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, 1997
[ ] 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 14, 1997 was 274,111.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
August 31, November 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 467,629 $ 286,188
Investment securities 966 166,787
Accounts receivable - less allowance for
doubtful accounts of $2,000 7,286 11,304
Inventories 50,857 59,118
Prepaid expenses 24,144 22,154
Prepaid income taxes 2,251 843
Total current assets 553,133 546,394
Property, plant and equipment - at cost 956,226 949,718
Less accumulated depreciation 794,523 770,800
161,703 178,918
Other assets
Investment securities 517,568 516,483
Other investments - at cost 99,000 99,000
Other assets 1,700 1,700
Total other assets 618,268 617,183
Total $1,333,104 $1,342,495
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 124,285 $ 167,016
Customer deposits 4,575 15,286
Income taxes payable 6,989 3,725
Total current liabilities 135,849 186,027
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 605,444 531,789
1,773,255 1,699,600
Less treasury stock - at cost -
215,199 shares and 200,599 shares,
respectively 576,000 543,132
Total stockholders' equity 1,197,255 1,156,468
Total $1,333,104 $1,342,495
</TABLE>
<PAGE>
TABLE
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended Nine months ended
August 31, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 267,088 $ 252,527 $1,063,775 $1,116,006
Costs and expenses
Cost of sales 151,150 154,549 523,272 544,684
Selling, general and
administrative 123,952 123,606 541,653 576,803
Recovery of bad debts (892) (1,932) (3,529) (6,502)
274,210 276,223 1,061,396 1,114,985
Operating income (loss) (7,122) (23,696) 2,379 1,021
Other income
Investment income 20,323 11,091 83,821 37,613
Gain on sale of equipment - - - 10,200
20,323 11,091 83,821 47,813
Income (loss) before
provision for
income taxes 13,201 (12,605) 86,200 48,834
Provision for income taxes 1,292 (1,009) 12,545 5,299
Net income (loss) $ 11,909 $ (11,596) $ 73,655 $ 43,535
Net income (loss) per common
share $ .04 $ (.04) $ .27 $ .15
Weighted average number of
common shares outstanding 274,111 298,081 276,959 298,081
</TABLE>
<PAGE>
TABLE
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Nine months ended
August 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income $ 73,655 $ 43,535
Items not requiring the current use of cash
Gain on sale of equipment - (10,200)
Depreciation 23,723 26,223
Amortization of goodwill - 643
Unrealized gain on trading securities (74) (241)
Deferred compensation - (7,331)
Recovery of bad debts (3,529) (6,502)
Changes in items affecting operations
Investment in trading securities 169,424 (17,231)
Accounts receivable 4,018 3,051
Inventories 8,261 3,061
Prepaid expenses (1,990) (5,676)
Prepaid income taxes (1,408) 397
Accounts payable and accrued expenses (42,731) (53,215)
Customer deposits (10,711) (10,460)
Income taxes payable 3,264 1,044
Net cash provided (used) by operating
activities 221,902 (32,902)
Cash flows from investing activities
Amortization of bond (discount) premium (1,085) 2,106
Proceeds from sale of equipment - 10,200
Payment for purchase of equipment (6,508) (9,406)
Net cash provided (used) by investing
activities (7,593) 2,900
Cash flows from financing activities
Acquisition of common stock for treasury (32,868) -
Net cash used by financing activities (32,868) -
Net increase (decrease) in cash and
cash equivalents 181,441 (30,002)
Cash and cash equivalents - beginning 286,188 332,467
Cash and cash equivalents - end $ 467,629 $ 302,465
Supplemental Cash Flows Information
Cash payments for income taxes $ 10,689 $ 3,200
</TABLE>
Supplemental Schedule of Noncash Operating Activity
During 1997 and 1996, the Company received, in lieu of cash, investment
securities with a value of $3,529 and $6,502, respectively, to satisfy an
accounts receivable.
PAGE
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(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, 1997, and
results of operations and cash flows for the periods ended August 31, 1997 and
1996. Certain amounts from the previous year have been reclassified to
conform with the 1997 presentation. The operating results for the periods are
not necessarily indicative of the results to be expected for the entire year.
(NOTE B) - The following is a summary of held-to-maturity securities, all of
which mature at November 30, 1998:
Gross unrealized Estimated
Description Cost Gains Losses Fair Value
Held-to-Maturity
U S Government securities $ 519,090 $ - $ 1,489 $ 517,568
Included in short-term investment securities as of August 31, 1997, are
the following:
Estimated Carrying
Description Cost Fair Value Amount
Trading equity securities $ 892 $ 966 $ 966
The change in net unrealized holding gain on trading securities that has
been included in earnings during the period amount to $74 (1997) and $241
(1996).
(NOTE C) - An analysis of inventories is as follows:
August 31, November 30,
1997 1996
Raw materials $ 24,460 $ 30,408
Work-in-process 3,220 7,166
Finished goods 23,177 21,544
$ 50,857 $ 59,118
(NOTE D) - The provision for income taxes consists solely of state and local
taxes. The provision for income taxes has been reduced by approximately
$13,500 during the nine months ended August 31, 1997, and $6,500 during the
nine months ended August 31, 1996, which represents the benefit of the federal
net operating loss carryforward for which a valuation reserve had been
previously provided.
<PAGE>
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 $56,917 to $417,284 at August 31, 1997, as compared to $360,367 at November
30, 1996. Cash provided by operating activities amounted to $221,902. This
resulted primarily from a decrease in investment in trading securities of
$169,424, net income of $73,655, and depreciation (a non-cash charge) of
$23,723, offset primarily by a decrease in accounts payable and accrued
expenses of $42,731.
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, 1997 (the "Current Period")
decreased to $1,063,775 as compared to sales of $1,116,006 in the nine months
ended August 31, 1996 (the "1996 Period"), as a result of sales volume
decreases in the Department Store and Kelly Color subsidiaries. Sales for the
three months ended August 31, 1997 (the "Current Quarter") increased to
$267,088 as compared to $252,527 in the quarter ended August 31, 1996 (the
"1996 Quarter"), due to an increase in Kelly Color sales volume.
In the Current Period, cost of sales as a percentage of sales ("COS") were
49.2%, as compared to COS of 48.8% in the 1996 Period. In the Current Quarter,
COS was 56.6% as compared to 61.2% in the 1996 Quarter, primarily due to
improved efficiency in labor costs and materials usage. 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 as a
percentage of sales were 50.9% as compared to 51.7% in the 1996 Period. In the
Current Quarter, selling, general and administrative expenses as a percentage
of sales were 46.4% as compared to 48.9% in the 1996 Quarter. This was due
primarily to increased cost absorption resulting from higher sales.
The Company had investment income of $83,821 in the Current Period and $20,323
in the Current Quarter. The investment income resulted primarily from the
investment of a small part of the Company's cash resources to test investment
techniques developed by its Chief Executive Officer. The objective of the test
was to determine the viability of establishing a subsidiary offering the
utilization of such techniques to others in the form of a managed fund. Since
the test results appeared to be favorable, the Company organized a New York
subsidiary corporation entitled Walker Capital Management Corporation. It is
the intention of the subsidiary to sponsor a fund in which investors may
purchase limited partnership interests, the investments for which will be
managed by the subsidiary. The subsidiary has employed a consultant with
substantial experience in the administration of investment funds to assist in
the formation of the fund and has agreed to issue options to purchase 30,000
shares of the Company's Common Stock upon the adoption of an Incentive Stock
Option Plan. The Plan is subject to approval by shareholders. The options are
to have a term of nine years from issue and are to be exercisable at the mean
between the high bid and the low offer for the Company's Common Stock in the
Over-the-Counter market at the time of the issuance of the option. Another
option for an additional 20,000 shares is to be issued nine months thereafter.
It is not intended that a substantial amount of the Company's resources will
be invested in the partnership. The Company continues to seek the purchase of
an operating subsidiary with its available cash assets. The Company does not
intend to become an investment company, nor does it believe that the fund to
be organized by its subsidiary will be of such size as to be required to
register as such under the statutes and regulations governing investment
companies, nor does it intend that the subsidiary hold itself out as an
investment advisor to entities other than the fund it expects to sponsor.
In the Current Period, the Company had income before income taxes of $86,200
as compared to $48,834 in the 1996 Period, primarily due to increases in
investment income and increased profitability at Kelly Color. In the Current
Quarter, the Company had income before income taxes of $13,201 as compared to
a loss of $12,605 in the 1996 Quarter, due primarily to increased sales and
cost efficiencies. 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 $13,500 in the Current Period and
$6,500 in the 1996 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 $.27 compared to
$.15 in the 1996 comparable Period. There was net income per share of $.04 in
the Current Quarter, as compared to a net loss per share of $.04 in the 1996
Quarter.
<PAGE>
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.
<PAGE>
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, 1997
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 467629
<SECURITIES> 966
<RECEIVABLES> 9286
<ALLOWANCES> (2000)
<INVENTORY> 50857
<CURRENT-ASSETS> 553133
<PP&E> 956226
<DEPRECIATION> (794523)
<TOTAL-ASSETS> 1333104
<CURRENT-LIABILITIES> 135849
<BONDS> 0
<COMMON> 48931
0
0
<OTHER-SE> 1148324
<TOTAL-LIABILITY-AND-EQUITY> 1333104
<SALES> 1063775
<TOTAL-REVENUES> 1147596
<CGS> 523272
<TOTAL-COSTS> 1061396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86200
<INCOME-TAX> 12545
<INCOME-CONTINUING> 73655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73655
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
