company, Kemron Environmental Services, Inc.
and Kemron stockholders.
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: APRIL 14, 2000
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 April 14, 2000
----------------------
Juan J. Gutierrez and Chairman of the Board
/s/ John M. Dwyer Vice President April 14, 2000
----------------------
John M. Dwyer and Director
/s/ Dave Vandenberg Vice President April 14, 2000
----------------------
Dave Vandenberg and Director
/s/ John S. Heishman Secretary, Treasurer April 14, 2000
----------------------
John S. Heishman and Director
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<EXCHANGE-RATE> 1,000
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 4,296,897
<ALLOWANCES> 219,955
<INVENTORY> 0
<CURRENT-ASSETS> 4,234,870
<PP&E> 3,436,600
<DEPRECIATION> 2,286,760
<TOTAL-ASSETS> 5,466,236
<CURRENT-LIABILITIES> 2,944,110
<BONDS> 392,097
0
0
<COMMON> 42
<OTHER-SE> 2,129,987
<TOTAL-LIABILITY-AND-EQUITY> 5,333,213
<SALES> 9,199,069
<TOTAL-REVENUES> 9,199,069
<CGS> 6,745,708
<TOTAL-COSTS> 6,745,708
<OTHER-EXPENSES> 2,063,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,924
<INCOME-PRETAX> 310,666
<INCOME-TAX> 0
<INCOME-CONTINUING> 310,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,666
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
