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 May 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-5418
WALKER INTERNATIONAL INDUSTRIES, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 13-2637172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Ken-Anthony Plaza, South Lake Blvd., Mahopac, New York 10541
(Address of principal executive offices) (Zip Code)
(914) 628-9404
Issuer's telephone number, including area code
N/A
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Common Stock outstanding, par value $.10
per share, as of July 13, 1998 was 264,111.
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>
May 31, November 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 505,992 $ 349,568
Trading securities - at market - 146,742
Accounts receivable - less allowance for
doubtful accounts of $1,000 29,547 17,097
Inventories 49,118 61,920
Prepaid expenses 17,594 21,861
Prepaid income taxes 2,852 775
U.S. Government securities 519,028 518,054
Total current assets 1,124,131 1,116,017
Property, plant and equipment - at cost 988,968 956,226
Less accumulated depreciation 819,890 802,431
169,078 153,795
Available-for-sale securities - at market - 121,500
Other assets
U.S. Government securities 79,407 -
Security deposit 1,700 1,700
Total other assets 81,107 1,700
Total $1,374,316 $1,393,012
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 104,134 $ 155,685
Customer deposits 11,435 12,751
Income taxes payable 683 8,681
Total current liabilities 116,252 177,117
Stockholders' equity
Common stock, $.10 par value, authorized
1,000,000 shares, issued 489,310 shares 48,931 48,931
Additional paid-in capital 1,118,880 1,118,880
Retained earnings 676,928 601,584
Unrealized gain on marketable
equity securities - 22,500
1,844,739 1,791,895
Less treasury stock - at cost -
218,699 shares and 215,199 shares,
respectively 586,675 576,000
Total stockholders' equity 1,258,064 1,215,895
Total $1,374,316 $1,393,012
</TABLE>
<PAGE>
TABLE
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended Six months ended
May 31, May 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 269,874 $ 254,892 $ 822,280 $ 796,687
Costs and expenses
Cost of sales 175,424 175,090 376,806 372,122
Selling, general and
administrative 116,358 119,107 450,473 417,701
Recovery of bad debts (1,222) (986) (1,222) (2,637)
290,560 293,211 826,057 787,186
Operating income
(loss) (20,686) (38,319) (3,777) 9,501
Investment income 49,056 37,208 86,274 63,498
Income (loss) before
provision for income
taxes 28,370 (1,111) 82,497 72,999
Provision for income taxes 377 (846) 7,153 11,253
Net income (loss)$ 27,993 $ (265) $ 75,344 $ 61,746
Earnings per common share $ .11 $ - $ .28 $ .22
Weighted average number of
common shares outstanding 271,029 274,972 272,553 278,398
</TABLE>
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Six months ended
May 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 75,344 $ 61,746
Items not requiring the current use of cash
Depreciation 17,459 15,815
Amortization of bond premium and discount (974) -
Gain on sale of available-for-sale
securities (32,620) (879)
Recoveries of bad debts (1,222) (2,637)
Changes in items affecting operations
Investment in trading securities 147,964 (53,876)
Accounts receivable (12,450) (2,928)
Inventories 12,802 9,814
Prepaid expenses 4,267 1,659
Prepaid income taxes (2,077) (2,369)
Accounts payable and accrued expenses (51,551) (48,221)
Customer deposits (1,316) (10,949)
Income taxes payable (7,998) 4,539
Net cash provided (used) by operating
activities 147,628 (28,286)
Cash flows from investing activities
Purchase of U.S. Government securities (79,407) -
Proceeds from sale of available-for-sale
securities 131,620 -
Payments for purchase of equipment (32,742) (6,508)
Net cash provided (used) by investing
activities 19,471 (6,508)
Cash flows from financing activities
Acquisition of common stock for treasury (10,675) (32,868)
Net cash used by financing activities (10,675) (32,868)
Net increase (decrease) in cash and
cash equivalents 156,424 (67,662)
Cash and cash equivalents - beginning 349,568 286,188
Cash and cash equivalents - end $ 505,992 $ 218,526
Supplemental Cash Flows Information
Cash payments for income taxes $ 17,228 $ 9,083
</TABLE>
Supplemental Schedule of Noncash Operating Activity
During 1998 and 1997, the Company received, in lieu of cash, investment
securities with a value of $1,222 and $2,637, respectively, to satisfy a
previously written off accounts receivable.
<PAGE> WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(NOTE A) - The accompanying consolidated financial statements are prepared
on the basis of generally accepted accounting principles. In the opinion of
the management of Walker International Industries, Inc. and Subsidiaries, all
adjustments are of a normal recurring nature and have been reflected for a
fair presentation of the unaudited balance sheet as of May 31, 1998, and
results of operations and cash flows for the periods ended May 31, 1998 and
1997. The operating results for the periods are not necessarily indicative of
the results to be expected for the entire year.
(NOTE B) - INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities:
Gross unrealized Estimated
Description Cost Gains Losses Fair Value
Held-to-Maturity
U.S. Government securities -
maturing November 30, 1998 $ 519,028 $ 459 $ - $ 519,487
U.S. Government securities -
maturing October 30, 1999 79,407 - 357 79,050
$ 598,435 $ 459 $ 357 $ 598,537
The change in net unrealized holding loss on trading securities that has
been included in earnings during the period amount to $4,485 (1998) and
$10,080 (1997).
(NOTE C) - An analysis of inventories is as follows:
May 31, November 30,
1998 1997
(Unaudited) (Audited)
Raw materials $ 20,599 $ 27,674
Work-in-process 5,360 5,977
Finished goods 23,159 28,269
$ 49,118 $ 61,920
(NOTE D) - The provision for income taxes consists solely of state and local
taxes. The provision for income taxes has been reduced by approximately
$14,000 during the six months ended May 31, 1998, and $10,500 during the six
months ended May 31, 1997, which represents the benefit of the federal net
operating loss carryforward for which a valuation reserve had been previously
provided.
(NOTE E) - In June 1998, the Company was advised by a national retailer that
it was not planning to continue to utilize the services of the Company's
portrait studio division for its Christmas 1998 promotion.
<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 $68,979 to $1,007,879 at May 31, 1998, as compared to $938,900 at November
30, 1997. Net cash provided by operating activities amounted to $147,628. This
resulted primarily from a decrease in investment in trading securities of
$147,964 and net income of $75,344, offset in part by a decrease in accounts
payable and accrued expenses of $51,551 and gain on sale of available-for-sale
securities (a non-cash item) of $32,620. Net cash provided by investing
activities was $19,471, and the company purchased common stock for its
treasury in the amount of $10,675.
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 six months ended May 31, 1998 (the "Current Period")
increased to $822,280 as compared to sales of $796,687 in the six months ended
May 31, 1997 (the "1997 Period"), primarily as a result of a sales volume
increase in the Kelly Color subsidiary. Sales for the three months ended May
31, 1998 (the "Current Quarter") increased to $269,874 as compared to $254,892
in the quarter ended May 31, 1997 (the "1997 Quarter"), due to an increase in
Kelly Color sales volume.
In the Current Period, cost of sales as a percentage of sales ("COS") were
45.8%, slightly lower than the COS of 46.7% in the 1997 Period. In the Current
Quarter, COS was 65.0% as compared to 68.7% in the 1997 Quarter. This decrease
was primarily due to increased absorption of labor costs as a result of
increased sales. Cost percentages were higher in the Current Quarter as
compared to the Current Period due to the absence of more profitable seasonal
sales in the Department Store subsidiary that occur only in the fiscal quarter
ended February 28th. This trend occurred in the prior fiscal year as well.
In the Current Period, selling, general and administrative expenses net of
recovery of bad debts were 54.8% as a percentage of sales as compared to 52.1%
in the 1997 Period, primarily due to increases in payroll and other expenses
in the Department Store Photography subsidiary offset in part by increased
absorption resulting from higher sales in Kelly Color. In the Current Quarter,
selling, general and administrative expenses net of recovery of bad debts were
42.7% as a percentage of sales as compared to 46.3% in the 1997 Quarter. This
was also due primarily to increased cost absorption at Kelly Color resulting
from higher sales. The Company earned investment income of $86,274 in the
Current Period and $49,056 in the Current Quarter, as compared to $63,498 and
$37,208 in the 1997 Period and 1997 Quarter, respectively. Included in
investment income during the Current Quarter was a gain of $32,620 realized on
the sale of a security previously classified as available-for-sale.
In the Current Period, the Company had net income before provision for income
taxes of $82,497 as compared to $72,999 in the 1997 Period, primarily due to
increases in investment income and improved performance at Kelly Color, offset
in part by reduced profits in the Department Store subsidiary. In the Current
Quarter, the Company had net income before provision for income taxes of
$28,370 as compared to a loss of $1,111 in the 1997 Quarter, due primarily to
Kelly Color profits and investment income as mentioned previously. 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 $14,000 in the Current Period and $10,500 in the 1997 Period
which represents the benefit of the federal net operating loss carryforward
for which a valuation reserve had been previously provided. In the Current
Period, earnings per share were $.28 before income taxes as compared to $.22
in the 1997 Period. In the Current Quarter, there were earnings per share of
$.11 as compared to $.00 in the 1997 Quarter.
Item 5. Other Information
Rider 6A
On June 9, 1998, the Company was advised by Macy's Department Store that it
would not continue to utilize the services of the Company's Department Store
Photography Division. This activity constitutes substantially all of the
Division's business, which in 1997 contributed approximately $60,000 to the
net profit realized by the Company.
<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: July 13, 1998
WALKER INTERNATIONAL
INDUSTRIES, INC.
By:/s/ Peter Walker
Peter Walker
President
By:/s/ Richard Norris
Richard Norris
Vice President
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 505992
<SECURITIES> 598435
<RECEIVABLES> 30547
<ALLOWANCES> (1000)
<INVENTORY> 49118
<CURRENT-ASSETS> 1124131
<PP&E> 988968
<DEPRECIATION> (819890)
<TOTAL-ASSETS> 1374316
<CURRENT-LIABILITIES> 116252
<BONDS> 0
<COMMON> 48931
0
0
<OTHER-SE> 1209133
<TOTAL-LIABILITY-AND-EQUITY> 1386595
<SALES> 822280
<TOTAL-REVENUES> 908554
<CGS> 376806
<TOTAL-COSTS> 826057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 82497
<INCOME-TAX> 7153
<INCOME-CONTINUING> 75344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75344
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
