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 February 28, 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 April 13, 1999 was 251,043.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
February 28, November 30,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 386,088 $ 389,846
Trading securities - at market 50,926 179,001
Accounts receivable - less allowance for
doubtful accounts of $1,000 12,577 23,030
Inventories 45,663 64,400
Prepaid expenses 18,513 17,478
Prepaid income taxes 3,660 7,349
U.S. Government securities 79,192 79,264
Total current assets 596,619 760,368
Property, plant and equipment - at cost 986,868 978,825
Less accumulated depreciation 802,783 823,908
184,085 154,917
Other assets
U.S. Government securities 468,977 470,061
Available-for-sale securities 18,000 18,000
Security deposit 1,700 1,700
Total other assets 488,677 489,761
Total $1,269,381 $1,405,046
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 62,170 $ 145,364
Customer deposits 5,732 22,366
Income taxes payable 506 6
Total current liabilities 68,408 167,736
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 663,628 675,367
Unrealized gain on marketable equity
securities 18,000 18,000
1,812,252 1,823,991
Less treasury stock - at cost - 226,767
and 218,701 shares, respectively 611,279 586,681
Total stockholders' equity 1,200,973 1,237,310
Total $1,269,381 $1,405,046
</TABLE>
<PAGE>
<TABLE> WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<CAPTION>
Three months ended
February 28,
1999 1998
<S> <C> <C>
Net sales $ 225,998 $ 552,406
Costs and expenses
Cost of sales 152,148 201,382
Selling, general and administrative 108,794 334,115
260,942 535,497
Operating income (loss) (34,944) 16,909
Investment income 25,385 37,218
Income (loss) before provision for
income taxes (9,559) 54,127
Provision for income taxes 2,180 6,776
Net income (loss) (11,739) 47,351
Other comprehensive income, net of income
tax on unrealized holding gains - -
Comprehensive income (loss) $ (11,739) $ 47,351
Earnings (loss) per common share $ (.05) $ .17
Weighted average number of common shares
outstanding 254,447 274,111
</TABLE>
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Three months ended
February 28,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (11,739) $ 47,351
Items not requiring the current use of cash
Depreciation 8,584 8,716
Amortization of bond premium and discount 1,156 (486)
Gain on sale of assets (8,256) -
Changes in items affecting operations
Investment in trading securities 128,075 143,742
Accounts receivable 10,453 (16,752)
Inventories 18,737 5,566
Prepaid expenses (1,035) 5,906
Prepaid income taxes 3,689 (1,519)
Accounts payable and accrued expenses (83,194) (44,228)
Customer deposits (16,634) (4,607)
Income taxes payable 500 (4,933)
Net cash provided by operating
activities 50,336 138,756
Cash flows from investing activities
Proceeds from sale of assets 12,500 -
Payments for purchase of equipment (41,996) (32,198)
Net cash used by investing activities (29,496) (32,198)
Cash flows from financing activities
Acquisition of common stock for treasury (24,598) -
Net cash used by financing activities (24,598) -
Net increase (decrease) in cash
and cash equivalents (3,758) 106,558
Cash and cash equivalents - beginning 389,846 349,568
Cash and cash equivalents - end $ 386,088 $ 456,126
Supplemental Cash Flow Information
Cash payments (refunds) for income taxes$ (2,009) $ 13,228
</TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 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 February 28, 1999, and
results of operations and cash flows for the quarters ended February 28, 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 $ 79,192 $ - $ 81 $ 79,111
U.S. Government
securities - maturing
January 2000 468,977 - 2,248 466,729
$ 548,169 $ - $ 2,329 $ 545,840
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 $ 53,991 $ 50,926 $ 50,926
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(NOTE C) - An analysis of inventories is as follows:
February 28, November 30,
1999 1998
Raw materials $ 20,185 $ 27,345
Work-in-process 2,687 10,484
Finished goods 22,791 26,571
$ 45,663 $ 64,400
(NOTE D) - The provision for income taxes consists solely of state and local
taxes.
<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 $64,421 to $528,211 at February 28, 1999, as compared to $592,632 at
November 30, 1998. Cash provided by operating activities amounted to $50,336.
This resulted primarily from a decrease in investment in trading securities of
$128,075 and a reduction in inventories of $18,737, offset primarily by a
decrease in accounts payable and accrued expenses of $83,194 and a decrease in
customer deposits of $16,634. The Company purchased equipment in the amount of
$41,996 and 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
Net sales for the period ended February 28, 1999 ("Fiscal 1999") were $225,998
representing a decrease of $326,408 from sales in the comparable period in
1998 ("Fiscal 1998"). This decrease resulted primarily from Macy's decision in
June, 1998, to discontinue using the Company's services as provided by the
Department Store Photography division (the "Department Stores"). There was
also a slight sales volume increase in Kelly Color sales in Fiscal 1999 as
compared to Fiscal 1998.
In Fiscal 1999, cost of sales as a percentage of sales ("COS") was 67.3%, as
compared to COS of 36.5% in Fiscal 1998, primarily due to the Department
Stores. Since Kelly Color is primarily a manufacturing company, its COS as a
percentage of sales is considerably higher than Department Store's, which is
primarily a retail company. In Fiscal 1999, selling, general and
administrative expenses were 48.1% as a percentage of sales as compared to
60.5% in Fiscal 1998, due primarily to the Department Stores. The Company
earned investment income of $25,385 in Fiscal 1999 as compared to $37,218 in
Fiscal 1998.
In Fiscal 1999, the Company had a loss before provision for income taxes of
$(9,559) as compared to income before provision for income taxes of $54,127 in
Fiscal 1998, due primarily to the Department Stores and reduced investment
income, offset slightly by increased profitability at Kelly Color. Provision
for income taxes in Fiscal 1999 and Fiscal 1998 consists solely of state and
local taxes. In Fiscal 1999, net loss per share was $(.05) compared to
earnings per share of $.17 in Fiscal 1998.
Year 2000 Issues
The Company believes that its products are not date-dependent or "date-aware",
meaning they do not rely upon calendar dates for internal operations or
overall product functionality. Furthermore, the Company's products do not
pass dates onto other computers, as dates are only used for display purposes.
The Company defines Year 2000 compliance as the ability to function properly
without interruption before, during, and after January 1, 2000. The Company
believes that all its products, including its propriety software, meet this
definition of Year 2000 compliance. The Company's internal accounting and
manufacturing software was upgraded in 1998 to a version that the vendor has
represented to be Year 2000 compliant. The Company intends to test that
software during 1999. The Company is currently working with its vendors to
determine whether they are Year 2000 compliant. The Company may be required to
change vendors that are determined not to be in compliance. Those customers
and future customers that do not elect to upgrade their systems may be unable
to generate certain required files and thus use or purchase our products.
This could have the potential to reduce future revenue, although the Company
believes that the overall impact on revenue will not be material. The cost to
the Company to determine its Year 2000 compliance has not been material and
has been included in its operating results. The Company does not believe that
future costs associated with this issue will be material to its financial
condition or its results of operations.
<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: April 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> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> FEB-28-1999
<CASH> 386088
<SECURITIES> 130118
<RECEIVABLES> 13577
<ALLOWANCES> (1000)
<INVENTORY> 45663
<CURRENT-ASSETS> 596619
<PP&E> 986868
<DEPRECIATION> (802783)
<TOTAL-ASSETS> 1269381
<CURRENT-LIABILITIES> 68408
<BONDS> 0
<COMMON> 47781
0
0
<OTHER-SE> 1153192
<TOTAL-LIABILITY-AND-EQUITY> 1269381
<SALES> 225998
<TOTAL-REVENUES> 251383
<CGS> 152148
<TOTAL-COSTS> 260942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9559)
<INCOME-TAX> 2180
<INCOME-CONTINUING> (11739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11739)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
