<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, 1997.
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, 1997
were $1,406,006.
The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of February 20, 1998 was
approximately $410,030. 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 $3.25.
The Registrant had 274,111 shares of Common Stock outstanding as
of February 20, 1998.
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, 1997, 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 1996 and again in November of 1997, 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
1998 on substantially similar terms to the 1996 and 1997
agreements, although no assurance of this can be given.
Seasonal Business
The Company's business is seasonal in nature with
approximately 38.5% 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, 1997, 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 24% 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 20, 1997, the Company employed approximately
25 persons.
Inactive Subsidiary
During 1997, the Company organized a subsidiary in Delaware
named Walker Capital Management, Inc. with the expectation that
the subsidiary would organize a private fund and render investment
advisory services to the fund. In that regard, the subsidiary
engaged the services of an individual and agreed to issue
options to purchase 50,000 shares of the Company's common stock
to such person at the then current market for such stock.
The Company has decided not to proceed with the foregoing venture
at this time, and did not issue the options described above. Any
activity by the Company in the above respect has been deferred
indefinitely.
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. The Company expects to
renew its lease for favorable terms.
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 1998, 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:
1997 High Bid Low Bid
1st Fiscal Quarter $1.875 $1.625
2nd Fiscal Quarter $1.875 $1.625
3rd Fiscal Quarter $2.25 $1.875
4th Fiscal Quarter $3.00 $2.25
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
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 20, 1998, there were 233 record holders
of the Company's Common Stock.
(c) During the two fiscal years ended November 30, 1997 and
November 30, 1996, 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)
increased by $578,533 to $938,900 at November 30,1997, as compared
to $360,367 at November 30, 1996. This increase is primarily the
result of (1) the inclusion in Current Assets of U.S. Government
Securities with a carrying value of $518,054 maturing during the
ensuing fiscal year which were previously reflected in long-term
assets, and (2) net income of $69,795.
Cash provided by operating activities amounted to $102,756. This
resulted primarily from net income of $69,795, depreciation, a non-
cash charge, of $31,631, and a decrease in Investment in Trading
Securities of $25,514, offset in part by a decrease in accounts
payable and accrued expenses of $11,331. In addition, the Company
purchased treasury stock in the amount of $32,868.
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, 1997 ("Fiscal 1997")
were $1,406,006 representing a decrease of $25,480 from sales in
the comparable period in 1996 ("Fiscal 1996"). Sales volume
decreases in the Department Store subsidiary were offset in part
by a slight increase in Kelly Color sales. Investment income
in Fiscal 1997 increased by $22,875 as compared to Fiscal 1996.
In Fiscal 1997, costs of sales as a percentage of sales were
49.7% as compared to 50.7% in Fiscal 1996. This decrease was due
largely to production efficiencies at Kelly Color. In Fiscal 1997,
selling, general and administrative expenses as a percentage
of sales were 51.2% as compared to 49.7% in Fiscal 1996, primarily
due to reduced absorption of costs resulting from lower sales.
The Company had net income before provision for income taxes of
$87,233 in Fiscal 1997 as compared to $83,529 in Fiscal 1996.
The Company's increased profitability resulted primarily
from production efficiencies and increased investment income.
Provision for income taxes was $17,438 in Fiscal 1997, consisting
of state and local taxes. In Fiscal 1997 and 1996, earnings
per share were $.25.
The Company has provided a Valuation Reserve against the tax
benefit of the net operating loss carryforward. Much of the
profits generated in recent years have been derived from trading
securities using a technique being developed and tested by the
Company. Because of the Company's concern that income may not be
earned in the future, the tax benefit has been fully reserved
against.
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, 1997.
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 51 President, CEO 1973
and Chairman
Richard Norris 51 Vice-President, 1981
Secretary, Treasurer
and a Director
Charles Snow 65 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, 1996 through November 30,
1997, 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,
1997, 1996 and 1995, 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 1997 $110,000 $10,000
Executive Officer and 1996 110,000 5,000
Director 1995 108,000 -0-
The Company did not grant any stock options, nor were any
options exercised, during the fiscal year ended November 30,
1997. 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 20, 1997,
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) 52.0%
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) 32.8%
The Robert Walker Life
Insurance Trust(3)
All Officers and Directors
as a Group (Three Persons) 147,948(4) 54.0%
_________________________________
(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 274,111 shares outstanding as of February 20, 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, 1997 F-2
Consolidated Statements of Operations
for each of the two years in the
period ended November 30, 1997 F-3
Consolidated Statements of Stockholders'
Equity for each of the two years in
the period ended November 30, 1997 F-4
Consolidated Statements of Cash Flows
for each of the two years in the
period ended November 30, 1997 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, 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended November 30, 1997 and 1996. 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,
1997, and the consolidated results of its operations and its cash flows for
the years ended November 30, 1997 and 1996, 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
January 7, 1998
F-1
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1997
ASSETS
<CAPTION>
<S> <C>
Current assets
Cash and cash equivalents $ 349,568
Trading securities - at market 146,742
Accounts receivable - less allowance for doubtful
accounts of $1,000 17,097
Inventories 61,920
Prepaid expenses 21,861
Prepaid income taxes 775
U.S. Government securities
518,054
Total current assets 1,116,017
Property, plant and equipment - at cost 956,226
Less accumulated depreciation 802,431
153,795
Available-for-sale securities - at market 121,500
Security deposits 1,700
Total $1,393,012
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 155,685
Customer deposits 12,751
Income taxes payable 8,681
Total current liabilities 177,117
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 601,584
Unrealized gain on marketable equity securities 22,500
1,791,895
Less treasury stock - at cost - 215,199 shares 576,000
Total stockholders' equity 1,215,895
Total $1,393,012
</TABLE>
F-2
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years ended November 30,
1997 1996
<S> <C> <C>
Net sales $1,406,006 $1,431,486
Costs and expenses
Cost of sales 699,394 725,331
Selling, general and administrative 720,182 710,787
Recoveries of bad debts (6,469) (6,502)
1,413,107 1,429,616
Operating income (loss) (7,101) 1,870
Other income
Investment income 94,334 71,459
Gain on sale of equipment - 10,200
94,334 81,659
Income before provision for income
taxes 87,233 83,529
Provision for income taxes 17,438 8,003
Net income $ 69,795 $ 75,526
Earnings per common share $.25 $.25
Weighted average number of common shares
outstanding 276,246 296,886
</TABLE>
F-3
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED NOVEMBER 30, 1997
<CAPTION>
Capital Unrealized
Common in Gain on
Stock Excess Marketable
Total
Par of Retained Equity Treasury Stock
Stockholders'
Value Par Value Earnings Securities Shares Cost
Equity
<S> <C> <C> <C> <C> <C> <C>
<C>
Balance -
December 1,
1995 $ 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 48,931 1,118,880 531,789 200,599
(543,132) 1,156,468
Acquisition
of common
stock for
treasury 14,600
(32,868) (32,868)
Net income
for year 69,795
69,795
Unrealized
gain on
available-
for-sale
securities 22,500
22,500
Balance -
November 30,
1997 $ 48,931 $1,118,880 $ 601,584 $ 22,500 215,199 $
(576,000) $1,215,895
The number of common shares issued was 489,310 as of November 30, 1996 and
1997.
</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,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income $ 69,795 $ 75,526
Items not requiring the current use of cash
Gain on sale of equipment - (10,200)
Depreciation 31,631 35,043
Amortization of intangibles - 643
Amortization of bond premium and discount (1,571) 2,806
Deferred compensation - (6,931)
Recoveries of bad debts (6,469) (6,502)
Changes in items affecting operations
Investment in trading securities 25,514 (83,699)
Accounts receivable (4,793) 6,331
Inventories (2,802) (9,162)
Prepaid expenses 293 1,425
Prepaid income taxes 68 1,664
Accounts payable and accrued expenses (11,331) (27,906)
Customer deposits (2,535) (2,973)
Income taxes payable 4,956 3,468
Net cash provided (used) by operating
activities 102,756 (20,467)
Cash flows from investing activities
Purchase of held-to-maturity securities - (516,484)
Maturity of held-to-maturity securities - 510,000
Proceeds from sale of equipment - 10,200
Payments for purchase of equipment (6,508) (10,196)
Net cash used by investing activities (6,508) (6,480)
Cash flows from financing activities
Acquisition of common stock for treasury (32,868) (19,332)
Net cash used by financing activities (32,868) (19,332)
Net increase (decrease) in cash and
cash equivalents 63,380 (46,279)
Cash and cash equivalents - beginning 286,188 332,467
Cash and cash equivalents - end $ 349,568 $ 286,188
</TABLE>
F-5
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWO YEARS ENDED NOVEMBER 30, 1997
Supplemental Cash Flow Information
Net cash provided by operating activities reflects cash payments for
income taxes of approximately $12,500 in 1997 and $4,500 in 1996.
Supplemental Schedule of Non-Cash Operating Activity
During 1997 and 1996 the Company received, in lieu of cash, investment
securities with a value of $5,469 and $6,502, respectively, to satisfy a
previously written off accounts receivable.
F-6
<PAGE>
(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 24% 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 - The Company has 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 and equity 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.
Trading securities are valued at estimated fair value and include
securities which the Company acquires and sells with the anticipation of
generating short-term profits. 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.
Inventories - Inventories are valued at the lower of cost determined on a
first-in, first-out basis or market.
F-7
<PAGE>
(NOTE A) - ACCOUNTING POLICIES (Continued)
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.
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.
Revenue Recognition - Revenue from the processing of film and the sale of
photographic portraits is recognized at the time of shipment to the customer.
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.
F-8
<PAGE>
(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. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally, collateral is not required.
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.
The Company maintains cash deposits in excess of federally insured limits
with its bank. At November 30, 1997 the amount at risk approximates $50,000.
Management does not believe significant credit risk exists at November 30,
1997.
(NOTE C) - INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities:
Gross unrealized Estimated
Cost Gains Losses Fair value
U.S. Government
Securities - maturing
November 30, 1998 $518,054 - $ 675 $517,379
Included in available-for-sale securities are the following:
Description Cost Fair value Amount
Charter Pacific Bank Common Stock $ 99,000 $121,500 $121,500
Included in trading securities are the following:
Estimated Carrying
Description Cost Fair value Amount
Equity securities $142,255 $146,742 $146,742
The change in net unrealized holding gain on trading securities that has
been included in earnings during the period amounted to a gain of $692 (1997)
and a loss of $198 (1996).
F-9
<PAGE>
(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, 1997, 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.
(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, 1997, the Company has recovered $65,965.
(NOTE F) - INVENTORIES
Inventories are summarized as follows:
Raw materials $ 27,674
Work-in-process 5,977
Finished goods 28,269
$ 61,920
(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 233,141
Equipment 562,019
Office furniture and equipment 96,805
Transportation equipment 47,761
$ 956,226
F-10
<PAGE>
(NOTE H) - INVESTMENT INCOME
The analysis of investment income is as follows:
Years ended November 30,
1997 1996
Interest and dividends $ 42,753 $ 44,565
Realized gain on sale of trading
securities 50,889 27,092
Unrealized gain (loss) on trading
securities 692 (198)
$ 94,334 $ 71,459
(NOTE I) - INCOME TAXES
The components of income tax expense are as follows:
Years ended November 30,
1997 1996
Current
Federal $ - $ -
State and local 17,438 8,003
Total $ 17,438 $ 8,003
The components of deferred tax asset are as follows:
November 30,
1997 1996
Net operating loss carryforward $ 546,430 $ 609,711
Other 13,565 8,781
559,995 618,492
Valuation allowance (559,995) (618,492)
$ - $ -
The Company has available a net operating loss carryforward of
approximately $1,550,000 expiring from 2002 through 2009.
F-11
<PAGE>
(NOTE I) - INCOME TAXES (Continued)
The provision for income taxes for each of the two years in the period
ended November 30, 1997, differs from the statutory federal income tax rate as
follows:
Years ended November 30,
1997 1996
Income tax at the statutory federal
income tax rate $ 29,659 $ 28,400
Increases (reductions) in taxes
result from the following:
State and local income taxes,
net of federal tax benefit 11,509 5,282
Benefit of operating loss
carryforward (26,199) (28,774)
Other - net 2,469 3,095
Tax provision on financial statements $ 17,438 $ 8,003
(NOTE J) - 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,
1997 1996
Minimum rentals $ 17,340 $ 16,380
Contingent rentals 84,549 92,740
$ 101,889 $ 109,120
Contingent rentals relate to a license agreement entered into on an annual
basis with a national retailer and are based on sales.
The Company leases office space under a lease expiring in May 1998 for
which the lease commitment is $8,910. The lease provides for rent escalations
based upon increases in real estate taxes and other operating expenses.
F-12
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING
Years ended November 30,
1997 1996
Weighted average number of shares issued 489,310 489,310
Weighted average number of treasury shares 213,064 192,424
Weighted average number of shares outstanding 276,246 296,886
<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 23, 1998
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 23, 1998
Peter Walker Officer and Chairman
(Principal Executive Officer)
/s/ Richard
Norris Vice-President, Treasurer February 23, 1998
Richard Norris Secretary and Director
(Principal Financial
and Accounting Officer)
/s/ Charles Snow Director February 23, 1998
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
Walker Capital Management
Corp. Delaware 100
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