<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 NOVEMBER 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-22907
WHITNEY AMERICAN CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 54-1956957
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices) (Zip Code)
(703) 893-0582
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements for the past
90 days.
Yes 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 November 30, 1999, a total of 4,217,020 shares of common stock were
outstanding.
1
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,000 $ 1,000
Accounts receivable, net of allowance 3,898,597 3,775,797
Prepaid expenses and other assets 97,444 94,989
---------------- ----------------
Total Current Assets 3,997,041 3,871,786
PROPERTY AND EQUIPMENT, cost
Leasehold improvements 253,059 244,566
Equipment 2,763,075 2,412,945
Automobiles 368,770 251,930
Furniture and fixtures 41,691 36,186
---------------- ----------------
3,426,595 2,945,627
Accumulated depreciation (2,169,561) (1,944,316)
---------------- ----------------
Net Property and Equipment 1,257,034 1,001,311
OTHER ASSETS
Intangibles, net of amortization 16,758 17,744
Deposits 62,380 58,409
Note receivable - -
---------------- ----------------
Total Other Assets 79,138 76,153
---------------- ----------------
Total Assets $ 5,333,213 $ 4,949,250
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,029,974 $ 1,572,344
Accrued payroll and related liabilities 308,010 412,216
Line of credit 898,350 350,000
Accounts payable - related party 105,745 105,745
Note payable 4,019 3,829
Notes payable - equipment 96,527 205,930
Capital lease liability 196,454 142,127
---------------- ----------------
Total Current Liabilities 2,639,079 2,792,191
LONG-TERM DEBT
Notes payable, net of current maturities 17,102 19,343
Notes payable - equipment, net of current maturities 134,934 44,146
Capital lease liability, net of current maturities 331,679 274,420
---------------- ----------------
Total Long-term Liabilities 483,715 337,909
---------------- ----------------
Total Liabilities 3,122,794 3,130,100
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value, 5,000,000 shares
authorized, none issued - -
Common Stock, net of subscriptions receivable, at November 30,
1999, $.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 551,693 160,424
---------------- ----------------
Total Stockholders' Equity 2,210,419 1,819,150
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 5,333,213 $ 4,949,250
================ ================
</TABLE>
See notes to financial statements
2
<PAGE>
Whitney American Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATION OF THE COMPANY
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1999 1998
----------------- -----------------
<S> <C> <C>
REVENUE FROM SERVICES $ 6,502,096 $ 6,931,412
COST OF SERVICES 4,631,655 5,061,776
----------------- -----------------
GROSS PROFIT 1,870,441 1,869,636
----------------- -----------------
OPERATING EXPENSES
Overhead 791,863 685,442
General and administrative 620,706 468,242
----------------- -----------------
Total Operating Expenses 1,412,569 1,153,684
----------------- -----------------
INCOME FROM OPERATIONS 457,872 715,952
OTHER INCOME
Interest - -
Other 31,612 6,086
OTHER EXPENSES
Interest (65,285) (106,270)
----------------- -----------------
INCOME BEFORE INCOME TAXES 424,199 615,768
INCOME TAXES 33,285 -
----------------- -----------------
NET INCOME $ 390,914 $ 615,768
================= =================
Basic net income per common share $ 0.09 $ 0.15
================= =================
Weighted average common share outstanding 4,217,020 4,233,767
================= =================
Diluted net income per common share $ 0.08 $ 0.13
================= =================
Weighted average common share outstanding 4,665,020 4,681,767
================= =================
</TABLE>
See notes to financial statements.
3
<PAGE>
WHITNEY AMERICAN CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
CASH FLOWS FROM OPERATIONS: 1999 1998
------------- -------------
<S> <C> <C>
Net Income $ 390,914 $ 615,768
Adjustments to reconcile net income to net cash:
Depreciation and amortization 245,573 240,229
Gain on sale of assets (31,554)
Changes in operating assets and liabilities:
accounts receivable (122,800) (525,216)
prepaid expenses (2,455) (37,605)
deposits (3,971) (6,271)
accounts payable and accrued expenses (542,021) 494,375
accrued payroll and related liabilities (104,206) (100,709)
accounts payabe - related party - 945
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (170,520) 681,516
============= =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (507,269) (292,131)
Proceeds received from sale of fixed assets 38,514 -
Proceeds received from note receivable - 11,776
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (468,755) (280,355)
============= =============
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment) proceeds on line of credit 548,350 (415,000)
Payment of note payable (2,048) (50,902)
Payment of notes payable - equipment (37,926) (35,640)
Proceeds of note payable - equipment 19,314 -
Proceeds from equipment under capital lease 196,266 183,398
Payments on related party advances - (45,992)
Principal payments under capital lease obligations (84,681) (37,025)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 639,275 (401,161)
============= =============
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 $ 65,285 $ 106,270
============= =============
</TABLE>
See notes to financial statements.
4
<PAGE>
WHITNEY AMERICAN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Basis of Presentation and Consolidation
---------------------------------------
The accompanying unaudited condensed consolidated financial statements
of Whitney American Corporation (the "Company") and its wholly owned
subsidiary, Kemron Environmental Services, Inc. ("Kemron") have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. The company
acquired Kemron during fiscal year 1998 (see NOTE 2) and began
presenting results on a consolidated basis. All significant
intercompany balances and transactions have been eliminated in
consolidation. Operating results for the six months ended November 30,
1999 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 six months ended November
30, 1999 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.
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
5
<PAGE>
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-interests 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.
Approval for the unwinding and stock exchange agreement shall be
brought to vote at a special stockholder meeting on January 20, 2000
before the agreement can be finalized.
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 six months ended November 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
----------------- ----------------
<S> <C> <C>
Sales to unaffiliated customers:
Analytical services $ 3,842 $ 3,474
Consulting services 2,660 3,457
----------------- ----------------
Total $ 6,502 $ 6,931
================= ================
Operating income:
Analytical services $ 354 $ 384
Consulting services 174 298
Other (104) (66)
----------------- ----------------
Total $ 424 $ 616
================= ================
Identifiable Assets:
Analytical services $ 2,908 $ 2,512
Consulting services 1,346 1,543
----------------- ----------------
Total $ 4,254 $ 4,055
================= ================
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FINANCIAL CONDITION
As of November 30, 1999, the Company's working capital balance increased from
$1,079,595 at May 31, 1999 to $1,354,262. This increase was the result of
profits generated during the six month period. The current liabilities decreased
by $149,412 while the accounts receivables increased by $122,800. The increase
in accounts receivable is primarily due to increased revenues and billing
activity during the first six months ended November 30, 1999.
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 November 30, 1999. The
Company's available line of credit is expected to be sufficient to meet the
Company's needs for the foreseeable future.
RESULTS OF OPERATIONS
Revenues for the six months ended November 30, 1999 were $6,502,096, which
represents a decrease of 6.2% from the last year's six month revenues of
$6,931,412. 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 10.6% increase for the six months ended
November 30, 1999 as compared to the same period in prior year.
The laboratory received significant project awards during the first six months
of the current year, one existing client accounted for $440,000 of increased
sales for the laboratory. There has been some volatility of sales with other
existing clients for the first six 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.
The consulting services reported a significant decline in revenues for the first
six months of fiscal year 2000, a $797,000 decrease when compared to the same
period ended November 30, 1998. 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 six months ended November 30, 1999 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 28.8% and 27.0% of revenues for the six months ending November
30, 1999 and 1998, respectively. The Company considers gross margin of 28.8% to
be within the range for normal operations.
7
<PAGE>
Net income decreased for the six months ended November 30, 1999 with a 6.5%
profit as compared to 8.9% 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 $620,706 for the six months ended November 30, 1999, up 15.5%
from the first six months of 1998. 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 $65,285 for the six months ended November 30, 1999, a
decrease of 38.6% 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.
YEAR 2000
The company is in process of upgrading its computer applications to ensure
functionality with respect to the Year 2000. The Year 2000 issue affects most
corporations and concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date-sensitive
information relating to the Year 2000 and beyond. The Company believes it is
pursuing appropriate courses of action to identify and address Year 2000
readiness.
The principal operating functions that are dependent on information systems have
been identified, primarily the accounting system and operating systems that
support the laboratory instruments. Most of the related information systems have
already been converted and tested for Year 2000 compliance. Any remaining Year
2000 initiatives are scheduled to be complete by mid-year 1999.
The Company is giving consideration to the status of compliance by third party
suppliers. Failure by third party suppliers to become Year 2000 compliant could
impact the Company's ability to obtain products or services as scheduled, which
could potentially result in delays in meeting clients orders. The Company has
undertaken initiatives to review the Year 2000 readiness of clients which are
material to the Company's business. Failure by material customers to become Year
2000 compliant could result in the company's inability to obtain or perform work
on a timely basis for such customers, leading to delays in receipt of revenue.
A formal contingency plan will not be formulated unless the Company identifies
specific areas where there is substantial risk of Year 2000 problems occurring,
and no such areas have been identified as of this date.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information relating to the
Company that are based on the beliefs of its management as well as assumptions
made by and information currently available to its management. When used in this
report, the words "anticipate", "believe", "estimate", "expect", "intend", plan
and similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. These statements reflect
management's current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should any of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results my vary materially from those described in this report
as anticipated, estimated or expected. The Company's realization of its business
aims will depend in the near future principally on the successful completion of
its acquisition of operations as discussed below.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended November 30, 1999, the Company's line of credit
increased by $548,350 to $898,350. This was the result of increased payment
activity with vendors and suppliers as illustrated by the $542,370 reduction in
trade payables for the six months of the current year.
Cash flows used in operating activities totaled $170,520 for the six months
ended November 30, 1999. Cash outflows consist primarily of reductions in
accounts payable and accrued expenses for the six months as described above.
This was partially offset by net income for the six months combined with the
increased accounts receivable, these netted a $268,114 cash inflow.
Cash used in investing activities totaled $468,755 for the current year's first
six 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. $507,269 of equipment purchases were incurred
during the first six months ended November 30, 1999.
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
six months ended November 30, 1999.
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: JANUARY 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 January 14, 2000
---------------------- and Chairman of the Board
Juan J. Gutierrez
/s/ John M. Dwyer Vice President January 14, 2000
------------------ and Director
John M. Dwyer
/s/ Dave Vandenberg Vice President January 14, 2000
-------------------- and Director
Dave Vandenberg
/s/ John S. Heishman Secretary, Treasurer January 14, 2000
-------------------- and Director
John S. Heishman
</TABLE>
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 4,115,576
<ALLOWANCES> 216,979
<INVENTORY> 0
<CURRENT-ASSETS> 3,997,041
<PP&E> 3,426,595
<DEPRECIATION> 2,169,561
<TOTAL-ASSETS> 5,333,213
<CURRENT-LIABILITIES> 2,639,079
<BONDS> 483,715
0
0
<COMMON> 42
<OTHER-SE> 2,210,377
<TOTAL-LIABILITY-AND-EQUITY> 5,333,213
<SALES> 6,502,096
<TOTAL-REVENUES> 6,502,096
<CGS> 4,631,655
<TOTAL-COSTS> 4,631,655
<OTHER-EXPENSES> 1,412,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,285
<INCOME-PRETAX> 424,199
<INCOME-TAX> 33,285
<INCOME-CONTINUING> 390,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,914
<EPS-BASIC> .09
<EPS-DILUTED> .08
</TABLE>
