UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number: 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.)
370 Old Country Road
Garden City, New York 11530
(Address of principal executive offices)
(516) 746-4141
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were a total of 684,825 shares
of the registrant's common stock, par value $.10 per share, outstanding as of
April 15, 2002.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
Walker International Industries, Inc.
Quarterly Report on Form 10-QSB
Quarter Ended February 28, 2002
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at February 28, 2002 (unaudited) and November
30, 2001............................................................................................. 3
Consolidated Statements of Income and Comprehensive Income for the Three Months
Ended February 28, 2002 (Unaudited) and February 28, 2001 (Unaudited)................................ 4
Consolidated Statements of Cash Flows for the Three Months Ended February 28,
2002 (Unaudited) and February 28, 2001 (Unaudited)................................................... 5
Notes to Consolidated Financial Statements............................................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation........................................ 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 10
Item 2. Changes in Securities............................................................................ 10
Item 3. Defaults Upon Senior Securities.................................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 11
Item 5. Other Information................................................................................ 11
Item 6. Exhibits and Reports on Form 8-K................................................................. 17
Signatures................................................................................................ 18
Exhibit Index............................................................................................. 19
2
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, November 30,
2002 2001
--------------- ----------------
ASSETS: (Unaudited)
Current assets -
Cash and cash equivalents................................................. $ 789,747 $ 456,803
Trading securities - at market............................................ -- 32,979
Accounts receivable - less allowance for doubtful accounts of $1,000...... 9,211 27,908
Inventories............................................................... 46,313 53,658
Prepaid expenses.......................................................... 18,555 32,149
Prepaid income taxes...................................................... 2,284 882
U.S. Government securities................................................ -- 414,917
--------------- ----------------
Total current assets.................................................... 866,110 1,018,796
--------------- ----------------
Property, plant and equipment - at cost...................................... 1,136,865 1,082,905
Less accumulated depreciation................................................ 910,832 900,084
--------------- ----------------
Total property plant and equipment...................................... 226,033 182,821
--------------- ----------------
Security deposit............................................................. 725 725
--------------- ----------------
Total assets.......................................................... $ 1,092,868 $ 1,202,342
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities -
Accounts payable and accrued expenses..................................... $ 37,182 $ 83,971
Customer deposits......................................................... 1,189 9,753
--------------- ----------------
Total current liabilities............................................... 38,371 93,724
--------------- ----------------
Stockholders' equity -
Common stock, $.10 par value, authorized 1,000,000 shares, issued
477,810 shares.......................................................... 47,781 47,781
Additional paid-in capital................................................ 1,082,843 1,082,843
Retained earnings......................................................... 593,026 642,325
--------------- ----------------
1,723,650 1,772,949
Less: treasury stock - at cost - 249,539 and 246,539 shares, respectively. 669,153 664,331
--------------- ----------------
Total stockholders' equity.............................................. 1,054,497 1,108,618
--------------- ----------------
Total liabilities and stockholders' equity............................ $ 1,092,868 $ 1,202,342
=============== ================
See accompanying notes to consolidated financial statements.
3
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended
-----------------------------------
February 28, February 28,
2002 2001
--------------- ----------------
(Unaudited) (Unaudited)
Net sales.................................................................... $ 199,416 $ 211,603
Costs and expenses -
Cost of sales ............................................................ 163,543 164,751
Selling, general and administrative....................................... 90,598 112,929
--------------- ----------------
254,141 277,680
--------------- ----------------
Operating loss.......................................................... (54,725) (66,077)
Investment income............................................................ 5,426 25,437
--------------- ----------------
Net loss................................................................ (49,299) (40,640)
Other comprehensive income................................................... -- --
--------------- ----------------
Comprehensive loss...................................................... $ (49,299) $ (40,640)
=============== ================
Loss per common share........................................................ $ (.21) $ (.17)
=============== ================
Weighted average number of common shares outstanding......................... 229,371 239,904
=============== ================
See accompanying notes to consolidated financial statements.
4
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
-----------------------------------
February 28, February 28,
2002 2001
--------------- ----------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net loss.................................................................. $ (49,299) $ (40,640)
Items not requiring the current use of cash -
Depreciation............................................................ 10,748 8,891
Amortization of bond premium and discount............................... (83) (152)
Changes in items affecting operations -
Investment in trading securities........................................ 32,979 (9,180)
Accounts receivable..................................................... 18,197 11,011
Inventories............................................................. 7,345 (228)
Prepaid expenses........................................................ 13,594 1,161
Prepaid income taxes.................................................... (1,402) (299)
Accounts payable and accrued expenses................................... (46,789) (13,798)
Customer deposits....................................................... (8,564) (8,136)
--------------- ----------------
Net cash used by operating activities................................. (23,274) (51,370)
--------------- ----------------
INVESTING ACTIVITIES:
Maturity of held to maturity securities................................... 415,000 --
Payments for purchase of equipment........................................ (53,960) (4,699)
--------------- ----------------
Net cash provided (used) by investing activities...................... 361,040 (4,699)
--------------- ----------------
FINANCING ACTIVITIES:
Acquisition of common stock for treasury.................................. (4,822) (8,250)
--------------- ----------------
Net cash used by financing activities................................. (4,822) (8,250)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents......................... 332,944 (64,319)
Cash and cash equivalents - beginning........................................ 456,803 542,118
Cash and cash equivalents - end.............................................. $ 789,747 $ 477,799
=============== ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes............................................ $ 1,402 $ 299
=============== ================
See accompanying notes to consolidated financial statements.
5
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
NOTE A - PREPARATION; PRESENTATION
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 February 28, 2002, and results of operations and cash flows for
the quarters ended February 28, 2002 and 2001. The operating results
for the periods are not necessarily indicative of the results to be
expected for the entire year. Certain amounts from the previous year
have been reclassified to conform to the current year presentation.
NOTE B - INVESTMENT SECURITIES
The change in net unrealized holding loss on trading securities that
has been included in earnings during the period amounted to $1,173.
NOTE C - INVENTORIES
An analysis of inventories is as follows:
February 28, November 30,
2002 2001
------------------ ------------------
Raw materials..................................................... $ 25,522 $ 29,059
Work-in-process................................................... 557 4,572
Finished goods.................................................... 20,234 20,027
------------------ ------------------
$ 46,313 $ 53,658
=============== ================
NOTE D - PROVISION FOR INCOME TAXES
The provision for income taxes consists solely of state and local
taxes.
6
Item 2. Management's Discussion and Analysis or Plan of Operation.
Throughout this Current Report on Form 10-QSB, the terms "we," "us," "our" and
"our company" refers to Walker International Industries, Inc. ("Walker") and,
unless the context indicates otherwise, includes Walker's wholly-owned
subsidiary, Kelly Color, Inc. ("Kelly").
Introductory Comment - Forward-Looking Statements.
Statements contained in this report include "forward-looking statements" within
the meaning of such term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
involve known and unknown risks, uncertainties and other factors which could
cause actual financial or operating results, performances or achievements
expressed or implied by such forward-looking statements not to occur or be
realized. Such forward-looking statements generally are based on our best
estimates of future results, performances or achievements, predicated upon
current conditions and the most recent results of the companies involved and
their respective industries. Forward-looking statements may be identified by the
use of forward-looking terminology such as "may," "will," "could," "should,"
"project," "expect," "believe," "estimate," "anticipate," "intend," "continue,"
"potential," "opportunity" or similar terms, variations of those terms or the
negative of those terms or other variations of those terms or comparable words
or expressions. Potential risks and uncertainties include, among other things,
such factors as:
- - the results our business strategies and future plans of operations,
- - our ability to integrate our recent acquisitions of American DataSource,
Inc. ("ADS") and National Preplanning, Inc. ("NPI") into our business and
administrative operations,
- - our ability to obtain stockholder approval for the issuance of shares to
permit the conversion of promissory notes we issued in connection with our
acquisitions of ADS and NPI,
- - general economic conditions in the United States and elsewhere, as well as
the economic conditions affecting the industries in which we operate,
- - our historical losses,
- - the decline in sales by our Kelly subsidiary due to the rising use of
digital cameras,
- - the competitive environments within the photographic development, funeral
home administrative services and pre-arranged death care services
industries,
- - our ability to raise additional capital, if and as needed,
- - the cost-effectiveness of our product and service development activities,
- - political and regulatory matters affecting the industries in which we
operate,
- - our ability to combine our various operations so that they may work
together and grow successfully,
- - the market acceptance, revenues and profitability of our current and future
products and services,
- - the extent that our sales network and marketing programs achieve
satisfactory response rates, and
- - the other risks detailed in this Quarterly Report on Form 10-QSB and, from
time to time, in our other filings with the Securities and Exchange
Commission.
7
Readers are urged to carefully review and consider the various disclosures made
by us in this Form 10-QSB, our Current Report on Form 8-K (Date of Report: March
19, 2001), our Annual Report on Form 10-KSB for the year ended November 30, 2001
and our other filings with the SEC. These reports attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition and results of operations and prospects. The forward-looking
statements made in the Form 10-QSB speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future
events.
Financial Condition and Liquidity
Our liquidity (current assets minus current liabilities) decreased by $97,333 to
$827,739 at February 28, 2002, as compared to $925,072 at November 30, 2001.
This decrease primarily is the result of a net loss for the quarter and payments
for the purchase of equipment as described below.
Net cash used by operating activities amounted to $23,274. This resulted
primarily from a net loss of $49,299 and a decrease in accounts payable and
accrued expenses of $46,789, offset, in part, by decreases in investment in
trading securities of $32,979, accounts receivable of $18,197 and prepaid
expenses of $13,594. We purchased equipment in the amount of $53,960, and stock
for our treasury in the amount of $4,822.
We deem our present facilities and equipment to be adequate for our immediate
needs and we have no material commitments for capital expenditures. We believe
our present liquidity is adequate for our current and long-term needs.
Results of Operations
Net sales for the period ended February 28, 2002 ("Fiscal 2002") were $199,416,
representing a decrease of $12,187 from sales in the comparable period in 2001
("Fiscal 2001"). This decrease was due to reduced sales volume at our Kelly
Color subsidiary primarily resulting from recessionary factors.
In Fiscal 2002, cost of sales as a percentage of sales was 82.0%, as compared to
85.4% in Fiscal 2001, primarily as a result of the reduced cost of certain raw
materials. In Fiscal 2002, selling, general and administrative expenses were
45.4% as a percentage of sales, as compared to 45.9% in Fiscal 2001. We earned
investment income of $5,426 in Fiscal 2002, as compared to $25,437 in Fiscal
2001.
In Fiscal 2002, we had a loss before provision for income taxes of $49,299, as
compared to $40,640 in Fiscal 2001, primarily due to factors previously
mentioned. In Fiscal 2002, net loss per share was $.21 compared to $.17 in
Fiscal 2001.
8
Inflation And Increasing Interest Rates
In the past two fiscal years, inflation has not had a significant impact on our
business. However, any significant increase in inflation and interest rates
could have a significant effect on the economy in general and, thereby, could
affect our future operating results. Although our current debt charges are
fixed, if we choose to raise additional funds through the sale of debt
securities, even minor increases in interest rates could increase our cost of
capital and increase our interest expense.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to Item 3 of our Annual Report on Form 10-KSB, for the
fiscal year ended November 30, 2001, filed with the Securities and Exchange
Commission on February 26, 2002 (Commission File No.:0-5418), and to the
references made in such Item, for a discussion of all material pending legal
proceedings to which we or any of our subsidiaries are parties.
Item 2. Changes in Securities.
In March 2002, we issued to the former stockholder of American DataSource, Inc.
and his designees an aggregate of 183,984 shares of our common stock and our 18%
subordinated promissory notes in the aggregate principal amount of $500,000 in
connection with our acquisition of ADS. These securities were issued in a
transaction exempt from the registration requirements of the Securities Act of
1933 pursuant to the provisions of Section 4(2) of the Securities Act. Further
information concerning this acquisition is provided in Item 5 of Part II of this
Current Report on Form 10-QSB.
In March 2002, we issued to the former stockholders of National Preplanning,
Inc. an aggregate of 272,573 shares of our common stock and our 18% subordinated
promissory notes in the aggregate principal amount of $750,000 in connection
with our acquisition of NPI. These securities were issued in a transaction
exempt from the registration requirements of the Securities Act of 1933 pursuant
to the provisions of Section 4(2) of the Securities Act. Further information
concerning this acquisition is provided in Item 5 of Part II of this Current
Report on Form 10-QSB.
In January 2002, we acquired 3,000 shares of our common stock from a trust in
which our then president, Peter Walker, served as a trustee. The purchase price
for these shares was $4,822. Mr. Walker disclaims beneficial ownership of these
shares and the proceeds of their sale.
Payment of the subordinated promissory notes issued in the ADS and NPI
acquisitions is subject to our acquisition of an unaffiliated investment
management and technology company serving the funeral and cemetery industry.
These notes are being held in escrow until the unaffiliated party acquisition is
completed or abandoned. The notes will be delivered to their respective
registered owners if we complete this unaffiliated party acquisition. The notes
will be returned to us for cancellation if such acquisition is abandoned or does
not occur on or before September 30, 2002. We have the right to deliver a total
of 187,570 shares of our common stock in full satisfaction of the promissory
notes we issued in the ADS acquisition and a total of 277,870 shares in payment
of the promissory notes we issued in the NPI acquisition. The promissory notes
were issued as part of the consideration in the two acquisitions in order to
provide for the contingency that we may be able to complete the unaffiliated
party acquisition within certain parameters. Although NPI has had previous
discussions with the acquisition candidate, we have not entered into a
10
definitive agreement or letter of intent to acquire such unaffiliated party, and
we may not acquire that company by September 30, 2002, or at all.
Item 3. Defaults on Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On March 19, 2002, we acquired ADS and NPI through mergers of such companies
with two of our wholly owned subsidiaries that we formed to effectuate the
acquisitions. ADS provides administrative services to independent funeral homes,
state master trusts and companies that own funeral homes or cemeteries for
pre-need funeral and cemetery accounts. NPI, a development stage company, is a
managing general insurance agency and third party marketer of prearranged death
care services to corporations, unions and affinity groups.
In the ADS acquisition, we issued to James N. Lucas, Sr., the sole stockholder
of ADS prior to our acquisition of the company, 183,984 shares of our common
stock, together with our 18% subordinated promissory note in the principal
amount of $500,000 due November 30, 2002 and $325,000 in cash. At the direction
of Mr. Lucas, we delivered 91,992 of such shares and $250,000 principal amount
of such notes to an irrevocable trust for the benefit of Mr. Lucas' adult
children and delivered 45,996 of such shares and $125,000 principal amount of
such notes to Mr. Lucas' adult son, James N. Lucas, Jr.
In the NPI acquisition, we issued to the stockholders of NPI, a total of 272,573
shares of our common stock, together with our 18% subordinated promissory note
in the aggregate principal amount of $750,000 due November 30, 2002. Mitchell
Segal, the president, chief executive officer, and the owner of approximately
67.5% of the outstanding shares of NPI prior to our acquisition of the company,
received 183,967 of such shares and $506,221 principal amount of such notes.
Payment of the subordinated promissory notes issued in the ADS and NPI
acquisitions is subject to our acquisition of an unaffiliated investment
management and technology company serving the funeral and cemetery industry.
These notes are being held in escrow until the unaffiliated party acquisition is
completed or abandoned. The notes will be delivered to their respective
registered owners if we complete this unaffiliated party acquisition. The notes
will be returned to us for cancellation if such acquisition is abandoned or does
not occur on or before September 30, 2002. We have the right to deliver a total
of 187,570 shares of our common stock in full satisfaction of
11
the promissory notes we issued in the ADS acquisition and a total of 277,870
shares in payment of the promissory notes we issued in the NPI acquisition. The
promissory notes were issued as part of the consideration in the two
acquisitions in order to provide for the contingency that we may be able to
complete the unaffiliated party acquisition within certain parameters. Although
NPI has had previous discussions with the acquisition candidate, we have not
entered into a definitive agreement or letter of intent to acquire such
unaffiliated party, and we may not acquire that company by September 30, 2002,
or at all.
The consideration issued in the merger transactions was determined in
arms-length negotiations among the parties.
We have agreed to register a total of 91,308 shares of our common stock that we
issued in the ADS and NPI acquisitions for resale by the former stockholders of
ADS and NPI. Such 91,308 shares represent approximately 20% of the shares of our
common stock that we issued in the two acquisitions.
We have entered into an employment agreement with Mitchell Segal to serve as our
president and chief executive officer through December 31, 2005. Under Mr.
Segal's employment agreement, we will pay Mr. Segal an annual base salary of
$200,000 for 2002, with annual increases of not less than $10,000, plus a bonus
equal to a minimum of 3% to a maximum of 5% of the gross proceeds received from
equity financings and a minimum of 3% to a maximum of 7.5% of our net income,
provided our net income is at least $500,000. The bonus is payable through 2008,
even if Mr. Segal's employment with us is terminated by us except in the event
the termination is for cause. In no event may the bonuses due Mr. Segal exceed
an aggregate of $304,025. Mr. Segal also is entitled to discretionary bonuses,
if any, awarded by our board of directors.
We also have entered into an employment agreement with Peter Walker to serve as
president of our Kelly Color Laboratories, Inc. subsidiary through March 18,
2012. Under Mr. Walker's employment agreement, we will pay Mr. Walker an annual
base salary of $100,000, plus a monthly non-accountable expense allowance of
$1,000. Mr. Walker's employment agreement does not require Mr. Walker to devote
a minimum number of hours to the business of Kelly Color. Mr. Walker's
employment agreement does require us to use our best efforts to cause Mr. Walker
to be nominated for election to our board of directors during the term of Mr.
Walker's employment agreement.
Historical financial statements of ADS and NPI were provided in our Current
Report on Form 8- K (Date of Report: March 19, 2002) which we filed with the SEC
on April 3, 2002. We have set forth certain pro forma financial information
concerning the effects of these two acquisitions beginning on the following
page.
12
Walker International Industries, Inc.
Introduction to Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined balance sheet as of
December 31, 2001 and the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2001, are based on the historical
financial statements of Walker International Industries, Inc. ("Walker"),
National Preplanning, Inc. ("NPI") and American DataSource, Inc. ("ADS") and
give effect to the pro forma adjustments described in this introduction and the
notes to the unaudited pro forma condensed combined financial information that
follow as though the acquisitions of NPI and ADS as of March 19, 2002 had been
consummated at December 31, 2001 for the unaudited condensed combined balance
sheet and at January 1, 2001 for the unaudited condensed combined statements of
operations for the year ended December 31, 2001.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the notes to the unaudited pro forma condensed combined
financial information that follow and with the historical financial statements
of Walker as filed in its Annual Report on Form 10-KSB for the year ended
November 30, 2001 and the separate historical financial statements of NPI and
ADS for the year ended December 31, 2001 included in Walker's Current Report on
Form 8-K (Date of Report: March 19, 2002) filed with the SEC on April 3, 2002.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the combined company's financial position or results
of operations that would have been achieved had the acquisitions been
consummated at December 31, 2001 for the unaudited pro forma condensed combined
balance sheet and at January 1, 2001 for the unaudited pro forma condensed
combined statement of operations for the year ended December 31, 2001.
Under the terms of merger agreements, each dated as of March 19, 2002, Walker
purchased all of the issued and outstanding common stock of NPI and ADS. The pro
forma adjustments reflect the transactions using the purchase method of
accounting and assume that NPI, not Walker, is the acquirer for accounting
purposes, and are based on available information and certain estimates and
assumptions set forth in the notes to the unaudited pro forma condensed combined
financial information. NPI will establish a new basis for Walker and ADS assets
and liabilities based upon an allocation of the fair value of the acquisition.
The unaudited pro forma financial information reflects our best estimates;
however, the actual amounts may differ from the pro forma amounts.
13
Walker International Industries, Inc.
Pro Forma Condensed Consolidated Balance Sheet
December 31, 2001
(Unaudited)
Historical
--------------------------------------------
NPI Walker ADS
December 31, November 30, December 31, Pro Forma Consolidated
2001 2001 2001 Adjustments Pro Forma
------------- ------------- -------------- ----------------- --------------
ASSETS:
Current assets -
Cash and cash equivalents..... $ -- $ 456,803 $ 8,398 $ (325,000) [1] $ 140,201
Marketable securities......... -- 32,979 -- 32,979
Accounts receivable........... -- 27,408 191,775 219,183
Inventories................... -- 53,658 -- 53,658
U.S. Government securities.... -- 414,917 -- 414,917
Prepaid expenses and other
current assets.............. -- 33,031 50,000 83,031
------------- ------------- -------------- --------------
Total current assets...... -- 1,018,796 250,173 943,969
Property and equipment, net...... 11,032 182,821 376,856 (182,821) [1] 387,888
Other assets -
Other assets.................. 17,020 725 -- (725) [1] 17,020
Deferred tax asset............ -- -- 25,000 (25,000) [1] --
Intangibles - customer list... -- -- -- 404,929 [1] 404,929
------------- ------------- -------------- ------------- --------------
Total assets................ $ 28,052 $ 1,202,342 $ 652,029 $ 1,753,806
============= ============= ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities -
Accounts payable and accrued
expenses.................... $ 122,085 $ 83,971 $ 151,041 $ 357,097
Accrued wages - stockholder... 304,025 -- -- $ (304,025) [2] --
Due to stockholder............ 33,199 -- 61,000 94,199
Customer deposits............. -- 9,753 -- 9,753
------------- ------------- -------------- --------------
Total current liabilities. 459,309 93,724 212,041 461,049
Other liabilities -
Long term debt................ 155,865 -- -- 155,865
Negative goodwill, net........ -- -- 138,378 (138,378) [1] --
------------- ------------- -------------- --------------
Total liabilities......... 615,174 93,724 350,419 616,914
------------- ------------- -------------- --------------
Stockholders' (deficiency) equity -
Common stock.................. 73,743 47,781 1,000 (53,743) [1] 68,781
Additional paid in capital.... 2,040,873 1,082,843 99,000 244,180 [1][2] 3,466,896
(Accumulated deficit) retained
earnings.................... (2,701,738) 642,325 201,610 (540,982) [1] (2,398,785)
Treasury stock................ -- (664,331) -- 664,331 [1] --
------------- ------------- -------------- --------------
Total stockholders'
(deficiency) equity.... (587,122) 1,108,618 301,610 1,136,892
------------- ------------- -------------- --------------
Total liabilities and
stockholders'
(deficiency) equity..... $ 28,052 $ 1,202,342 $ 652,029 $ 1,753,806
============= ============= ============== ==============
14
Walker International Industries, Inc.
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2001
(Unaudited)
Historical
--------------------------------------------
NPI Walker ADS
December 31, November 30, December 31, Pro Forma Consolidated
2001 2001 2001 Adjustments Pro Forma
------------- ------------- -------------- ----------------- --------------
Net sales........................ $ -- $ 1,053,615 $ 1,521,190 $ 2,574,805
Cost of sales.................... -- 679,927 -- 679,927
------------- ------------- -------------- --------------
Gross profit.................. -- 373,688 1,521,190 1,894,878
Operating expenses............... 1,419,521 468,788 1,360,101 $ 15,000 [3] 3,322,511
------------- ------------- -------------- --------------
80,986 [4]
17,297 [7]
(39,182) [8]
Operating loss.............. (1,419,521) (95,100) 161,089 (1,427,633)
Other income (expense) -
Investment income............. -- 66,764 -- 66,764
Interest expense.............. (52,500) -- (1,840) (54,340)
------------- ------------- ------------- --------------
(Loss) income before
income taxes.............. (1,472,021) (28,336) 159,249 (1,415,209)
Provision for income taxes....... -- 3,967 58,404 (62,371) [6] --
------------- ------------- -------------- --------------
(Loss) income before
extraordinary item........ (1,472,021) (32,303) 100,845 (1,415,209)
Extraordinary item............... -- -- -- 302,953 [5] 302,953
------------- ------------- -------------- --------------
Net income (loss)........... $ (1,472,021) $ (32,303) $ 100,845 $ (1,112,256)
============= ============= ============== ==============
Basic and diluted net loss per
common share.................. $ (6.02) $ (1.69)
============= ==============
Weighted average number of
common shares outstanding..... 244,722 415,255 [1] 659,977
============= ==============
15
Walker International Industries, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
December 31, 2001
[1] To adjust the fair value of the assets and liabilities of ADS and
Walker based upon the purchase price as described below:
American DataSource, Inc.
Number of shares of common stock issued................................................. 183,984
Per share fair value of stock issued.................................................... $ 2.69
----------------
Fair value of common stock ............................................................. 494,917
Cash.................................................................................... 325,000
---------------
Total purchase price............................................................... $ 819,917
================
Fair value of net assets acquired -
Current assets............................................. $ 250,173
Property and equipment..................................... 376,856
Intangibles - customer list................................ 404,929
Liabilities assumed........................................ (212,041)
---------------
Fair value of net assets acquired.......................................... $ 819,917
================
Walker International Industries, Inc
Number of shares of common stock outstanding............................................ 231,271
Per share fair value of stock outstanding............................................... $ 2.69
----------------
Total purchase price............................................................... $ 622,119
================
Fair value of net assets acquired -
Current assets............................................. $ 1,018,796
Property and equipment [i]................................. --
Other assets [i]........................................... --
Liabilities assumed........................................ (93,724)
---------------
Fair value of net identifiable assets acquired............................. $ 925,072
Negative goodwill [ii]..................................................... (302,953)
----------------
$ 622,119
[i] The excess of fair value of net assets acquired over the
purchase price is allocated first to reduce property and
equipment and other assets to zero, then to negative goodwill.
[ii] Negative goodwill is immediately reflected as an extraordinary
gain.
[2] To write off accrued wages to Mitchell S. Segal, majority stockholder of
NPI, that is contributed to additional paid in capital pursuant to the
terms of the NPI merger agreement.
[3] To record additional salary for Mr. Segal to reflect the difference in old
NPI employment agreement of $185,000 per year to the new agreement with
Walker at $200,000 per year.
[4] To record amortization of "Intangibles - customer list" on a straight-line
basis with a five-year estimated useful life.
[5] To record extraordinary gain with respect to the Walker negative goodwill
(see note [1] above).
[6] To eliminate the provision for income taxes based upon the consolidated net
loss of the entity. Additionally, a full valuation allowance has been
established against any deferred tax assets that arise from the mergers.
[7] To eliminate the amortization of negative goodwill recorded for the year
ended December 31, 2001 by ADS.
[8] To eliminate depreciation expense recorded for the year ended November 30,
2001 by Walker as a result of property and equipment being reduced to zero
in purchase accounting.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below is a list of the exhibits to this Quarterly Report on Form
10-QSB.
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of March 19, 2002, among Walker
International Industries, Inc., NPI Acquisition Corp. and National Preplanning, Inc.*
2.2 Agreement and Plan of Merger, dated as of March 19, 2002, among Walker
International Industries, Inc., Walker Mergerco, Inc. and American DataSource, Inc.*
10.1 Form of 18% Subordinated Promissory Note issued in connection with National
Preplanning, Inc. acquisition.*
10.2 Form of 18% Subordinated Promissory Note issued in connection with American
DataSource, Inc. acquisition.*
10.3 Employment Agreement, dated as of March 19, 2002, among Walker International,
Inc., Kelly Color, Inc. and Peter Walker.*
10.4 Employment Agreement, dated as of March 19, 2002, between Walker International
Industries, Inc., National Preplanning, Inc. and Mitchell Segal.*
10.5 Form of Registration Rights Agreement among Walker International Industries, Inc.
and the former stockholders of National Preplanning, Inc.*
10.6 Form of Registration Rights Agreement among Walker International Industries, Inc.
and the former stockholders of American DataSource, Inc.*
10.7 Form of Escrow Agreement among Walker International Industries, Inc., National
Preplanning, Inc., and Snow Becker Krauss P.C., as escrow agent.*
10.8 Form of Escrow Agreement among Walker International Industries, Inc., American
DataSource, Inc. and Snow Becker Krauss P.C., as escrow agent.*
- ----------
* Incorporated by reference. See Exhibit Index on page 19.
(b) Reports on Form 8-K.
A Current Report on Form 8-K (Date of Report: March 19, 2002) was filed with the
Securities and Exchange Commission on April 3, 2002, reporting, under Items 1, 2
and 7, a change of control in our company and our acquisition of ADS and NPI.
This Form 8-K included historical financial statements for ADS and NPI. Pro
forma financial information concerning the parties to the ADS and NPI
acquisitions is provided in Item 5 of Part II to this Current Report on Form 10-
QSB.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 22, 2002 Walker International Industries, Inc.
By: /s/ Mitchell S. Segal
--------------------------------------------
Mitchell S. Segal, President
(Duly Authorized Officer)
By: /s/ Richard Norris
--------------------------------------------
Richard Norris, Vice President
(Principal Financial and Accounting Officer)
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Walker International Industries, Inc.
Quarterly Report on Form 10-QSB
Quarter Ended February 28, 2002
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of March 19, 2002, among Walker
International Industries, Inc., NPI Acquisition Corp. and National
Preplanning, Inc. (Incorporated by reference to exhibit 2.1 to the
registrant's Current Report on Form 8- K (Date of Report: March 19, 2002)
(Commission file number: 0-5418), filed with the Securities and Exchange
Commission on April 3, 2002.)
2.2 Agreement and Plan of Merger, dated as of March 19, 2002, among Walker
International Industries, Inc., Walker Mergerco, Inc. and American
DataSource, Inc. (Incorporated by reference to exhibit 2.2 to the
registrant's Current Report on Form 8- K (Date of Report: March 19, 2002)
(Commission file number: 0-5418), filed with the SEC on April 3, 2002.)
10.1 Form of 18% Subordinated Promissory Note issued in connection with National
Preplanning, Inc. acquisition. (Incorporated by reference to exhibit 3.1(c)
of exhibit 2.1 to the registrant's Current Report on Form 8-K (Date of
Report: March 19, 2002) (Commission file number: 0-5418), filed with the
SEC on April 3, 2002.)
10.2 Form of 18% Subordinated Promissory Note issued in connection with American
DataSource, Inc. acquisition. (Incorporated by reference to exhibit 3.1(c)
of exhibit 2.2 to the registrant's Current Report on Form 8-K (Date of
Report: March 19, 2002) (Commission file number: 0-5418), filed with the
SEC on April 3, 2002.)
10.3 Employment Agreement, dated as of March 19, 2002, among Walker
International, Inc., Kelly Color, Inc. and Peter Walker. (Incorporated by
reference to exhibit 10.3 to the registrant's Current Report on Form 8-K
(Date of Report: March 19, 2002) (Commission file number: 0-5418), filed
with the SEC on April 3, 2002.)
10.4 Employment Agreement, dated as of March 19, 2002, between Walker
International Industries, Inc., National Preplanning, Inc. and Mitchell
Segal. (Incorporated by reference to exhibit 10.4 to the registrant's
Current Report on Form 8-K (Date of Report: March 19, 2002) (Commission
file number: 0-5418), filed with the SEC on April 3, 2002.)
10.5 Form of Registration Rights Agreement among Walker International
Industries, Inc. and the former stockholders of National Preplanning, Inc.
(Incorporated by reference to exhibit 8.2(h) to exhibit 2.1 to the
registrant's Current Report on Form 8-K (Date of Report: March 19, 2002)
(Commission file number: 0-5418), filed with the SEC Commission on April 3,
2002.)
10.6 Form of Registration Rights Agreement among Walker International
Industries, Inc. and the former stockholders of American DataSource, Inc.
(Incorporated by reference to exhibit 8.2(g) to exhibit 2.2 to the
registrant's Current Report on Form 8-K (Date
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of Report: March 19, 2002) (Commission file number: 0-5418), filed with the
SEC on April 3, 2002.)
10.7 Form of Escrow Agreement among Walker International Industries, Inc.,
National Preplanning, Inc., and Snow Becker Krauss P.C., as escrow agent.
(Incorporated by reference to exhibit 3.4 to exhibit 2.1 to the
registrant's Current Report on Form 8-K (Date of Report: March 19, 2002)
(Commission file number: 0-5418), filed with the SEC on April 3, 2002.)
10.8 Form of Escrow Agreement among Walker International Industries, Inc.,
American DataSource, Inc. and Snow Becker Krauss P.C., as escrow agent.
(Incorporated by reference to exhibit 3.4 to exhibit 2.2 to the
registrant's Current Report on Form 8-K (Date of Report: March 19, 2002)
(Commission file number: 0-5418), filed with the SEC on April 3, 2002.)
20