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, 1999
[ ] 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, 1999 was 251,043.
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,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 471,077 $ 389,846
Trading securities - at market 6,469 179,001
Accounts receivable - less allowance for
doubtful accounts of $1,000 18,756 23,030
Inventories 49,761 64,400
Prepaid expenses 25,612 17,478
Prepaid income taxes 3,912 7,349
U.S. Government securities 79,120 79,264
Total current assets 654,707 760,368
Property, plant and equipment - at cost 987,340 978,825
Less accumulated depreciation 811,390 823,908
175,950 154,917
Other assets
U.S. Government securities 467,892 470,061
Available-for-sale securities 18,000 18,000
Security deposit 1,700 1,700
Total other assets 487,592 489,761
Total $1,318,249 $1,405,046
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 95,365 $ 145,364
Customer deposits 4,606 22,366
Income taxes payable - 6
Total current liabilities 99,971 167,736
Stockholders' equity
Common stock, $.10 par value, authorized
1,000,000 shares, issued 477,810 shares 47,781 47,781
Additional paid-in capital 1,082,843 1,082,843
Retained earnings 680,933 675,367
Unrealized gain on marketable equity
securities 18,000 18,000
1,829,557 1,823,991
Less treasury stock - at cost - 226,767 and
218,701 shares, respectively 611,279 586,681
Total stockholders' equity 1,218,278 1,237,310
Total $1,318,249 $1,405,046
</TABLE>
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<TABLE>
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WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<CAPTION>
Three months ended Six months ended
May 31, May 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 293,054 $ 269,874 $ 519,052 $ 822,280
Cost and expenses
Cost of sales 169,915 175,424 322,063 376,806
Selling, general and
administrative 114,376 116,358 223,170 450,473
Recovery of bad debts (1,472) (1,222) (1,472) (1,222)
282,819 290,560 543,761 826,057
Operating income (loss) 10,235 (20,686) (24,709) (3,777)
Other income
Investment income 10,150 49,056 27,279 86,274
Gain on sale of assets - - 8,256 -
10,150 49,056 35,535 86,274
Income before provision
for income Taxes 20,385 28,370 10,826 82,497
Provision for income taxes 3,080 377 5,260 7,153
Net income 17,305 27,993 5,566 75,344
Other comprehensive income, net
of income tax on unrealized
holding gains - (22,500) - (22,500)
Comprehensive income$ 17,305 $ 5,493 $ 5,566 $ 52,844
Earnings per common share $ .07 $ .11 $ .02 $ .28
Weighted average number of
common shares outstanding 251,043 271,029 252,726 272,553
</TABLE>
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<TABLE>
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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,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,566 $ 75,344
Items not requiring the current use of cash
Depreciation 17,191 17,459
Amortization of bond premium and discount 2,313 (974)
Gain on sale of available-for-sale securities - (32,620)
Recovery of bad debts (1,472) (1,222)
Gain on sale of assets (8,256) -
Changes in items affecting operations
Investment in trading securities 174,004 147,964
Accounts receivable 4,274 (12,450)
Inventories 14,639 12,802
Prepaid expenses (8,134) 4,267
Prepaid income taxes 3,437 (2,077)
Accounts payable and accrued expenses (49,999) (51,551)
Customer deposits (17,760) (1,316)
Income taxes payable (6) (7,998)
Net cash provided by operating
activities 135,797 147,628
Cash flows from investing activities
Proceeds from sale of assets 12,500 -
Purchase of U.S. Government securities - (79,407)
Proceeds from sale of available-for-sale
securities - 131,620
Payments for purchase of equipment (42,468) (32,742)
Net cash provided (used) by investing
activities (29,968) 19,471
Cash flows from financing activities
Acquisition of common stock for treasury (24,598) (10,675)
Net cash used by financing activities (24,598) (10,675)
Net increase in cash and
cash equivalents 81,231 156,424
Cash and cash equivalents - beginning 389,846 349,568
Cash and cash equivalents - end $ 471,077 $ 505,992
Supplemental Cash Flows Information
Cash payments (refunds) for income taxes$ (1,829) $ 17,228
</TABLE>
Supplemental Schedule of Noncash Operating Activity
During 1999 and 1998, the Company received, in lieu of cash, investment
securities with a value of $1,472 and $1,222, respectively, to satisfy a
previously written off accounts receivable.
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(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, 1999, and
results of operations and cash flows for the quarters ended May 31, 1999 and
1998. The operating results for the periods are not necessarily indicative of
the results to be expected for the entire year.
(NOTE B) - INVESTMENT SECURITIES
Included in held-to-maturity securities are the following:
Gross unrealized Estimated
Description Cost Gains Losses Fair Value
Held-to-Maturity
U.S. Government securities -
maturing October 31, 1999 $ 79,120 $ 78 $ - $ 79,198
U.S. Government securities -
maturing January 2000 467,892 - 1,163 466,729
$ 547,012 $ 78 $ 1,163 $ 545,927
Included in available-for-sale securities are the following:
Carrying
Description Cost Fair value Amount
Charter Pacific Bank Warrants $ - $ 18,000 $ 18,000
Included in trading securities are the following:
Estimated Carrying
Description Cost Fair value Amount
Equity securities $ 4,012 $ 6,469 $ 6,469
The change in net unrealized holding gain (loss) on trading securities
that has been included in earnings during the period amount to $1,159 (1999)
and $(4,485) (1998).
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WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(NOTE C) - An analysis of inventories is as follows:
May 31, November 30,
1999 1998
(Unaudited) (Audited)
Raw materials $ 25,275 $ 27,345
Work-in-process 2,159 10,484
Finished goods 22,327 26,571
$ 49,761 $ 64,400
(NOTE D) - The provision for income taxes consists solely of state and local
taxes. The provision for income taxes has been reduced by approximately $835
during the six months ended May 31, 1999, and $14,000 during the six months
ended May 31, 1998, 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)
decreased by $37,896 to $554,736 at May 31, 1999, as compared to $592,632 at
November 30, 1998. Net cash provided by operating activities amounted to
$135,797. This resulted primarily from a decrease in investment in trading
securities of $174,004, depreciation (a non-cash item) of $17,191, and a
reduction in inventories of $14,639, offset in part by a decrease in accounts
payable and accrued expenses of $49,999 and a decrease in customer deposits of
$17,760. The Company purchased equipment in the amount of $42,468 and common
stock for its treasury in the amount of $24,598.
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, 1999 (the "Current Period")
decreased to $519,052 as compared to sales of $822,280 in the six months ended
May 31, 1998 (the "1998 Period"). This decrease resulted primarily from the
discontinuance of operations by the Department Store Photography division (the
Department Stores ). This decrease was offset somewhat by a sales volume
increase at Kelly Color. Sales for the three months ended May 31, 1999 (the
"Current Quarter") increased to $293,054 as compared to $269,874 in the
quarter ended May 31, 1998 (the "1998 Quarter"), due to an increase in Kelly
Color sales volume.
In the Current Period, cost of sales as a percentage of sales ("COS")
were 62.0%, as compared to COS of 45.8% in the 1998 Period, primarily due to
the curtailed operations of the Department Stores. Since Kelly Color is
primarily a manufacturing company, its COS as a percentage of sales is
considerably higher than those of Department Store, which is primarily
a retail company. In the Current Quarter, COS was 58.0% as compared to 65.0%
in the 1998 Quarter. This decrease was primarily due to improved efficiencies
in labor and increased absorption of labor costs resulting from increased
sales. Cost percentages were higher in the 1998 Quarter as compared to the
1998 Period due to the absence of more profitable seasonal sales in the
Department Store subsidiary that occurred only in the fiscal quarter ended
February 28th.
In the Current Period, selling, general and administrative expenses net
of recovery of bad debts were 42.7% as a percentage of sales as compared to
54.6% in the 1998 Period, due primarily to the curtailed operations of the
Department Stores. In the Current Quarter, selling, general and administrative
expenses net of recovery of bad debts were 38.5% as a percentage of sales as
compared to 42.7% in the 1998 Quarter, due primarily to increased cost
absorption at Kelly Color resulting from higher sales. The Company earned
investment income of $27,279 in the Current Period and $10,150 in the Current
Quarter, as compared to $86,274 and $49,056 in the 1998 Period and 1998
Quarter, respectively. Included in investment income during the 1998 Period
and 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 $10,826 as compared to $82,497 in the 1998 Period, primarily
due to the Department Stores and a decrease in investment income, offset
somewhat by improved Kelly Color profits. In the Current Quarter, the Company
had net income before provision for income taxes of $20,385 as compared to
$28,370 in the 1998 Quarter. This decrease was due primarily to a reduction in
investment income, offset in part by increased Kelly Color profits. 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 $835 in the Current Period and $14,000 in the 1998 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 $.02 as compared to $.28 in the 1998 Period. In the
Current Quarter, there were earnings per share of $.07 as compared to $.11 in
the 1998 Quarter.
<PAGE>
<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, 1999
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-30-1999
<PERIOD-END> MAY-31-1999
<CASH> 471077
<SECURITIES> 474361
<RECEIVABLES> 19756
<ALLOWANCES> (1000)
<INVENTORY> 49761
<CURRENT-ASSETS> 654707
<PP&E> 987340
<DEPRECIATION> (811390)
<TOTAL-ASSETS> 1318249
<CURRENT-LIABILITIES> 99971
<BONDS> 0
<COMMON> 47781
0
0
<OTHER-SE> 1170497
<TOTAL-LIABILITY-AND-EQUITY> 1318249
<SALES> 519052
<TOTAL-REVENUES> 554587
<CGS> 322063
<TOTAL-COSTS> 543761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10826
<INCOME-TAX> 5260
<INCOME-CONTINUING> 5566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5566
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
