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FORM 10-KSB
Annual report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended: May 31, 2000
WHITNEY AMERICAN CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
0-22907 54-1956957
(Commission File Number) (I.R.S. Employer Identification Number)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices)
(703) 893-0582
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.00001 PAR VALUE
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or15(d) of the Exchange Act during the past 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 __________
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
The registrant's revenue for its most recent fiscal year. $ 12,592,855
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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 May 31, 2000, a total of 4,217,020 shares of common stock were outstanding.
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PART I
Item 1. Description of Business.
DEVELOPMENT OF THE BUSINESS
Whitney American Corporation (the "Company"), is a holding company which,
through its wholly-owned operating subsidiary, Kemron Environmental Services,
Inc., provides environmental investigation and engineering services;
environmental assessments; consulting and site remediation services; and
environmental testing and analytical services.
The Company was incorporated on June 18, 1987, under the laws of the State of
Delaware. The Company's initial activities were directed towards the raising of
capital. Pursuant to an Agreement and Plan of Reorganization, Industrial Waste
Processing, Inc., a Nevada corporation ("IWP"), was merged with and into the
Company on October 20, 1988 and subsequently changed its name to Industrial
Waste Processing, Inc. On April 17, 1989, the Company's parental affiliate
Pacific Energy and Mining Company ("PEMC") reacquired all of the Company's
outstanding obligations. The Company had been inactive from April 1989 through
February 1998 with no significant assets. In February 1997, the Company filed
with the Delaware Secretary of State a Certificate of Amended and Restated
Certificate of Incorporation that, among other things, changed the Company's
name back to Whitney American Corporation.
In keeping with the Company's strategic business plan, the Company, on March 10,
1998, acquired Kemron Environmental Services, Inc.(Kemron). Kemron was
acquired through a tax-free stock exchange agreement. Kemron merged with and
into the Company, effectively changing the state of domicile of the Company as a
result of Kemron being the surviving corporation. Upon consummation of the Stock
Exchange Agreement, the stockholders of Kemron became the owners in the
aggregate of approximately 86% of the outstanding common stock of the Company.
Pursuant to the Stock Exchange Agreement, an additional 3,500,000 shares of
common stock, $.00001 par value, of the Company were issued in exchange for the
existing common stock of Kemron. The transaction was treated as a reverse
acquisition, recorded at historical cost under the purchase method. Therefore,
the results of operations and other historical information of Kemron presented
in this report are those of the Company.
Concurrent with the reverse acquisition with and into Whitney, the Company
entered into a Stock Exchange Agreement with three additional entities: Exeter
Group, Inc. ("Exeter"), Coastline International, Inc. ("Coastline"), and New
Horizons, Inc. ("New Horizons"). As a result of management differences and the
Company's lack of management control over these entities, the Company entered
into separate rescission agreements on October 19, 1998, April 26, 1998 and May
12, 1998, respectively, which collectively address the Company and Exeter,
Coastline and New Horizons agreements that involved the return of the respective
shares originally issued by the Company in connection with the failed mergers.
However, under terms of the settlement agreements, the Company was successful in
recovering all but 190,973 shares of common stock and stock options for 135,532
shares of common stock, originally issued in connection with the failed mergers.
BUSINESS OPERATIONS
The Company, through its wholly-owned subsidiary, provides a wide range of
environmental consulting and analytical services to the public and private
sectors.
Consulting and Engineering Services Group
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The Company, through its operating subsidiary, provides services under four
separate regional consulting offices located in Atlanta, Georgia; Marietta,
Ohio; Vienna, Virginia and Charleston, West Virginia. Environmental consulting
services are performed for a wide variety of governmental and private-sector
clients, predominantly in the areas of water pollution control, and
investigation and remediation of soils
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and ground waters that have been contaminated with hazardous or non-hazardous
contaminants. The consulting activities involve providing expert scientific,
engineering, and regulatory policy analyses to clients that are regulated
directly under various federal, state, and local environmental laws and
regulations. The remediation services involve providing design, fabrication,
installation and operations and maintenance of technologies to reduce the levels
of contamination in soils and ground waters.
Each regional office is responsible for the project management and ultimate
profitability of its operation. Contracts are competitively bid and are on a
fixed price, time and materials, and cost reimbursable basis. The length of
most contracts is less than one year; however, larger remediation and operation
and maintenance contracts may extend to two or three years for completion.
The consulting services group provides investigations and pre-acquisition audits
of environmentally contaminated waste sites such as disposal units,
manufacturing facilities, abandoned sites, and military bases covered under RCRA
and CERCLA regulations. The related activities performed for investigations
include sampling and analysis of sediment for contamination; test borings to
evaluate geological conditions; installation, development, and sampling of
groundwater monitoring wells. Site investigations and assessments ascertain
whether contamination exists and, if so, the consulting services will propose
the most cost effective solutions to mitigate this contamination.
The consulting services group has considerable experience in designing remedial
action plans that eliminate or reduce the release of hazardous contaminants into
the environment. Remedial alternatives are analyzed for effective solutions
while remaining cost effective. The consulting service's various alternatives
proven through successful site work include in-situ treatment, soil aeration and
bioremediation, groundwater air sparging, and soil vapor extraction. These
alternatives can provide cost-effective and environmentally-sound solutions to
contamination problems without the need to take more extensive efforts of
excavation, pumping, and off-site disposal.
One of the principal consulting services provided is underground storage tank
(UST) testing, removal, investigation and remediation. Contracts under which
the Company's operating subsidiary are currently performing include Fortune 100
companies and the State of Georgia under the state-funded Georgia UST Management
Program.
Other services provided through the Company's operating subsidiary include
asbestos services such as asbestos surveys, abatement design and abatement
monitoring programs. Additional services include; lead based paint assessments,
monitoring, and remediation; wetland delineation and mapping, permitting,
functional value assessment, and mitigation/restoration; and ecological
investigations concerning the effects of effluents and land-disturbing
activities on aquatic biota..
Analytical Services
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The Company operates a comprehensive environmental laboratory equipped with
fully-automated, state-of-the-art instrumentation. The laboratory, located in
Marietta, Ohio, performs services under unit based pricing which can be
contracted for individual job orders or master service agreements. The longer
duration projects are typically in support of an operation and maintenance phase
of contaminated sites that require monitoring of cleanup levels through all
stages of remediation.
Sample analysis conducted at the laboratory includes soil, water, biological
samples, sludge and waste. The Company's laboratory operation has experience
in most standard methods for sample testing as defined through EPA, NIOSH, ASTM,
and APHA. The services also extend to providing consultation and
recommendations in the design phase of any sampling project.
SUPPLIERS AND CUSTOMERS
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The operating subsidiary purchases equipment and supplies for the laboratory
operation and consulting services. The laboratory operation engages in the most
significant volume of purchase activity with vendors and suppliers. Supplies
for the laboratory include kits for water/soil sample shipment, glassware, gases
such as Argon and Nitrogen, solvents such as deionized water, and general office
supplies. Although the laboratory has maintained ongoing relations with various
suppliers, there are no dependencies with any individual vendors. Pricing is
reevaluated on a periodic basis and almost all supplies can be obtained through
other suppliers at competitive prices.
The consulting services has teaming agreements with various subcontractors based
on the type of project work, qualifications and location of subcontractor, and
competitiveness of pricing. The relationship with outside consulting companies
is based solely on the project work and as projects turnover, so will the
consulting service's subcontractor support. There are no contractual
arrangements with subcontractors for which the Company's operating subsidiary
has long-term commitments.
The customers of the laboratory and consulting services include both private
sector clients and government or publicly funded entities. In fiscal 2000, the
Company estimates that approximately 59% of its operating subsidiary's revenues
were derived from private sector clients and 41% from government contracts.
The primary clients that represent 60% of the Company's operating subsidiary's
sales include Union Carbide Corporation, Earth Tech, Landrum & Brown, State of
Georgia, Columbia Gas, Versar, IT Corporation, U.S. Air Force, and the U.S. Army
Corp of Engineers.
LICENSES
The Company, through its operating subsidiary, is licensed and/or certified in
all jurisdictions where required in order to conduct its operations. In
addition, certain management and staff members are licensed and/or certified by
various governmental agencies as professional engineers, professional
geologists, subsurface evaluators, hazardous materials manager, remedial site
manager, asbestos supervisors, and asbestos inspectors.
INSURANCE
The Company's operating subsidiary maintains liability insurance for claims
arising from job performance for both consulting and analytical services. The
policy, which provides a $1.0 million limit per claim and $2.0 million in the
aggregate, insures against both property damage and bodily injury arising from
contracting activities of the operating subsidiary. The policy is written on an
"occurrence" basis which provides coverage for insured risks that occur during
the policy period, irrespective of when a claim is made. Higher policy limits
of up to $7.0 million are available for individual projects. The operating
subsidiary also provides worker's compensation insurance, at statutory limits,
which covers the employees of the Company's operating subsidiary engaged in
laboratory and field service activities.
Certain contracts of the Company's operating subsidiary require performance and
payment bonds for which bonding programs are maintained to satisfy these
requirements.
COMPETITIVE CONDITIONS
The environmental industry is highly competitive and includes both small firms
and large diversified firms, which have the financial, technical and marketing
capabilities to compete on a national level. The industry is comprised of
dozens of large firms and several hundred small firms. The small firms tend to
be more regionalized and concentrated to certain geographical locations. Much
of the work awarded to the Company's operating subsidiary is the result of
competitive pricing, its reputation for quality, and work performance history.
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REGULATORY MATTERS
There are relatively few federal, state or local regulations that are directly
applicable to the Company's operating subsidiary. In general, the consulting
services group provides technical advice to clients who are directly affected by
federal, state and local regulations. These services do, however, include
conducting investigations and preparing reports according to federal and state
guidance documents that have been developed under numerous federal and state
regulatory programs. The analytical services group must conduct sample analyses
based on certain regulatory standards and methods as directed through client
specifications. It is, therefore, imperative that the Company's operating
subsidiary keep abreast of changes under regulatory programs as well as new
promulgations.
In the course of conducting investigations of hazardous waste sites, the
consulting services group must comply with various federal and state regulations
regarding the shipping of hazardous materials and the disposition of potentially
hazardous investigation-derived wastes. The shipping of hazardous materials
(generally soil and water samples from waste sites under investigation) is
governed by the Hazardous Materials Transportation Act of 1974 (HMTA), which
establishes rules for the packaging, marking, labeling, and acceptable condition
of hazardous materials offered for intrastate or interstate transportation, and
the Hazardous Materials Transportation Uniform Safety Act of 1990, which amended
HMTA with regard to, among other things, highway routing, shipping papers, and
training requirements. Disposition of investigation-derived wastes may be
regulated under either the Toxic Substances Control Act (TSCA) if the wastes
contain polychlorinated biphenyls (PCBs), or the Resource Conservation and
Recovery Act (RCRA) if the wastes contain other hazardous materials.
Site remediation involves the actual handling of contaminated materials, and so
the consulting services group's remediation activities are subject to numerous
federal, state and local environmental regulations. The regulations most often
applied to remediation sites are federal regulations promulgated under RCRA,
TSCA, the Clean Air Act (CAA), and the Clean Water Act (CWA), or the state-
designated counterparts to those federal regulations. In general, remediation
technologies must be permitted under one or more of these laws.
All site investigation and remediation activities are governed by Occupational
Safety and Health Administration (OSHA) requirements. These regulations set
forth requirements for engineering and administrative controls, work area
practices, proper supervision, training, medical surveillance, and
decontamination practices for worker and off-site protection.
The Company believes it is in compliance with all of the federal, state and
local statutes and regulations which affect its consulting and remediation
businesses.
EMPLOYEES
Through the acquisition of the operating subsidiary Kemron Environmental
Services, Inc., the Company now has 145 full-time employees, located at the
Vienna, Virginia; Marietta, Ohio; Atlanta, Georgia and Charleston, West Virginia
offices. This consists of senior management, professional staff, scientists,
chemists, field technicians, and staff employees within the consulting services
offices, the laboratory, and the headquarters facility. The staff employees
include accounting, administrative, sales and clerical personnel.
Exchange Act Registration
The company voluntarily filed with the Securities and Exchange Commission
("SEC") a registration statement on Form 8-A (file no. 0-22907) in order to
register the Company's common stock under Section
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12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), which
became effective on September 29, 1997. The Company had previously filed with
the SEC certain annual, quarterly and other reports on a voluntary basis, but
pursuant to that Exchange Act registration, the Company now is required to file
periodic reports and other information with the SEC as required by the Exchange
Act.
Item 2. Description of Property
As of May 31, 2000, the Company, through its operating subsidiary, leases five
facilities and does not own any real estate. The headquarters office is
combined with consulting office space in Vienna, VA (8500 square feet), a
portion of which is subleased to another tenant (3800 square feet). The
laboratory facility located in Marietta, OH represents the largest portion of
leased space (18,000 square feet) plus an expansion completed in May 2000
(additional 12,000 square feet). Other consulting offices are located in
Atlanta, GA (7500 square feet) and Marietta, OH (2000 square feet and separate
from laboratory facility). An expansion of the existing laboratory facility was
completed around the same time as the Company's May 2000 yearend. This
expansion has added approximately 12,500 square feet that will be shared by both
the laboratory and the consulting office in Marietta, OH. The Marietta
consulting group will be vacating the other lease space in June 2000 and
terminating its current lease.
Production equipment of the laboratory includes analytical instruments such as
gas chromatographs, high pressure liquid chromatographs, autosamplers, atomic
absorption spectrophotometers, and inductively coupled plasma instruments. A
significant level of investment in the laboratory has taken place to secure
current technology and enhance computerization in the analytical processes. The
more recent acquisitions of laboratory equipment have been transacted under
equipment lease arrangements.
The consulting offices are equipped with field vehicles, sampling devices, and
equipment for remediation processes such as air sparging and soil vapor
extraction.
Item 3. Legal Proceedings
The Company has two separate lawsuits pending that involve employment practices.
The outcome of both of these lawsuits has been finalized or is near settlement
as of the filing date of this report. The aggregate value of the two
settlements is expected to equal $35,000 plus the Company's legal fees
associated with the defense of these claims.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
Market Information
The Company's outstanding common shares were traded in extremely small volumes
during this reporting period. The more recent trades have ranged in value from
$.07 to $.09 per share. The Company's common stock is quoted "name only" in the
over-the-counter market under the symbol "WHAM" on the OTC Electronic Bulletin
Board operated by the National Association of Securities Dealers, Inc. Although
some trading activity has occurred over the past reporting year, there is no
assurance that an active market ever will arise in the Company's shares.
FISCAL 2000
HIGH LOW
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First Quarter 0.07 0.07
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Second Quarter 0.07 0.07
Third Quarter 0.07 0.07
Fourth Quarter 0.07 0.07
Holders
The Company's common stock is held of record by approximately 178 persons, which
does not include shares held in nominee or "street" name.
Dividends
The Company does not expect to pay cash dividends on its capital stock in the
foreseeable future. Payment of dividends in the future will depend on the
Company's earnings and its cash requirements at that time.
Item 6. Financial Statements.
The following table reflects selected consolidated financial data for the
Company for the two fiscal years ended May 31, 2000 and 1999.
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For the Years Ending May 31,
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OPERATING DATA 2000 1999
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(in thousands)
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Contract revenues $12,593 $13,515
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Gross margin 3,365 3,950
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Income from operations 403 1,170
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Other income (expense) (131) (170)
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Income before income taxes 272 1,000
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Net income 228 1,000
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COMMON SHARE DATA
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Net income per common share:
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Basic 0.05 0.24
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Diluted 0.05 0.21
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Weighted average common shares outstanding
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Basic 4,229 4,237
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Diluted 4,658 4,685
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BALANCE SHEET DATA
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Working capital $ 1,009 $ 1,050
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Total assets 5,422 4,949
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Long-term obligations 651 338
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Total stockholders' equity 2,047 1,819
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Item 7. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward Looking Statements
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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 may 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.
WHITNEY AMERICAN CORPORATION
Whitney American Corporation (WHAM) was incorporated on June 18, 1987 under the
laws of the State of Delaware with the intended purpose of raising capital to
acquire business concerns. Whitney American Corporation had not had any active
business operations since April 1989, other than occasionally searching for a
business to acquire, until the acquisition on March 10, 1998. In keeping with
the Company's strategic business plan, the Company, on March 10, 1998 acquired
Kemron Environmental Services, Inc. (Kemron). The company was acquired through
a tax-free stock exchange agreement. Kemron, as the only operating entity of
the Company, was considered the surviving company.
Financial Condition of the Company at May 31, 2000 vs May 31, 1999
As stated above, except for a brief interlude in 1988, Whitney American (the
Company) did not have any business operations or income since 1989, until it
acquired Kemron. Therefore, the acquisition made Kemron the surviving company.
Consequently, most of the financial information and data presented herein is the
financial information and data pertaining to Kemron Environmental Services,
Inc., the wholly-owned subsidiary of the Company.
The financial condition of the Company continued to improve for the fiscal year
ended May 31, 2000. Total stockholders equity increased 12.5% from $1,819,150 to
$2,046,881 for the year ended May 31, 2000. The current ratio dropped slightly
to 1.37 for the year ended May 31, 2000 as compared to 1.38 for the prior year.
Net income generated in the current fiscal year provided the working capital to
improve the financial position. The additional proceeds achieved from these
company profits have been applied towards the repayment of debt. The line of
credit has increased from $350,000 as of May 31, 1999 to $703,848 as of May 31,
2000. The line of credit balance as of the end of this reporting period is
considered in the normal range given the Company's working capital requirements.
Total assets increased by $472,370 while total liabilities increased by $244,639
as of May 31, 2000 as compared to May 31, 1999. This is principally the result
of capital expenditures that occurred during the current fiscal year. The
Company invested approximately $950,000 in new laboratory instruments,
remediation systems and field equipment. Of this equipment, approximately
$650,000 was acquired under capital lease arrangements. The company continues to
secure lease and financing arrangements for most all equipment acquisitions,
thereby maintaining optimal credit availability. After the depreciation
provision, the net book value of property and equipment has increased by
approximately $431,000 as of May 31, 2000.
These changes in financial condition improved the Company's credit position with
its senior lender, allowing the credit line to remain at favorable terms on the
borrowing rate. The Company maintains a line of credit of $1.8 million with the
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
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capital requirements pending at May 31, 2000. The Company's available line of
credit is expected to be sufficient to meet the Company's needs for the
foreseeable future.
Result from Operations at May 31, 2000 vs May 31, 1999
The Company experienced a modest decline in the service revenue for the fiscal
year ending May 31, 2000 which in turn resulted in decreased operating results.
The gross revenue decreased by approximately $922,000, a 6.8% decline from the
previous fiscal year, while income from operations decreased by approximately
$585,000, representing a 14.8% decrease for the year ended May 31, 2000. This
resulted in a net income decrease of approximately $728,000 for the year ended
May 31, 2000, before incomes taxes. Income per share decreased from a $.24 per
share in fiscal 1999 to $.05 per share for the current fiscal year.
The Company's performance for the current fiscal year was still positive, even
though operating performance did not meet the forecasted expectations or the
results of the prior fiscal year. The environmental industry has remained
stable, although mergers and acquisitions occurring within the industry have
disrupted some of the Company's project base. The changes in operating
performance for the fiscal year ended May 31, 2000 has been highlighted by
several actions taken by management along external circumstances as follows:
(1) The Company has continued to put forth the marketing plan to develop
further diversification of existing client base to minimize the
dependency on the Company's core clients. Fiscal year 2000 proved to
be a successful achievement of this marketing effort, as new clients
accounted for over $614,000 of sales for the consulting services group
and $800,000 of sales for the laboratory. Several of the new
consulting clients were obtained through a new office that has been
established in Charleston, West Virginia. A presence in this area has
created opportunities with industrial and consulting companies in a
market territory that the Company has not previously explored. The
laboratory operation continues to increase its share of Air Force
clientele under the AFCEE program. This has become a lucrative service
area for the laboratory, now established as one of the top
laboratories in the nation for AFCEE work.
(2) During fiscal year 1999, the Company began the process of expanding
the service production capacity at the laboratory facility under three
separate phases. The first phase involved a significant investment in
new laboratory instrumentation and robotic equipment, over $1M of
purchased and leased equipment has been introduced to the facility
over the past two years streamline processes and ensure the highest
quality standards can be attained for the Company's laboratory
clients. The second phase was the conversion of 1600 square feet of
existing warehouse space into laboratory space. Both phases were
significantly completed during the prior fiscal year ended May 31,
1999. The main objectives of these two phases has been to solve the
problem of the laboratory's ceiling on service production capacity.
The third phase of the laboratory facility and the most significant
has been a major expansion effort adding 12,500 square feet of space
to the existing facility. The construction process was completed in
May 2000 and represents the final phase of the Company's plan for
positioning the laboratory to achieve a three year goal of 50% sales
growth. The facility expansion also provides additional space for the
consulting operation in Marietta, Ohio. The business growth for this
consulting office over the past two years has necessitated the
additional office space. The lease on the previous office space for
the consulting group was terminated. Further, the co-sharing of the
new facility space is expected to provide cost savings for some of the
common space and administrative support.
(3) The overhead expenses remained fairly stable for the fiscal year ended
May 31, 2000. Office space utilization has remained at good levels,
any excess space has been occupied under sublease agreements. The
small increase in overhead that was experienced in fiscal year 2000
can be attributed in part to the business development efforts of the
Emerging
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Technologies division. This venture has been discontinued
during the current fiscal due to the lack of success in securing
viable technologies that met the Company's criteria (see Results of
Business Diversification section that follows). It was a positive
indicator that with the decreased revenues for the year ended May 31,
2000 there was no associated increase in overhead costs for the year.
The largest contributor to changes in overhead expenses comes in the
form of: (1) labor for administrative duties such as technical
training, research, marketing & proposal efforts, and office functions
or; (2) "bench time" which is not having chargable projects to stay
utilized. The fact that overhead remained relatively constant with
decreased sales is a positive indication that there was no adverse
effect on labor activities when compared to the prior fiscal year.
The operating performance is expected to improve from fiscal year 2000 and the
Company will be looking towards further sales expansion by focusing on the
primary services offered by the Company, while still devoting attention and
resources to the diversification strategy. Some of the following
accomplishments illustrate how the business goals are already being achieved:
(1) The laboratory has become established as one of the top national
operations for analytical services under both the Army Corps of
Engineers (Army Corps) and Air Force Center for Environmental
Excellence (AFCEE) programs. This has fostered expansion of the
federal sector work for the laboratory through existing contracts and
through outside consultant contracts, supporting their federal
contacts as a subcontractor. The Company also provides direct support
to the Air Force for analytical services out of the Brooks AFB but has
seen a significant decline in project work since the base has
progressed with plans to shutdown the base's laboratory operation.
Much of this analytical work has been channeled back to individual Air
Force bases to select their own contractors for providing services.
The Company has been successful in securing subcontract agreements
with many of the consulting firms that were awarded the service
contracts for AFCEE work at these individual bases.
(2) Several sites awarded under the Georgia Underground Storage Tank
Program (GUST) contract have advanced to the remediation phase of
work. The Company has provided the remediation systems in the form of
equipment, along with installation of monitoring wells and O&M. These
sites will have systems operating over a period of as much as 24
months, depending the level of cleanup required. In addition, the
Company continues to support the State of Georgia with report reviews
of other contractor's corrective action plans (CAP A and CAP B
reports), providing a supplemental service under the GUST contract for
the current fiscal year.
(3) The Company has established projects with new clients that are
anticipated to cultivate long term relationships with expanded
environmental services such as risk management planning, health and
safety audits/training, water resources, waste water treatment, and
UIC permitting. New accounts for the Company include Virogroup, CH2M
Hill, Geo-Marine, Inc., Allied Waste Industries, Speedway
SuperAmerica, Law Engineering, and Horsley & Witten.
Results of Diversification Strategy
The Company, with the acquisition made in the fiscal year 1998, attempted to
begin implementing its long term strategy of identifying viable companies for
acquisition. The acquisition of Kemron provided the Company with a very
reputable company in the environmental market to serve as a platform for its
diversification strategy.
During the last two months of the fiscal year ended May 31, 2000, the Company
entered negotiations with Kiber Environmental Services, Inc. ("Kiber"), another
consulting and laboratory company located in
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Atlanta, Georgia to consider a purchase agreement in which the Company would
acquire all of the assets and liabilities of Kiber. Shortly after the completion
of the fiscal year ended May 31, 2000, the agreement was achieved and executed
by the two companies in which Kemron through its parent company Whitney will
acquire all of the assets and liabilities of Kiber. The two principal owners and
officers of Kiber will join the Company as part of the senior management team.
Other details of this acquisition are provided under a separate Form 8-K filing.
This acquisition will create an exciting opportunity for the Company as Kiber
and Kemron each have a somewhat separate and distinct client base with some
different lines of service. Kiber has a large amount of business in the area of
treatability studies while Kemron has most of its business in analytical
services and site investigation/remediation. The goal is to begin acquainting
the clients of each company with the additional services that are now available
in an effort to expand the level of service provided to our current client base.
During fiscal year 1999, the Company launched a new initiative by creating an
Emerging Technologies Division. The mission of the new initiative was to
identify companies with new, innovative and emerging technologies and to assist
those companies to meet and/or comply with regulatory requirements which the
technologies may require. Although the Emerging Technologies Division
experienced great success in identifying technologies and developing marketing
alliances, the Division lost some of its core clients that aided in self-funding
this new division. Further, many of the opportunities that were identified
required far too many resources in way of both manpower and capital. Because of
these circumstances, the Division was shutdown in December 1999.
Discussion of Material Items
(i) short term and long term liquidity
The Company's short and long term liquidity continues to improve as a result of
the profits generated during the fiscal year 2000. Kemron's senior lender
provides the working line of credit for a $1.8M borrowing capacity. The
Company's current credit standing with the senior lender is very strong.
Without lending for a line of credit, the Company would be adversely affected.
(ii) Internal and external sources of liquidity
The only internal sources of liquidity available to the Company are the earnings
of it principal operating subsidiary, Kemron. External resources may become
available depending on the success of the effort to raise equity capital. The
Company has explored opportunities with outside investment groups for the
possibility of raising equity capital for the Company. As of the reporting
date, the Company does not have any such agreements and cannot make any
predictions as to the success of this effort in the future.
(iii) Material Commitments for Capital Expenditures and Expected Sources
The Company' completion of the Marietta, Ohio facility expansion was completed
at the end of the current fiscal year. The added facility costs have increased
the rent expense by approximately $70,000 on an annual basis. The expansion was
included under an amendment to the current lease in place with Gutierrez
Properties, Limited Partnership which remains effective through January 2007.
As discussed earlier, the company has already incurred significant capital
expenditures during the past two fiscal years through purchases of laboratory
equipment, further automation of all regional offices and remediation equipment.
The capital expenditures shall be limited over the forthcoming fiscal year, this
will mostly entail the replacement of equipment that may be taken out of
service. Total budgeted expenditures are not expected to exceed $400,000.
(iv) Known Trends, Events, or Uncertainties
<PAGE>
The only known trends, events, or uncertainties that have had or that are
reasonably expected to have a material impact on the net sales or revenue or
income from continuing operations is the activity that may occur with mergers
and acquisitions in the environmental industry. Examples such as Dow
Chemical's acquisition of Union Carbide Corporation can have a significant
impact on the level of business we retain with Union Carbide Corporation who is
currently one of our five largest clients. Conversely, this acquisition could
generate additional opportunities with Dow Chemical if our services performed
with Union Carbide Corporation are positively reflected throughout their
organization.
(v) Significant elements of income or loss that do not arise from the
Company's
operations.
There were no significant income or loss events to report during fiscal year
2000.
(vi) Causes for Material Changes
There are no causes nor material changes in one or more line items of the
Company's financial statements between the periods ending May 31, 2000 and May
31, 1999.
(vii) Seasonal Aspects
The environmental market as a whole may be subject to seasonal factors,
particularly harsh winters. Prolonged periods of cold temperatures impact the
ability to conduct field activities which then may reverberate throughout the
industry. While the engineering and consulting activities may be somewhat
affected, Kemron's laboratory operation is very susceptible to this factor.
Testing laboratories are volume sensitive operations with a substantial fixed
operating cost. Strategic marketing of clients located in geographic areas with
warm weather and careful planning are a prerequisite for profitable winter
months. Kemron's laboratory operation experienced a slowdown during this past
winter which the operation had been able to avoid over the prior two years.
However, this year's winter slowdown was not attributed entirely to the weather
conditions, several projects anticipated for the winter months encountered
scheduling delays and did not commence until Spring 2000.
Item 8. Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure.
None exist as of the reporting date.
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of The Exchange Act.
Identification of Directors and Executive Officers
Directors are elected for one-year terms or until the next annual meeting of
shareholders and until their successors are duly elected and qualified.
Officers hold office at the pleasure of the Board of Directors. The table below
sets forth the name, age, position and tenure of each director and executive
officer. Mr. Heishman, as secretary, is not considered "executive" officers.
All Directors have tenures effective since March 10, 1998 when each individual
assumed office following the Stock Exchange Agreement.
Year
First
Name Elected Position Held and Tenure
---- ------- ------------------------
Juan J. Gutierrez 1998 Chairman, Chief Executive Officer, Director
<PAGE>
John M. Dwyer 1998 Vice President, Director
David E.Vandenberg 1998 Vice President, Director
John S. Heishman 1998 Secretary/Treasurer, Director
Biographical Information
The 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, 58, 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
Edinberg, Texas.
JOHN M. DWYER, 40, 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, as
well as Kemron's marketing and business development. He has been with Kemron
for over 20 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.
DAVID E. VANDENBERG, 44, 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 20 years of experience in the environmental field,
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 80 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, operational oversight and profit and loss
performance.
JOHN S. HEISHMAN, 35, is the Secretary/Treasurer and a Director of the Company,
and is responsible for Finance and Contract Administration for the Company. He
has over 13 years of finance and accounting experience in both commercial and
federal contracting. Mr. Heishman joined Kemron's management team in 1996 and
has brought vast experience in forecasting/budgeting, cash management, financial
analysis, corporate and operational accounting. Prior to joining Kemron, Mr.
Heishman worked for Computer Sciences Corporation and in public accounting with
Ernst & Young. He holds a BBA in accounting from James Madison University, and
is a Certified Public Accountant in Virginia.
Item 10. Executive Compensation
Cash Compensation
The following sets forth the compensation earned by the Company's Chief
Executive Officer and any highly compensated executive officers. There has been
no supplemental compensation of restricted stock
<PAGE>
awards, stock appreciation rights, or long term incentive plans. Bonus plans are
strictly based on performance objectives within each individual fiscal year.
Annual Compensation
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Juan J. Gutierrez, CEO 2000 $125,000 $38,500 $-0-
1999 114,063 91,000 -0-
John M. Dwyer, 2000 $126,500 $19,250 $-0-
Vice President - Marketing 1999 114,711 45,500 -0-
David E. Vandenberg, 2000 $123,200 $17,250 $-0-
Vice President - Laboratory 1999 108,519 45,500 -0-
Operations
John S. Heishman 2000 $ 78,280 $ 5,378 $-0-
Vice President - Finance & 1999 73,500 10,376 -0-
Administration
</TABLE>
Compensation Pursuant to Plans
The compensation identified above as bonus paid to executive officers represents
compensation under the Company's profit sharing incentive program for each of
the two fiscal years.
Other Compensation
None
Item 11. Security Ownership of Certain Beneficial Owners and Management
Beneficial Ownership Following Acquisitions
The following table sets forth as of the report date, 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. Exept
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 of Percent of
Title of Class Of Beneficial Owner Beneficial Ownership Class
<S> <C> <C> <C>
Common Stock, Juan J. Gutierrez 3,450,000 73.2% 1,2
$.00001 par value 8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME David E. Vandenberg 191,666 4.1% 2
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
109 Starlite Park
Marietta, Ohio 45750
SAME John M. Dwyer 191,666 4.1% 2
1300 Spring Street
Atlanta, Georgia 30309
SAME John S. Heishman - 0 - - 0 -
8150 Leesburg Pike, Suite 1200
Vienna, Virginia 22182
SAME InterAmerica Technologies, Inc. 887,778 18.8% 1
8150 Leesburg Pike, Suite 1400
Vienna, Virginia 22182
All executive officers and
Directors as a group (4 persons) 3,833,332 81.3%
</TABLE>
/1/ Mr. Gutierrez is the sole owner of InterAmerica Technologies, Inc., and
claims beneficial ownership of shares held by that entity.
/2/ Include shares of the common stock subject to purchase upon the exercise of
options granted under the Company's 1997 Compensatory Stock Option Plan,
including 350,000 (Juan J. Gutierrez), 25,000 (John M. Dwyer), and 25,000 (David
E. Vandenberg).
Changes in Control
None
Item 12. Certain Relationships and Related Transactions
The President/CEO has provided a personal guarantee to the Company operating
subsidiary's principal lender along with other financial lenders for equipment.
The Company is attempting to discharge the personal guarantee with each lender
as the Company's credit position continues to strengthen.
The laboratory facility in Marietta, OH is leased through a related party. In
addition, certain administrative resources are provided through a separate
related party. Refer to the notes to the audited financial statements for
further details.
The company has no understandings with its officers or directors, or other
shareholders, pursuant to which such persons have agreed to contribute capital
to the Company or otherwise provide funds to the Company. There are no other
reportable transactions involving promoters, executive officers, or directors of
the Company as required by Item 404 of Regulation S-B.
<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: AUGUST 25, 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 August 25, 2000
-------------------------
Juan J. Gutierrez and Chairman of the Board
/s/ John M. Dwyer Executive Vice President August 25, 2000
-------------------------
John M. Dwyer and Director
/s/ David E. Vandenberg Executive Vice President August 25, 2000
-------------------------
David E. Vandenberg and Director
/s/ John S. Heishman Secretary, Treasurer August 25, 2000
-------------------------
John S. Heishman and Director
</TABLE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report, except
those indicated as having previously been filed with the Securities and
Exchange Commission and are incorporated by reference to another
report, registration statement or form. References to the "Company"
mean Whitney American Corporation.
3.0 Certificate of Incorporation (incorporated by reference to Exhibit
3.0 to Registration Statement No. 33-17397-D, effective March 7,
1988)
3.05 Certificate of Amended and Restated Certificate of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 to Form
8-K dated February 12, 1997)
3.1 Bylaws of the Company (incorporated by reference to Exhibit 3.1 to
Registration Statement No. 33-173797-D, effective March 7, 1988)
3.2 Amendment to Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-17397-D, effective
March 7, 1988)
<PAGE>
3.3 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to Form 8-K dated February 12, 1997)
4.0 Specimen Stock Certificate (incorporated by reference to
Registration Statement No. 33-17397-D effective March 7,
1988)
10.2 1997 Stock Option Plan (incorporated by reference to Exhibit
10.1 to Form 8-K dated February 12, 1997)
10.3 1997 Employee Stock Compensation (incorporated by reference
to Exhibit 10.2 to Form 8-K dated February 12, 1997)
23.0 Consent of Independent Auditors - Reznick Fedder & Silverman
(b) The Company filed the following Current Reports on Form 8-K during
the three months ended May 31, 2000.
Filing of Form 8-K on May 17, 2000 of the proposed merger purchase
agreement between the Company and Kiber Environmental Services,
Inc.
(c) Financial statements and supplementary data.
Index to Financial Statements Independent Auditors' Report F-1
Consolidated Balance Sheets as of May 31, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended
May 31, 2000 and 1999 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended May 31, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
May 31, 2000 and 1999 F-5
Notes to Financial Statements F-6
Exhibit 23.0
Whitney American Corporation
Gentlemen:
We hereby consent to use in the Form 10-KSB, of our report
dated July 7, 2000, related to the financial statements of Whitney
American Corporation and Subsidiary as of and for the years ended
May 31, 2000 and 1999, which is contained therein.
/s/ Reznick Fedder & Silverman
-------------------------------
Reznick Fedder & Silverman
Bethesda, MD
<PAGE>
Whitney American Corporation and Subsidiary
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Whitney American Corporation
We have audited the accompanying consolidated balance sheets of Whitney
American Corporation and Subsidiary, as of May 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Whitney American Corporation and Subsidiary as of May 31, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Bethesda, Maryland
July 7, 2000
/s/ Reznick Fedder & Silverman
-------------------------------
Reznick Fedder & Silverman
-3-
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
May 31, 2000 and 1999
ASSETS
2000 1999
----------- ----------
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net of allowance
of $259,512 and $199,963 3,600,834 3,746,340
Prepaid expenses and other assets 88,688 94,989
Deferred tax asset, current 42,416 -
----------- ----------
Total current assets 3,732,938 3,842,329
----------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Leasehold improvements 270,137 244,566
Equipment 3,176,169 2,412,945
Automobiles 360,309 251,930
Furniture and fixtures 50,803 36,186
----------- ----------
3,857,418 2,945,627
Less accumulated depreciation and amortization 2,425,397 1,944,316
----------- ----------
Net equipment and leasehold improvements 1,432,021 1,001,311
----------- ----------
OTHER ASSETS
Accounts receivable, long term portion 143,804 29,457
Intangibles, net of amortization - 17,744
Deferred tax asset 44,882 -
Deposits 67,975 58,409
----------- ----------
Total other assets 256,661 105,610
----------- ----------
Total assets $ 5,421,620 $4,949,250
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
----------- ----------
CURRENT LIABILITIES
Line of credit $ 703,848 $ 350,000
Note payable, current maturities 4,225 3,829
Notes payable - equipment, current maturities 101,600 205,930
Capital lease liability, current maturities 316,584 142,127
Accounts payable and accrued expenses 1,048,361 1,572,344
Accrued payroll and related liabilities 409,774 412,216
Due to related parties 105,745 105,745
Income taxes payable, current 33,336 -
----------- -----------
Total current liabilities 2,723,473 2,792,191
----------- -----------
LONG-TERM DEBT
Notes payable, net of current maturities 14,747 19,343
Notes payable - equipment, net of current maturities 70,553 44,146
Capital lease liability, net of current maturities 541,319 274,420
Deferred income taxes payable 24,647 -
----------- -----------
Total long-term liabilities 651,266 337,909
----------- -----------
Total liabilities 3,374,739 3,130,100
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value, 5,000,000
shares authorized, none issued - -
Common stock, $.00001 par value,
50,000,000 shares authorized, 4,217,020 and
4,266,020 issued and outstanding 42 42
Additional paid-in capital 1,658,684 1,658,684
Retained earnings 388,155 160,424
----------- -----------
Total stockholders' equity 2,046,881 1,819,150
----------- -----------
Total liabilities and stockholders' equity $ 5,421,620 $4,949,250
=========== ===========
See notes to consolidated financial statements
-4-
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
REVENUE FROM SERVICES $ 12,592,855 $ 13,514,743
COST OF SERVICES 9,228,190 9,565,061
---------------- -----------------
GROSS PROFIT 3,364,665 3,949,682
---------------- -----------------
OPERATING EXPENSES
Overhead 1,481,176 1,436,764
General and administrative 1,332,498 1,242,392
Bad debts 147,588 100,629
---------------- -----------------
Total operating expenses 2,961,262 2,779,785
---------------- -----------------
INCOME FROM OPERATIONS 403,403 1,169,897
---------------- -----------------
OTHER INCOME
Gain on sale of assets 31,413 13,617
Other 593 984
---------------- -----------------
32,006 14,601
---------------- -----------------
OTHER EXPENSES
Interest (163,270) (184,854)
---------------- -----------------
(163,270) (184,854)
---------------- -----------------
INCOME BEFORE INCOME TAXES 272,139 999,644
INCOME TAXES 44,408 -
---------------- -----------------
NET INCOME $ 227,731 $ 999,644
================ =================
Basic net income per common share $ 0.05 $ 0.24
================ =================
Weighted average common share outstanding 4,228,538 4,237,321
================ =================
Diluted net income per common share $ 0.05 $ 0.21
================ =================
Weighted average common share outstanding 4,657,776 4,685,321
================ =================
</TABLE>
See notes to consolidated financial statements
- 5 -
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
Retained
earnings
Common stock Additional (accumulated
--------------
Shares Amount paid-in capital deficit) Total
-------- ------ --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 4,211,020 $ 42 $ 1,654,984 $ (839,220) $ 815,806
Stock issuance 25,000 - 3,700 - 3,700
Stock options exercised 30,000 - - - -
Net income - - - 999,644 999,644
--------- ------ ----------- ---------- -----------
Balance, May 31, 1999 4,266,020 42 1,658,684 160,424 1,819,150
Stock cancellation (49,000)
- - - -
Net income - - - 227,731 227,731
--------- ------ ----------- ---------- -----------
Balance, May 31, 2000 4,217,020 $ 42 $ 1,658,684 $ 388,155 $ 2,046,881
========= ====== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 227,731 $ 999,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 540,657 455,924
Gain on sale of assets (31,413) (13,617)
Allowance for doubtful accounts 59,549 27,133
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (28,390) (466,229)
(Increase) decrease in prepaid expenses and other assets 6,301 (44,362)
(Increase) decrease in deferred tax asset (87,298) -
(Increase) decrease in deposits (9,566) 4,395
Increase (decrease) in accounts payable and accrued expenses (523,983) 607,118
Increase (decrease) in accrued payroll and related liabilities (2,442) 50,511
Increase (decrease) in accounts payable - related party - (41,429)
Increase (decrease) in income taxes payable 57,983 -
------------ -------------
Net cash used in investing activities 209,129 1,579,088
------------ -------------
Cash flows from investing activities
Purchases of equipment and leasehold improvements (306,042) (307,214)
Proceeds received from sale of fixed assets 33,617 32,000
Proceeds from notes receivable - 34,593
------------ -------------
Net cash used in investing activities (272,425) (240,621)
------------ -------------
Cash flows from financing activities
Net payment on line of credit 353,848 (1,140,000)
Payment of note payable (4,200) (61,196)
Payment of notes payable - equipment (97,235) (68,354)
Proceeds from note payable - 24,800
Proceeds from note payable - equipment 19,312 55,000
Payments on related party advances - (45,992)
Principal payments under capital lease obligations (208,429) (102,725)
------------ -------------
Net cash provided by (used in) financing activities 63,296 (1,338,467)
------------ -------------
NET INCREASE (DECREASE) IN CASH - -
Cash, beginning 1,000 1,000
------------- -------------
Cash, end $ 1,000 $ $ 1,000
============ =============
</TABLE>
(continued)
-7-
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------------------- -------------------
<S> <C> <C>
Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 163,270 $ 184,854
=================== ==================
Cash paid during the year for income taxes $ 101,706 $ -
=================== ==================
Fair value of stock issued in exchange for services $ - $ 3,700
=================== ==================
Liabilities for equipment under capital leases $ 649,785 $ 380,469
=================== ==================
</TABLE>
See notes to consolidated financial statements
-8-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
1. ORGANIZATION
Whitney American Corporation (the "Company") was incorporated in the State
of Delaware in June 1987. The Company, through its wholly owned subsidiary,
Kemron Environmental Services, Inc. ("Kemron"), is a multi-disciplinary
environmental engineering, consulting and analytical services firm
headquartered in Vienna, Virginia. Incorporated in June 1975 in the State
of New York, Kemron provides environmental engineering, consulting and
remediation services principally to commercial and industrial clients and
to Federal and state environmental regulatory and non-regulatory agencies
as well. Kemron also provides environmental laboratory testing services to
this client base. With headquarters in Vienna, Virginia, Kemron maintains
engineering and consulting operations at Vienna, Virginia; Atlanta Georgia;
Marietta, Ohio; and Charleston, West Virginia. Kemron's testing laboratory
is also situated in Marietta, Ohio.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
---------------------------------------
The consolidated financial statements include the accounts and operations
of the Company and its wholly owned subsidiary, Kemron. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Concentration of Credit Risk
----------------------------
The Company provides services to customers in multiple industries such as
oil and gas, metals, chemicals, textiles and automotive. Approximately 35%
of the Company's customer base is comprised of the federal and state
governments. The majority of the Company's customers are located in the
midwest, northeast, and southeast regions of the United States.
Allowance for Doubtful Accounts
-------------------------------
The Company establishes an allowance for doubtful accounts based upon
several factors, such as credit risk and analysis of specific customer
accounts.
-9-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equipment and Leasehold Improvements
------------------------------------
Equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives
of the assets ranging from 2 to 7 years. Amortization of leasehold
improvements is computed on the term of the lease of 15 years or its useful
life, whichever is less.
Contract Revenue
----------------
The Company recognizes revenue as the related services are provided. 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 the client are included in revenue from services. Anticipated
losses are recognized in the period in which the losses are reasonably
determinable.
A significant 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.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on
fair value of the equity instrument awarded (see note 12). The Company has
chosen to continue to account for employee stock-based compensation using
the intrinsic value method prescribed in Accounting Principles
-10-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations. Accordingly, compensation costs for stock options
is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount the employee must
pay to acquire stock.
Intangible Assets
-----------------
Intangible assets represent costs in excess of the net assets acquired by
the Company and are being amortized by the straight-line method over 15
years, which is management's estimate of the remaining economic useful
life.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the liability method prescribed by
SFAS No. 109, a deferred tax asset or liability is determined on the
differences between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Significant differences between financial
statement and income tax accounting creating deferred income taxes consists
of bad debt and depreciation expense. Deferred income taxes are also
recognized for operating losses that are available to offset future taxable
income.
Net Income per Common Share
---------------------------
Basic net income per common share is computed based upon the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed on the basis of the average number
of shares outstanding plus the effect of outstanding stock options using
the "treasury stock" method. Basic and dilutive earnings per share for the
years ending May 31, 2000 and 1999 are as follows:
-11-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net income available to common shareholders (A) $ 227,731 $ 999,644
---------- ----------
Average outstanding:
Common stock (B) 4,228,538 4,237,321
Employee stock options 429,238 448,000
---------- ----------
Common stock and common stock equivalents (C) 4,657,776 4,685,321
---------- ----------
Earnings per share:
Basic (A/B) $ 0.05 $ 0.24
========== ==========
Diluted (A/C) $ 0.05 $ 0.21
========== ==========
</TABLE>
Line of Credit and Notes Payable
--------------------------------
The carrying amounts approximate fair value.
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 2).
-12-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 2000 AND 1999
3. SEGMENT INFORMATION (Continued)
Sales, operating income (loss) and identifiable assets by reportable
segment for the years ended May 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
2000 1999
------- -------
<S> <C> <C>
Sales to unaffiliated customers:
Analytical services $ 6,972 $ 7,071
Consulting services 5,621 6,444
------- -------
Total $12,593 $13,515
======= =======
Operating income (loss):
Analytical services $ 286 $ 812
Consulting services 287 631
Other (170) (273)
------- -------
Total $ 403 $ 1,170
======= =======
Identifiable assets:
Analytical services $ 2,696 $ 2,458
Consulting services 1,619 1,344
------- -------
Total $ 4,315 $ 3,802
======= =======
</TABLE>
-13-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Billed (includes retention of $278,963 and $212,412) $3,297,496 $3,164,694
Unbilled 706,654 811,066
Less allowance for doubtful accounts (259,512) (199,963)
-------------- --------------
$3,744,638 $3,775,797
============== ==============
</TABLE>
The unbilled receivables on long-term contracts consist primarily of month-
end revenue accrued but not billed as of May 31, 2000 and 1999. Such billings
occur in the following month.
The retention balances reported as of May 31, 2000 and 1999 include amounts
of $143,804 and $29,457, respectively, anticipated to be collected beyond 12
months from the balance sheet date.
5. NOTE PAYABLE AND LINE OF CREDIT
Note payable and the line of credit at May 31, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Line of credit with a bank, $1,800,000 payable on
demand, bearing interest at 10.5%, secured by
accounts receivable and the personal guarantee of
the corporation's majority stockholder. $ 703,848 $ 350,000
============== ==============
Note payable with the lessor of the Atlanta
office, $24,800 term loan, monthly principal
payments of $331 plus interest at 10%, for
buildout of lease space $ 18,972 $ 23,172
============== ==============
</TABLE>
-14-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
5. NOTE PAYABLE AND LINE OF CREDIT (Continued)
Maturities of the note payable and the line of credit for the four years
succeeding May 31, 2000 are as follows:
May 31, 2001 $708,073
2002 5,524
2003 5,655
2004 3,568
6. NOTES PAYABLE - EQUIPMENT
Notes payable for equipment at May 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Equipment notes bearing interest ranging from 8.4%
to 10.75%. Interest is payable monthly with
aggregate monthly principal payments of $8,903
and maturities through February 2004. The notes
are collateralized by equipment and the personal
guarantee of the majority stockholder. $ 172,153 $ 250,076
Less current maturities 101,600 205,930
-------------- --------------
$ 70,553 $ 44,146
============== ==============
</TABLE>
Maturities of notes payable - equipment for each of the four years
succeeding May 31, 2000 are as follows:
May 31, 2001 $101,600
2002 42,728
2003 18,040
2004 9,785
--------
$172,153
========
-15-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
7. CAPITAL LEASES
The Company leases computers and other equipment under capital leases with
maturities through March 2005. The following is a schedule by years of
future minimum lease payments under capital leases, together with the
present value of net minimum lease payments at May 31, 2000.
May 31, 2001 $389,788
2002 298,833
2003 208,496
2004 51,632
2005 36,415
--------
Total minimum lease payments 985,164
Less amount representing interest 127,261
--------
Present value of net minimum lease payments 857,903
Less current maturities 316,584
--------
Total non-current obligations under capital leases $541,319
========
Included in fixed assets are the following assets under capital leases at
May 31, 2000 and 1999:
2000 1999
------------ ----------
Equipment - Computers/office $ 96,811 $ 75,179
Automobiles 111,915 131,917
Equipment - Other 993,312 705,707
------------ ----------
1,202,038 912,803
Less accumulated depreciation 333,128 409,930
------------ ----------
$ 868,910 $502,873
============ ==========
-16-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
8. COMMITMENTS AND CONTINGENCIES
Office and Facilities Leases
----------------------------
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 May 31, 2000 are as follows:
May 31, 2001 $425,385
2002 422,695
2003 381,521
2004 250,233
2005 229,667
Other facilities are leased under short-term agreements. Rent expense for
all leases for the years ended May 31, 2000 and 1999, was $346,934 and
$390,634, respectively.
Equipment Leases
----------------
The Company has entered into various equipment operating leases expiring
between August 2000 and May 2004. Lease expense for the years ended May 31,
2000 and 1999, was $269,278 and $247,519, respectively. A schedule of the
future minimum lease commitments for four years as of May 31, 2000 is as
follows:
May 31, 2001 $194,044
2002 148,732
2003 81,385
2004 13,182
-17-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
8. COMMITMENTS AND CONTINGENCIES (Continued)
Legal Proceedings
-----------------
The Company is involved in two separate legal proceedings with former
employees relating to discharge and discrimination. Both former employees
are in process of a settlement for lost wages, damages and expenses of
approximately $35,000. The two cases have reached tentative agreement of
terms but are still pending the final approval of each former employee. As
of May 31, 2000, the collective settlement amount for the two proceedings,
estimated to be $35,000 has been included in accrued expenses.
9. 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 three percent of the
employee's Matched Compensation Deferral. The plan provides for a vesting
of Company contributions to the employee over a period of six years. During
the years ended May 31, 2000 and 1999, the Company's matching contributions
totaled $98,988 and $63,618, respectively.
10. 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 administrative
support, LAN and telecommunications support, and human resources are shared
among the companies. During the years ended May 31, 2000 and 1999, annual
expenditures totaled $248,793 and $289,992, respectively, of which $88,296
and $89,790, respectively, were charged to the Company.
In addition, the company has a liability due to a stockholder in the amount
of $105,745. The liability is noninterest bearing and payable upon demand.
As of May 31, 2000 and May 31, 1999, the amount due was $105,745.
-18-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
10. RELATED PARTY TRANSACTIONS (Continued)
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 year ended May
31, 1999 was $1,293. As of May 31, 1999, the Company has paid the two
promissory notes payable in full.
Rent Expense - Related Party
----------------------------
The Company leases its Vienna, Virginia headquarters office from a related
party under a sublease agreement. The amount of rent expense paid to the
related party for the years ended May 31, 2000 and 1999 was $184,057 and
$181,560, respectively.
The Company leases its Marietta, Ohio office from a related party. The
amount of rent expense paid to the related party for the years ended May
31, 2000 and 1999 was $125,304 and $125,304, respectively.
11. INCOME TAXES
As of May 31, 2000 and 1999, the Company has a net operating loss
carryforward of approximately $-0- and $264,000, respectively, for income
tax purposes.
-19-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
11. INCOME TAXES (Continued)
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.
The provision for income tax consists of the following:
<TABLE>
<CAPTION>
May 31, 2000KemronFinancial Printing Group May 31, 2000 May 31, 1999
------------------- -------------------
<S> <C> <C>
Current taxes 131,706 388,377
Deferred income taxes 4,053 (388,377)
Adjustment of beginning of year valuation allowance (91,351) -
------------------- -------------------
$ 44,408 $ -
=================== ===================
The tax effects of temporary differences that give rise to deferred tax
assets are as follows:
May 31, 2000 May 31, 1999
------------------- -------------------
Depreciation $ 51,902 $ -
Bad debts 28,396 -
Other liabilities 7,000 -
------------------- -------------------
Total temporary differences 87,298 -
Tax effect of net operating loss carryforwards - 91,351
------------------- -------------------
87,298 91,351
Less valuation allowance - (91,351)
------------------- -------------------
Net deferred tax asset $ 87,298 $ -
=================== ===================
A reconciliation of income tax at the statutory rate to the company's
effective rate is as follows:
May 31, 2000 May 31, 1999
------------------- -------------------
Computed at the expected statutory rate 33% 35%
Net operating losses carryforward (25) (35)
State income taxes 4 -
Other 4 -
------------------- -------------------
Income tax expense - effective rate 16% -
=================== ===================
</TABLE>
-20-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
12. MAJOR CUSTOMERS
Earned revenue and the related accounts receivable from major customers are
as follows:
<TABLE>
<CAPTION>
Earned Accounts
revenue receivable
As of May 31, 2000: ----------------- ------------------
------------------
<S> <C> <C>
Private sector (six customers) $4,119,241 $970,547
================= ==================
Public sector (three customers) $3,352,618 $601,315
================= ==================
<CAPTION>
Earned Accounts
Revenue Receivable
------------------ ------------------
As of May 31, 1999:
------------------
<S> <C> <C>
Private sector (seven customers) $4,027,336 $1,026,011
================== ==================
Public sector (four customers) $5,529,959 $ 901,738
================== ==================
</TABLE>
13. STOCK COMPENSATION PLANS
The Company adopted stock option plans in 1997 under which pools of
2,000,000 and 1,500,000 shares of the Company's common stock have been
reserved. The plans are administered and terms of option grants are
established by a committee appointed by the Board of Directors. Under terms
of the plans, options may be granted to the Company's employees to purchase
shares of common stock. Options become exercisable immediately upon grant
and expire ten years from the date of the grant, six months after
termination of employment without cause, or one year after death or
permanent disability of the employee. The committee appointed by the Board
of Directors determines the option price (not less than 85% fair market
value) at the date of the grant. The Company has applied APB Opinion No. 25
and related Interpretations in accounting for the plans, as permitted by
SFAS No. 123.
-21-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
13. STOCK COMPENSATION PLANS (Continued)
Had compensation cost been determined in accordance with FASB Statement No.
123, the Company's net income per share would have been the proforma
amounts indicated below:
<TABLE>
<CAPTION>
Year ended May 31,
----------------------------------------
<S> <C> <C>
2000 1999
----------------- -------------------
Net income
As reported $227,731 $999,644
================= ===================
Proforma $227,731 $999,644
================= ===================
Net income per common share - Basic:
As reported $ 0.05 $ 0.24
================= ===================
Proforma $ 0.05 $ 0.24
================= ===================
Net income per common share - Diluted:
As reported $ 0.05 $ 0.21
================= ===================
Proforma $ 0.05 $ 0.21
================= ===================
</TABLE>
All options granted were issued pursuant to the stock options plans. The fair
value of each option granted under the plan is estimated on the date of grant
using each option granted under the Black-Scholes option-pricing model. The
following weighted average assumptions for 2000 were used: expected dividend
yield of 0%, expected volatility rate of 200%, risk-free rate of 5.5% and
expected lives of four years.
The Company granted options for 635,532 shares of common stock at the exercise
price of $.25 per share in previous years which expire in 2008. During the
fiscal years ended May 31, 2000 and 1999, no options were granted by the
Company
-22-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
13. STOCK COMPENSATION PLANS (Continued)
The following depicts activity in the plans for years ended May 31, 2000
and 1999:
<TABLE>
<CAPTION>
Year ended May 31, 2000
-----------------------------------------
Options Per share
outstanding exercise price
----------------- -----------------
<S> <C> <C>
Outstanding May 31, 1999 448,000 $0.25
Options granted - -
Options cancelled (48,000) 0.25
-----------------
Outstanding May 31, 2000 400,000
=================
<CAPTION>
Year ended May 31, 1999
-----------------------------------------
Options Per share
outstanding exercise price
----------------- ---------------
<S> <C> <C>
Outstanding May 31, 1998 478,000 $0.25
Options granted -
Options exercised (30,000) 0.25
-----------------
Outstanding May 31, 1999 448,000
=================
</TABLE>
14. MERGERS
On March 10, 1998, Kemron merged with and into Whitney. The Merger was
treated as a reverse acquisition, with Kemron retaining the majority voting
interest in the merged entity.
Concurrent with the Merger, the Company entered into a merger agreement
with three additional entities: Exeter Group, Inc. ("Exeter"), Coastline
International, Inc. ("Coastline") and New Horizons, Inc. ("New Horizons").
As a result of management differences and the Company's lack of the
management control over these entities, the Company entered into separate
rescission agreements on October 19, 1998, April 26, 1998 and May 12, 1999,
respectively, which collectively address the Company and Exeter, Coastline
and New Horizons agreements that involved the return of the respective
shares originally issued by the Company in connection with the failed
mergers.
-23-
<PAGE>
Whitney American Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2000 and 1999
14. MERGERS (Continued)
Under terms of the settlement agreements, the Company was successful in
recovering all but 190,973 shares of common stock and stock options for
135,532 shares of common stock, at the exercise price of $.25 per share,
issued in connection with the failed mergers. The 190,973 shares, 135,532
stock options and subscriptions receivable on issued stock and uncollected
exercised options proceeds, $13,000 and $7,500, respectively, are deemed
unrecoverable due to the shares being transferred to third parties and
management's attempts to arrange for any form of repossession of these
shares have failed.
The failed merger costs, representing the fair value of the unrecoverable
shares and stock options, have been treated as an increase in paid-in
capital.
Based on legal opinions received by management concerning the issuance of
stock in the failed mergers, and the subsequent rescission agreements,
management considers the failed mergers a nullity and void ab initio.
Accordingly, the accounts and operations of Exeter, Coastline and New
Horizons have been omitted from the Company's consolidated financial
statements. All common stock, stock options and per-share amounts from the
date of the failed mergers to May 31, 2000 have been retroactively adjusted
to reflect the nullification of the issuance of the original stock and
stock options.
15. COMMON STOCK
During the fiscal year ended May 31, 2000, 49,000 shares of stock were
voluntarily returned to the Company by a former employee for no
consideration paid by the Company. These shares were subsequently cancelled
by the Company.
16. SUBSEQUENT EVENTS
On June 29, 2000, Kemron entered into a merger agreement with a separate
corporation, Kiber Environmental Services, Inc. ("Kiber") where Kiber will
merge with and into Kemron and cease to exist. In accordance with the
agreement, Kemron agrees to pay to the stockholders of Kiber $300,000 in
cash, a promissory note for $150,000 bearing interest at 10% per annum and
secured by a personal guaranty by a stockholder of the Company and 200,812
shares of capital stock of the Company. Additionally, the Company's
purchase price of Kiber may be reduced, if certain Kiber receivables are
not realized with a 12 month period following the merger.
-24-
