<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year ended
November 30, 1996.
Commission File No. 0-5418
WALKER INTERNATIONAL INDUSTRIES, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-2637172
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 Ken-Anthony Plaza, So. Lake Boulevard, Mahopac, New York 10541
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (914) 628-9404
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value, $.10 per share
(Title of Class)
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 past
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.
X Yes No
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained
herein, 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 [X]
Issuer's revenues for the fiscal year ended November 30, 1996
were $1,513,145.
The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of February 6, 1997 was
approximately $286,567. On such date, the average of the closing
bid and asked prices of the Common Stock, as quoted by the
National Association of Securities Dealers, Inc. on its OTC
Electronic Bulletin Board was $2.25.
The Registrant had 275,311 shares of Common Stock outstanding as
of February 6, 1997.
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
<PAGE>
Item 1. Description of Business
General
Walker International Industries, Inc. (the "Registrant" or
the "Company") was organized under the laws of the State of
Delaware under the name Walker Color, Inc. on September 29, 1967.
During the fiscal year ended November 30, 1996, the Company
engaged in film processing through its subsidiary Kelly Color
Laboratories, Inc. based in North Carolina. The Kelly Color
division processes photographs, generally for professional
photographers, principally through mail orders.
In addition, the Company has a license with Macy's
department store, in New York City, to take portraits of children
with Santa Claus during the Christmas season.
Marketing
Marketing for the Company's photography processing work is
done through advertising in trade journals and direct
solicitation of photographers. The Company markets its
photography processing services to photographers throughout the
United States. However, due to the location of its Kelly Color
division in North Carolina, the film processing business, in
general, is concentrated in the southeastern portion of the
United States.
The market for the Company's department store photography
business is in the New York City metropolitan area. Marketing is
based on the department store's tradition and reputation for
providing an opportunity for photographs to be taken with Santa
Claus during the Christmas season and through limited newspaper
advertising.
Sources of Raw Material
The Company procures a substantial portion of its film,
photographic paper and laboratory equipment and chemicals from
the Eastman Kodak Company. The Company has no contractual
relationship with the Eastman Kodak Company to continue to supply
such materials. It considers its relationship with that company
to be satisfactory and believes its present sources of supplies
are adequate to meet its needs for the foreseeable future. The
Company believes that such supplies are available from
alternative sources at comparable prices.
Macy's License
In November of 1995 and again in November of 1996, the
Company entered into license agreements with Macy's Department
Store which permitted the Company to take portraits of children
with Santa Claus in its flagship store in New York City during
the Christmas season in those years. The Company's obligation to
Macy's under the license was is to pay Macy's a percentage of net
sales on all business generated from photographs taken. The
license terminated on December 25 in each such year. The Company
expects to be able to renew its license agreement with Macy's in
1997 on substantially similar terms to the 1995 and 1996
agreements, although no assurance of this can be given.
Seasonal Business
The Company's business is seasonal in nature with
approximately 40% of net sales anticipated to occur during the
quarter ending February 28th. The Company's business is seasonal
principally as a result of the Company's Department Store
subsidiary's annual Christmas promotion in which children are
photographed with Santa Claus.
Customers
For the fiscal year ended November 30, 1996, there was no
one customer of the Company which accounted for more than 10% of
the Company's total photography business or upon whom the Company
is dependent for material portions of its sales, revenues or
earnings. The Company derived approximately 26% of its revenue
through its license agreement with Macy's East, Inc., although
this is representative of purchases by several thousand
individual customers.
Competitive Conditions
The Company's photography business is highly competitive.
There are a large number of professional photographic
laboratories offering services similar to those offered by the
Company in the areas where the Company carries on its photography
business.
With respect to both its department store and film
processing operations, the Company competes primarily on the
basis of price and quality of services performed. Many of the
Company's competitors have substantially greater sales, assets
and resources than the Company.
Employees
As of February 6, 1997, the Company employed approximately
25 persons.
Item 2. Description of Property
The Company's executive offices are located at 4 Ken-Anthony
Plaza, South Lake Boulevard, Mahopac, New York 10541. These
offices contain approximately 650 square feet and are leased by
the Company from an unaffiliated third party for a monthly rental
of $1,405. The lease expires in May 1998.
One of the Company's subsidiaries, Kelly Color
Laboratories, Inc., owns the land and the building located at 513
East Union Street, Morganton, North Carolina. The building
contains approximately 15,000 square feet of space, housing the
subsidiary's offices, photographic laboratory, shipping and
storage areas. This property is not subject to any mortgage or
other encumbrance.
The Company has historically also taken portraits of
children with Santa Claus in the Macy's Department Store in New
York City during the Christmas season pursuant to license
agreements. The Company expects to be able to renew its license
agreement with Macy's in 1997, although no assurance of this can
be given.
The Company believes that its facilities are adequate for
the foreseeable future.
Item 3. Legal Proceedings
The Company is not involved in any legal proceeding which
may be deemed to be material to the financial condition of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
(a) The Company's Common Stock is traded in the
over-the-counter market and is quoted through the OTC Electronic
Bulletin Board, maintained by the National Association of
Securities Dealers, Inc., under the symbol WINT. The following
table sets forth the high and low bid quotations for the
Company's Common Stock for each fiscal quarter during the last
two years:
1996 High Bid Low Bid
1st Fiscal Quarter $1.50 $1.375
2nd Fiscal Quarter $1.50 $1.375
3rd Fiscal Quarter $1.75 $1.50
4th Fiscal Quarter $1.75 $1.625
1995 High Bid Low Bid
1st Fiscal Quarter $1.375 $1.125
2nd Fiscal Quarter $1.375 $1.25
3rd Fiscal Quarter $1.375 $1.375
4th Fiscal Quarter $1.375 $1.375
The above quotations represent prices between dealers and
do not include retail markups, markdowns or commissions, nor do
they represent actual transactions.
(b) As of February 6, 1997, there were 245 record holders
of the Company's Common Stock.
(c) During the two fiscal years ended November 30, 1996 and
November 30, 1995, the Company did not declare or pay any cash
dividends to its shareholders. The Company is not a party to any
loan agreement or other document which places restrictions on the
payment of cash dividends by the Company. Unless corporate
earnings are sufficient to justify the payment of cash dividends,
the Company does not anticipate paying any cash dividends in the
foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Financial Condition and Liquidity
The Company's liquidity (current assets minus current
liabilities) decreased by $434,799 to $360,367 at November 30,
1996, as compared to $795,166 at November 30, 1995. This decrease
is primarily the result of the maturity and purchase of certain
investment securities, classified as "Other Assets," in the
amount of $516,483. Other Assets increased by $515,840 at
November 30, 1996, as compared to November 30, 1995.
Cash used by operating activities amounted to $23,273. This
resulted primarily from an increase in Investment in Trading
Securities of $83,699 and a decrease in accounts payable of
$27,906, offset in part by net income of $75,526, and
depreciation, a non-cash charge, of $35,043. Net cash used in
investing activities was $3,674. In addition, the Company
purchased treasury stock in the amount of $19,332.
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
Net sales for the year ended November 30, 1996 ("Fiscal 1996")
were $1,431,486 representing a decrease of $36,299 from sales in
the comparable period in 1995 ("Fiscal 1995"). Sales volume
decreased in both the Department Store and Kelly Color
subsidiaries. Investment income in Fiscal 1996 decreased by
$10,648 as compared to Fiscal 1995.
In Fiscal 1996, costs of sales as a percentage of sales were
50.7% as compared to 52.3% in Fiscal 1995. This decrease was due
largely to production efficiencies at Kelly Color, offset in part
by increases in cost of materials. In Fiscal 1996, selling,
general and administrative expenses as a percentage of sales were
49.7% as compared to 49.4% in Fiscal 1995.
The Company had net income before cumulative effect of accounting
change of $75,526 in Fiscal 1996 as compared to $58,671 in Fiscal
1995. The Company's increased profitability resulted primarily
from production efficiencies, and a gain on the sale of equipment of
$10,200. In Fiscal 1996, earnings per share from operations were
$.25 as compared to $.19 in Fiscal 1995. The cumulative effect of
accounting change accounted for an additional $.04 per share in
earnings in Fiscal 1995, or a total earnings per share of $.23.
On December 1, 1994, the Company adopted FASB Statement No. 115
"Accounting for Certain Investments in Debt and Equity
Securities." Gross unrealized losses on held-to-maturity
securities of $10,281 are reflected as the cumulative effect of
accounting change in Fiscal 1995.
Item 7. Financial Statements
The financial information required by this Item 7 begins on
page F-1 of this Report, following Part III hereof.
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
The Company has not changed its accountants within the
twenty-four month period prior to November 30, 1996.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
The Directors and executive officers of the Company are as
follows:
Positions and Has served as
Offices Director
Name Age with Registrant Continuously Since
Peter Walker 50 President, CEO 1973
and Chairman
Richard Norris 50 Vice-President, 1981
Secretary,Treasurer
and a Director
Charles Snow 64 Director 1976
All of the foregoing persons were elected as Directors for
a term of one year, or until their successors are duly elected
and qualified. There are no arrangements or understandings
between any Director and any other person(s) pursuant to which a
Director was selected as a Director.
The foregoing Officers are elected for terms of one year,
or until their successors are duly elected and qualified or until
terminated by action of the Board of Directors.
There are no relationships by blood, marriage, or adoption
(not more remote than first cousin) between any Director or
Executive Officer of the Company.
Business Experience
Peter Walker, President, Chief Executive Officer and
Chairman, assumed his position as President in 1984 and as
Chairman in 1987. Prior to 1984 and beginning in 1977, Mr.
Walker was Executive Vice-President, Secretary and a Director of
the Company. Previously, Mr. Walker was Vice-President of the
Company. Mr. Walker is responsible for acquisitions and
operations. For more than five years previously, Mr. Walker had
principal duties in retail sales management.
Richard Norris has been a Vice-President of the Company
since 1983, Treasurer of the Company since 1977 and Secretary
since 1984. Prior thereto he was employed in the Company's
financial department for more than 5 years as Assistant
Treasurer, Controller and Assistant Controller.
Charles Snow, a principal of the law firm of Snow Becker
Krauss P.C., general counsel to the Company, has been engaged in
the practice of law for more than 30 years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's Officers, Directors and persons who own
more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. These
reporting persons are required by regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based
solely on the Company's copies of such forms received or written
representations from certain reporting persons that no Form 5's
were required for those persons, the Company believes that,
during the time period from December 1, 1995 through November 30,
1996, all filing requirements applicable to its officers,
directors and greater then ten percent beneficial owners were
complied with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to,
earned by, or paid for all services rendered to the Company, a
small business issuer, during the fiscal years ended November 30,
1996, 1995 and 1994, by the Company's Chief Executive Officer,
who was the Company's only executive officer whose total
compensation exceeded $100,000 in those years.
Annual Compensation
Name and
Principal Position Year Salary($) Bonus($)
Peter Walker, Chief 1996 $110,000 $5,000
Executive Officer and 1995 108,000 7,000
Director 1994 120,000 -0-
The Company did not grant any stock options, nor were any
options exercised, during the fiscal year ended November 30,
1996. The Company has no long-term incentive plan awards.
Directors Fees
Directors currently receive no cash compensation for
serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of February 6, 1996,
certain information concerning those persons known to the Company
to be the beneficial owners of more than five percent of the
Common Stock of the Company, the number of shares of Common Stock
of the Company owned by all Directors of the Company,
individually, and by all Directors and executive officers of the
Company as a group:
Name and Address Amount and Nature of Percent of
Beneficial Owners Beneficial Ownership(1) Class(2)
Peter Walker(3) 142,477(4) 51.8%
Richard Norris(3) 3,320 1.2%
Charles Snow 2,151 .8%
605 Third Avenue
New York, NY 10158
Peter Walker as Trustee of 90,000(5) 32.7%
The Robert Walker Life
Insurance Trust(3)
All Officers and Directors
as a Group (Three Persons) 147,948(4) 53.7%
_________________________________
(1) Unless otherwise noted, all shares are beneficially owned
and the sole voting and investment power is held by the persons
indicated.
(2) Based on 275,311 shares outstanding as of February 6, 1997.
(3) The address of this person is c/o the Company, 4 Ken-Anthony
Plaza, South Lake Boulevard, Mahopac, New York 10541.
(4) Includes the following Shares as to which Peter Walker
disclaims beneficial ownership to the extent such shares are held
for the benefit of Richard Walker: (a) 90,000 Shares held in
trust for the benefit of Peter Walker and Richard Walker, equally
under the Robert Walker Life Insurance Trust, as to which Peter
Walker serves as trustee; (b) 16,500 Shares held in trust for the
benefit of Peter Walker, as to which Peter Walker serves as
trustee; and (c) 3,100 Shares held in trust for the benefit of
Richard Walker, as to which Peter Walker serves as trustee.
(5) The beneficiaries of the Robert Walker Life Insurance Trust
are Peter Walker and Richard Walker, equally. Peter Walker, as
Trustee, has voting power over said Shares held in trust.
Item 12. Certain Relationships and Related Transactions
The Company has retained the law firm of Snow Becker Krauss
P.C., of which Charles Snow, a Director of the Company, is a
principal.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of Walker Color, Inc.
dated September 20, 1967 and Amendment thereto dated
July 30, 1968 (incorporated herein by reference from
Exhibit 3(a) to Registrant's Registration Statement of
Form S-1, File No. 2-300002.)
3.2 By-Laws of Walker Color, Inc. (incorporated herein by
reference from Exhibit 3(b) to Registrant's
Registration Statement on Form S-1,
File No. 2-300002.).
3.3 Excerpt from minutes of Board of Directors meeting of
January 25, 1980, amending the By-Laws of Walker Color,
Inc. (incorporated herein by reference from Exhibit 3.3
to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1981.)
11.1 Statement re: calculation of per share earnings.
21.1 List of subsidiaries of Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
Walker International Industries, Inc.
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public
Accountants F-1
Consolidated Balance Sheet as of
November 30, 1996 F-2
Consolidated Statements of Operations
for each of the two years in the
period ended November 30, 1996 F-3
Consolidated Statements of Stockholders'
Equity for each of the two years in
the period ended November 30, 1996 F-4
Consolidated Statements of Cash Flows
for each of the two years in the
period ended November 30, 1996 F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
Walker International Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Walker
International Industries, Inc. and Subsidiaries as of November 30, 1996,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended November 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 that 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 Walker International Industries, Inc. and Subsidiaries as of
November 30, 1996, and the consolidated results of its operations and its
cash flows for the years ended November 30, 1996 and 1995, in conformity
with generally accepted accounting principles.
/s/ Kofler, Levenstein, Romanotto & Co., P.C.
Kofler, Levenstein, Romanotto & Co., P.C.
Certified Public Accountants
Rockville Centre, New York
December 30, 1996
F-1
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996
ASSETS
<CAPTION>
<S> <C>
Current assets
Cash and cash equivalents $ 286,188
Investment securities 166,787
Accounts receivable - less allowance for doubtful
accounts of $2,000 11,304
Inventories 59,118
Prepaid expenses 22,154
Prepaid income taxes 843
Total current assets 546,394
Property, plant and equipment - at cost 949,718
Less accumulated depreciation 770,800
178,918
Other assets
Investment securities 516,483
Other investments - at cost 99,000
Other assets 1,700
Total other assets 617,183
Total $1,342,495
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 167,016
Customer deposits 15,286
Income taxes payable 3,725
Total current liabilities 186,027
Stockholders' equity
Common stock, $.10 par value, authorized
1,000,000 shares, issued 489,310 shares 48,931
Additional paid-in capital 1,118,880
Retained earnings 531,789
1,699,600
Less treasury stock - at cost - 200,599 shares 543,132
Total stockholders' equity 1,156,468
Total $1,342,495
</TABLE>
F-2
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years ended November 30,
1996 1995
<S> <C> <C>
Sales and other income
Net sales $1,431,486 $1,467,785
Investment income 71,459 82,107
Gain on sale of equipment 10,200 250
1,513,145 1,550,142
Costs and expenses
Cost of goods sold 725,331 767,948
Selling, general and administrative 710,787 725,480
Provision for bad debts (6,502) (3,994)
1,429,616 1,489,434
Income before provision for income
taxes and cumulative effect of
accounting change 83,529 60,708
Provision for income taxes 8,003 2,037
Income before cumulative effect of
accounting change 75,526 58,671
Cumulative effect of accounting change - 10,281
Net income $ 75,526 $ 68,952
Earnings per common share
From operations $ .25 $ .19
Cumulative effect of accounting change - .04
Total $ .25 $ .23
Weighted average number of common shares
outstanding 296,886 306,261
</TABLE>
F-3
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED NOVEMBER 30, 1996
<CAPTION>
Common Stock Capital in
Total
Shares Par Excess of Retained Treasury Stock
Stockholders'
Issued Value Par Value Earnings Shares
Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 1, 1994 489,310 $ 48,931 $1,118,880 $ 387,311 171,629 $(478,812) $1,076,310
Acquisition of
common stock
for treasury 19,600 (44,988) (44,988)
Net income for year 68,952 68,952
Balance -
November 30, 1995 489,310 48,931 1,118,880 456,263 191,229 (523,800) 1,100,274
Acquisition of
common stock
for treasury 9,370 (19,332) (19,332)
Net income for year 75,526 75,526
Balance -
November 30, 1996 489,310 $ 48,93 $1,118,880 $ 531,789 200,599 $(543,132) $1,156,468
</TABLE>
F-4
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Years ended November 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 75,526 $ 68,952
Items not requiring the current use of cash
Cumulative effect of accounting change - (10,281)
Gain on sale of equipment (10,200) (250)
Depreciation 35,043 32,178
Amortization of intangibles 643 1,027
Provision for bad debts (6,502) (3,994)
Deferred compensation (6,931) (12,681)
Changes in items affecting operations
Investment in trading securities (83,699) (60,585)
Accounts receivable 6,331 37,831
Inventories (9,162) 6,090
Prepaid expenses 1,425 (4,210)
Prepaid income taxes 1,664 450
Accounts payable and accrued expenses (27,906) 42,927
Customer deposits (2,973) (1,155)
Income taxes payable 3,468 56
Net cash provided (used) by operating
activities (23,273) 96,355
Cash flows from investing activities
Purchase of held-to-maturity securities (516,484) (367,730)
Maturity of held-to-maturity securities 510,000 446,121
Amortization of bond premium 2,806 2,064
Proceeds from sale of equipment 10,200 250
Purchase of non-marketable security - (99,000)
Payments for purchase of equipment (10,196) (87,816)
Net cash used by investing activities (3,674) (106,111)
Cash flows from financing activities
Acquisition of common stock for treasury (19,332) (44,988)
Net cash used by financing activities (19,332) (44,988)
Net decrease in cash and cash
equivalents (46,279) (54,744)
Cash and cash equivalents - beginning 332,467 387,211
Cash and cash equivalents - end $ 286,188 $ 332,467
</TABLE>
F-5
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWO YEARS ENDED NOVEMBER 30, 1996
Supplemental Cash Flow Information
Net cash provided by operating activities reflects cash payments for income
taxes of approximately $4,500 in 1996 and $2,400 in 1995.
Supplemental Schedule of Non-Cash Operating Activity
During 1996 and 1995 the Company received, in lieu of cash, investment
securities with a value of $6,502 and $15,999, respectively, to satisfy an
accounts receivable.
F-6
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(NOTE A) - ACCOUNTING POLICIES
Organization - Walker International Industries, Inc. (the Company) is
engaged in various aspects of the photography business including film
processing and maintaining a portrait studio. Approximately 26% of the
Company's sales are generated through the portrait studio.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and all its wholly-owned subsidiaries.
All material intercompany transactions and balances have been eliminated
in consolidation.
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 disclosure for contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - The Company considers all highly-liquid debt
instruments with a maturity of three months or less when purchased to be
cash equivalents.
Investment Securities - Effective December 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting
for Certain Investments in Debt and Equity Securities," which creates
classification categories for such investments, based on the nature of the
securities and the intent and investment goals of the Company. Under FAS
115, management determines the appropriate classification of debt
securities at the time of purchase as either held-to-maturity, trading, or
available-for-sale and reevaluates such designation as of each balance
sheet date.
Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums, and discounts to maturity. Such amortization is
included in interest income. Available-for-sale securities are carried at
fair value, with unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity.
Dividends on equity securities are recorded in income based on payment
dates. Interest is recognized when earned. Realized gains and losses are
determined on the basis of specific identification.
In accordance with FAS 115, prior period financial statements have not
been restated to reflect the change in accounting principle. The
cumulative effect of adoption was the recognition of non-cash income of
$10,281 with no tax effect.
Inventories - Inventories are valued at the lower of cost determined on a
first-in, first-out basis or market.
F-7
<PAGE>
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Significant replacements and betterments are charged to the property,
plant and equipment accounts, while maintenance and repairs which do not
improve or extend the life of the assets are charged to expense as
incurred. When items are disposed of, the cost and accumulated
depreciation are eliminated from the accounts and any net gain or loss is
included in income.
For financial reporting purposes, depreciation is calculated on both
the straight-line and accelerated methods over the estimated useful lives
of the building (33 to 45 years), machinery and other equipment (3 to 10
years) and leasehold improvements (term of lease). Accelerated
depreciation methods are generally used for income tax purposes.
Other Investments - Other investments consist of restricted equity
securities, which are accounted for on the cost method. At November 30,
1996, the cost of the securities approximated their fair value.
Income Taxes - The Company accounts for income taxes under Statement No.
109 of the Financial Accounting Standards Board. The pronouncement
requires that deferred income taxes be provided, based upon currently
enacted tax rates, for temporary differences in the recognition of assets
and liabilities on the financial statements and for income tax purposes.
Advertising - The Company follows the policy of charging the cost of
advertising to expense as incurred.
Financial Instruments - The following methods and assumptions were used by
the Company to estimate the fair values of financial instruments as
disclosed herein:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short period to maturity of the instruments.
Investment securities: For both trading securities and available-for-sale
securities, the carrying amounts approximate fair value, which is based on
quoted market prices.
Earnings per Common Share - Earnings per common share are computed by
dividing net income for the year by the weighted average number of common
shares outstanding during the year.
(NOTE B) - CONCENTRATIONS OF CREDIT RISK
The Company's film processing business is concentrated in the
southeastern United States. Customers normally pay for processing in
advance of the Company performing the service. The Company's portrait
studio is seasonally operated under an annual licensing agreement in the
facility of one national retailer which is located in the New York City
area. Receivable balances may be significant during the seasonal period
the studio is in operation.
F-8
<PAGE>
The Company does not have a concentration of available sources of
supply materials, labor, services or other rights that, if suddenly
eliminated, could severely impact its operations.
Management does not believe significant credit risk exists at November
30, 1996.
(NOTE C) - INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities, all of which
mature at November 30, 1998:
Gross unrealized Estimated
Cost Gains Losses Fair value
U.S. Government
Securities $ 516,483 $ - $ - $ 516,483
Included in short-term investment securities at November 30, 1996, are
the following:
Estimated Carrying
Description Cost Fair value Amount
Trading equity securities $ 162,991 $ 166,787 $ 166,787
The change in net unrealized holding gain on trading securities that
has been included in earnings during the period amounted to a loss of $198
(1996) and a gain of $3,994 (1995).
(NOTE D) - FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments. The Company
estimates that the fair value of all financial instruments at November 30,
1996, does not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data
to develop the estimates of fair value, and, accordingly, the estimates are
not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
F-9
<PAGE>
(NOTE E) - ACCOUNTS RECEIVABLE
In December 1994, a national retailer with which a subsidiary of the
Company maintains a licensing agreement, reached a settlement with its
creditors relative to bankruptcy claims. At that time, management of the
Company estimated that it would recover approximately $50,000 of its claim.
Through November 30, 1996, the Company has recovered $60,496.
(NOTE F) - INVENTORIES
Inventories are summarized as follows:
Raw materials $ 30,408
Work-in-process 7,166
Finished goods 21,544
$ 59,118
(NOTE G) - PROPERTY, PLANT AND EQUIPMENT
The following tabulation sets forth the major classifications of
property, plant and equipment:
Land $ 16,500
Buildings and leasehold improvements 231,141
Equipment 559,949
Office furniture and equipment 94,367
Transportation equipment 47,761
$ 949,718
(NOTE H) - DEFERRED COMPENSATION
The Company had a deferred compensation plan providing for payments to
a former officer. The estimated present value of future benefits to be
paid had been charged to operations over the expected term of active
employment. The amount charged to expense was $269 (1996) and $1,719
(1995). When payments were made, they were charged to the deferred
compensation liability. Final payment under the agreement was made in
1996.
F-10
<PAGE>
(NOTE I) - INVESTMENT INCOME
The analysis of investment income is as follows:
Years ended November 30,
1996 1995
Interest and dividends $ 44,565 $ 42,264
Realized gain on sale of marketable
securities 27,092 35,849
Unrealized gain (loss) on trading
securities (198) 3,994
$ 71,459 $ 82,107
(NOTE J) - INCOME TAXES
The components of income tax expense are as follows:
Years ended November 30,
1996 1995
Current
Federal $ - $ -
State and local 8,003 2,037
8,003 2,037
Total $ 8,003 $ 2,037
The components of deferred tax assets are as follows:
November 30,
1996 1995
Net operating loss carryforward $ 609,711 $ 630,005
Allowance for doubtful accounts 782 2,203
Deferred compensation - 3,041
Depreciation - 11,323
Other 7,999 10,381
618,492 656,953
Valuation allowance (618,492) (656,953)
$ - $ -
The Company has available a net operating loss carryforward of
approximately $1,708,000 expiring from 2002 through 2009.
F-11
<PAGE>
The provision for income taxes for each of the two years in the period
ended November 30, 1996, differs from the statutory federal income tax rate
as follows:
Years ended November 30,
1996 1995
Income tax at the statutory federal
income tax rate $ 28,400 $ 24,136
Increases (reductions) in taxes
result from the following:
State and local income taxes,
net of federal tax benefit 5,282 1,344
Benefit of operating loss
carryforward (28,774) (26,018)
Other - net 3,095 2,575
Tax provision on financial statements $ 8,003 $ 2,037
(NOTE K) - STOCK OPTIONS
The Company has an incentive stock option plan under which certain
employees, officers and directors can be granted options to purchase common
stock through 1997. Under the plan, the Company is empowered to issue
options to purchase an aggregate of 50,000 shares of common stock. All
options are granted at the fair market value on the date of grant and can
be exercised for up to ten years from the date of grant. There are no
options currently outstanding.
(NOTE L) - COMMITMENTS AND CONTINGENCIES
The following schedule shows the composition of the total rent expense
for all operating leases except those with terms of a month or less that
were not renewed:
Years ended November 30,
1996 1995
Minimum rentals $ 16,380 $ 22,296
Contingent rentals 92,740 99,849
$ 109,120 $ 122,145
Contingent rentals relate to a cancelable license agreement with a
national retailer and are based on usage and sales. The agreement is
renewable annually.
F-12
<PAGE>
The Company leases office space under a lease expiring in May 1998.
The lease provides for rent escalations based upon increases in real estate
taxes and other operating expenses.
1997 $ 17,340
1998 8,910
$ 26,250
F-13
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING
Years ended November 30,
1996 1995
Weighted average number of shares issued 489,310 489,310
Weighted average number of treasury shares 192,424 183,049
Weighted average number of shares outstanding 296,886 306,261
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: February 21, 1997
WALKER INTERNATIONAL INDUSTRIES, INC.
By:/s/ Peter Walker
Peter Walker, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the
dates indicated.
Name Titles Date
/s/ Peter Walker President, Chief Executive February 21, 1997
Peter Walker Officer and Chairman
(Principal Executive Officer)
/s/ Richard
Norris Vice-President, Treasurer February 21, 1997
Richard Norris Secretary and Director
(Principal Financial
and Accounting Officer)
/s/ Charles Snow Director February 21, 1997
Charles Snow
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule
EXHIBIT 21.1
Subsidiaries of Registrant
State of % of Voting
Name Incorporation Securities Owned
Department Store
Photography, Inc. New York 100
The Three Dimensional
Photography Corporation New York 91.39
Kelly Color
Laboratories, Inc. North Carolina 100
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