U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-5418
WALKER INTERNATIONAL INDUSTRIES, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 13-2637172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Ken-Anthony Plaza, South Lake Blvd., Mahopac, New York 10541
(Address of principal executive offices) (Zip Code)
(914) 628-9404
Issuer's telephone number, including area code
N/A
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Common Stock outstanding, par value $.10
per share, as of October 15, 1998 was 259,109.
Transitional Small Business Disclosure Format (check one):
Yes No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, November 30,
1998 1997
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 463,228 $ 349,568
Trading securities - at market - 146,742
Accounts receivable - less allowance
for doubtful accounts of $1,000 9,564 17,097
Inventories 62,510 61,920
Prepaid expenses 22,484 21,861
Prepaid income taxes 4,085 775
U.S. Government securities 519,515 518,054
Total current assets 1,081,386 1,116,017
Property, plant and equipment - at cost 992,632 956,226
Less accumulated depreciation 828,894 802,431
163,738 153,795
Available-for-sale securities - at market - 121,500
Other assets
U.S. Government securities 79,335 -
Security deposit 1,700 1,700
Total other assets 81,035 1,700
Total $1,326,159 $1,393,012
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 100,042 $ 155,685
Customer deposits 4,036 12,751
Income taxes payable 468 8,681
Total current liabilities 104,546 177,117
Stockholders' equity
Common stock, $.10 par value, authorized
1,000,000 shares, issued 489,310 shares 48,931 48,931
Additional paid-in capital 1,118,880 1,118,880
Retained earnings 677,671 601,584
Unrealized gain on marketable equity
securities - 22,500
1,845,482 1,791,895
Less treasury stock - at cost - 230,201 shares
and 215,199 shares, respectively 623,869 576,000
Total stockholders' equity 1,221,613 1,215,895
Total $1,326,159 $1,393,012
TABLE
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
August 31, August 31,
1998 1997 1998 1997
Net sales $ 277,200 $ 267,088 $1,099,480 $1,063,775
Costs and expenses
Cost of sales 156,330 151,150 533,136 523,272
Selling, general and
administrative 124,349 123,952 574,822 541,653
Recovery of bad debts - (892) (1,222) (3,529)
280,679 274,210 1,106,736 1,061,396
Operating income (loss) (3,479) (7,122) (7,256) 2,379
Investment income 6,540 20,323 92,814 83,821
Income before
provision for
income taxes 3,061 13,201 85,558 86,200
Provision for income taxes 2,318 1,292 9,471 12,545
Net income $ 743 $ 11,909 $ 76,087 $ 73,655
Earnings per common share $ .00 $ .04 $ .28 $ .27
Weighted average number of common
shares outstanding 263,495 274,111 269,512 276,959
TABLE
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine months ended
August 31,
1998 1997
Cash flows from operating activities
Net income $ 76,087 $ 73,655
Items not requiring the current use of cash
Depreciation 26,463 23,723
Amortization of bond premium and discount (1,389) -
Gain on sale of available-for-sale
securities (32,620) -
Unrealized gain on trading securities - (74)
Recoveries of bad debts (1,222) (3,529)
Changes in items affecting operations
Investment in trading securities 147,964 169,424
Accounts receivable 7,533 4,018
Inventories (590) 8,261
Prepaid expenses (623) (1,990)
Prepaid income taxes (3,310) (1,408)
Accounts payable and accrued expenses (55,643) (42,731)
Customer deposits (8,715) (10,711)
Income taxes payable (8,213) 3,264
Net cash provided by operating
activities 145,722 221,902
Cash flows from investing activities
Purchase of U.S. Government securities (79,407) -
Amortization of bond (discount) premium - (1,085)
Proceeds from sale of available-for-sale
securities 131,620 -
Payments for purchase of equipment (36,406) (6,508)
Net cash provided (used) by investing
activities 15,807 (7,593)
Cash flows from financing activities
Acquisition of common stock for treasury (47,869) (32,868)
Net cash used by financing activities (47,869) (32,868)
Net increase in cash and cash
equivalents 113,660 181,441
Cash and cash equivalents - beginning 349,568 286,188
Cash and cash equivalents - end $ 463,228 $ 467,629
Supplemental Cash Flows Information
Cash payments for income taxes $ 19,962 $ 10,689
Supplemental Schedule of Noncash Operating Activity
During 1998 and 1997, the Company received, in lieu of cash, investment
securities with a value of $1,222 and $3,529, respectively, to satisfy a
previously written off accounts receivable.
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998
(NOTE A) - The accompanying consolidated financial statements are prepared
on the basis of generally accepted accounting principles. In the opinion of
the management of Walker International Industries, Inc. and Subsidiaries, all
adjustments are of a normal recurring nature and have been reflected for a
fair presentation of the unaudited balance sheet as of August 31, 1998, and
results of operations and cash flows for the periods ended August 31, 1998 and
1997. The operating results for the periods are not necessarily indicative of
the results to be expected for the entire year.
(NOTE B) - INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities:
Gross unrealized Estimated
Description Cost Gains Losses Fair Value
Held-to-Maturity
U.S. Government securities -
maturing November 30, 1998 $ 519,515 $ 542 $ - $ 520,057
U.S. Government securities -
maturing October 30, 1999 79,335 - 285 79,050
$ 598,850 $ 542 $ 285 $ 599,107
The change in net unrealized holding gain (loss) on trading securities
that has been included in earnings during the period amount to $(4,485) (1998)
and $74 (1997).
(NOTE C) - An analysis of inventories is as follows:
August 31, November 30,
1998 1997
(Unaudited) (Audited)
Raw materials $ 33,449 $ 27,674
Work-in-process 1,892 5,977
Finished goods 27,169 28,269
$ 62,510 $ 61,920
PAGE
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998
(NOTE D) - The provision for income taxes consists solely of state and local
taxes. The provision for income taxes has been reduced by approximately
$17,500 during the nine months ended August 31, 1998, and $13,500 during the
nine months ended August 31, 1997, which represents the benefit of the federal
net operating loss carryforward for which a valuation reserve had been
previously provided.
(NOTE E) - In June 1998, the Company was advised by a national retailer that
it was not planning to continue to utilize the services of the Company's
portrait studio division for its Christmas 1998 promotion.
WALKER INTERNATIONAL INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
The Company's liquidity (current assets minus current liabilities) increased
by $37,940 to $976,840 at August 31, 1998, as compared to $938,900 at November
30, 1997. Cash provided by operating activities amounted to $145,722. This
resulted primarily from a decrease in investment in trading securities of
$147,964, net income of $76,087, and depreciation (a non-cash charge) of
$26,463, offset primarily by a decrease in accounts payable and accrued
expenses of $55,643 and gain on sale of available-for-sale securities (a
non-cash item) of $32,620.
The Company deems its present facilities and equipment to be adequate for its
immediate needs and it has no material commitments for capital expenditures.
The Company believes its present liquidity is adequate for its current and
long-term needs.
Results of Operations
Total sales for the nine months ended August 31, 1998 (the "Current Period")
increased to $1,099,480 as compared to sales of $1,063,775 in the nine months
ended August 31, 1997 (the "1997 Period"), primarily as a result of sales
volume increases in the Kelly Color subsidiary. Sales for the three months
ended August 31, 1998 (the "Current Quarter") increased to $277,200 as
compared to $267,088 in the quarter ended August 31, 1997 (the "1997
Quarter"), due to an increase in Kelly Color sales volume.
In the Current Period, cost of sales as a percentage of sales ("COS") were
48.5%, as compared to COS of 49.2% in the 1997 Period, primarily due to
improved efficiency in labor costs and materials usage. In the Current
Quarter, COS was 56.4% as compared to 56.6% in the 1997 Quarter. Cost
percentages were higher in the Current Quarter as compared to the Current
Period due to the absence of more profitable seasonal sales in the Department
Store subsidiary that occur only in the fiscal quarter ended February 28th.
This trend occurred in the prior fiscal year as well.
In the Current Period, selling, general and administrative expenses net of
recovery of bad debts were 52.2% as a percentage of sales as compared to 50.6%
in the 1997 Period, primarily due to increases in payroll and other expenses
in the Department Store Photography subsidiary offset in part by increased
absorption resulting from higher sales in Kelly Color. In the Current Quarter,
selling, general and administrative expenses as a percentage of sales were
44.9% as compared to 46.1% in the 1997 Quarter. This was due primarily to
increased cost absorption resulting from higher sales at Kelly Color. The
Company earned investment income of $92,814 in the Current Period and $6,540
in the Current Quarter, as compared to $83,821 and $20,323 in the 1997 Period
and 1997 Quarter, respectively. Included in investment income during the
Current Period was a gain of $32,620 realized on the sale of a security
previously classified as available-for-sale.
In the Current Period, the Company had income before income taxes of $85,558
as compared to $86,200 in the 1997 Period. Increased profitability at Kelly
Color and slight increases in investment income were offset in part by reduced
profitability in the Department Store subsidiary. In the Current Quarter, the
Company had income before income taxes of $3,061 as compared to $13,201 in the
1997 Quarter, due primarily to increased sales and cost efficiencies which
were offset somewhat by reduced investment income. Provision for income taxes
in the Current Period consists of state and local taxes on subsidiary
earnings. The provision for income taxes has been reduced by approximately
$17,500 in the Current Period and $13,500 in the 1997 Period, which represents
the benefit of the federal net operating loss carryforward for which a
valuation reserve had been previously provided. In the Current Period, net
income per share was $.28 compared to $.27 in the 1997 comparable Period.
There was net income per share of $.00 in the Current Quarter, as compared to
$.04 in the 1997 Quarter.
On June 9, 1998, the Company was advised by Macy's Department Store that it
would not continue to utilize the services of the Company's Department Store
Photography Division. This activity constitutes substantially all of the
Division's business, which in 1997 contributed approximately $60,000 to the
net profit realized by the Company.
Item 5. Other Information
None.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
A. EXHIBITS
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 14, 1998
WALKER INTERNATIONAL
INDUSTRIES, INC.
By:/s/ Peter Walker
Peter Walker
President
By:/s/ Richard Norris
Richard Norris
Vice President
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule