<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, 1998.
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, 1998
were $1,409,751.
The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of February 19, 1999 was
approximately $407,264. 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 $3.50.
The Registrant had 251,043 shares of Common Stock outstanding as
of February 19, 1999.
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, 1998, 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.
The Company has historically had a license with Macy's
department store, in New York City, to take portraits of children
with Santa Claus during the Christmas season. 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 division (the "Division"). Since the Macy's license constituted
substantially all of the business of the Division, the Division will not
operate in fiscal 1999.
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.
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
RIDER 3A
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. Based on
Fiscal 1998 results, the Company expects that this event will
adversely affect net profit by approximately $60,000 in the coming
fiscal year.
Customers
For the fiscal year ended November 30, 1998, 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.
Employees
As of February 19, 1999, the Company employed approximately
23 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
decided not to proceed with the foregoing venture and did not issue
the options described above.
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 $1,500. The lease expires in May 2001.
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 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:
1998 High Bid Low Bid
1st Fiscal Quarter $3.00 $2.75
2nd Fiscal Quarter $3.00 $2.75
3rd Fiscal Quarter $3.00 $2.875
4th Fiscal Quarter $3.00 $3.00
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
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 19, 1999, there were 226 record holders
of the Company's Common Stock.
(c) During the two fiscal years ended November 30, 1998 and
November 30, 1997, 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)
decreased by $346,268 to $592,632 at November 30, 1998, as compared to
$938,900 at November 30, 1997. This decrease is primarily the result of the
purchase of U.S. Government securities with a maturation period of more than
one year. These securities are reflected in Other Assets, whereas the
securities they replaced, which matured in 1998, were reflected in Current
Assets.
Cash provided by operating activities amounted to $22,259. This resulted
primarily from net income of $73,783 and depreciation (a non-cash charge) of
$35,285, offset in part by an increase in investment in trading securities of
$31,037 and gain on sale of available-for-sale securities (a non-cash item) of
$32,620. The Company purchased treasury stock in the amount of $47,868 and
equipment totaling $36,407.
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, 1998 ("Fiscal 1998") were
$1,409,751 representing an increase of $3,745 from sales in the comparable
period in 1997 ("Fiscal 1997"), primarily as a result of a slight sales volume
increase in Kelly Color sales.
In Fiscal 1998, cost of sales as a percentage of sales ("COS") were
50.7%, as compared to COS of 49.7% in Fiscal 1997. In Fiscal 1998, selling,
general and administrative expenses net of recovery of bad debts were 51.0% as
a percentage of sales as compared to 50.8% in Fiscal 1997. The Company earned
investment income of $109,397 in Fiscal 1998 as compared to $94,334 in Fiscal
1997. Included in investment income during Fiscal 1998 was a gain of $32,620
realized on the sale of a security previously classified as
available-for-sale.
In Fiscal 1998, the Company had income before provision for income taxes
of $84,764 as compared to $87,233 in Fiscal 1997. Increased profitability at
Kelly Color and increases in investment income were offset in part by reduced
profitability in the Department Store subsidiary. Provision for income taxes
in Fiscal 1998 and Fiscal 1997 consists of state and local taxes on subsidiary
earnings. The provision for income taxes has been reduced by $27,841 in Fiscal
1998 and $26,199 in Fiscal 1997, which represents the benefit of the federal
net operating loss carryforward for which a valuation reserve had been
previously provided. In Fiscal 1998, net income per share was $.28 compared to
$.25 in Fiscal 1997.
<PAGE>
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, 1998.
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 52 President, CEO 1973
and Chairman
Richard Norris 52 Vice-President, 1981
Secretary, Treasurer
and a Director
Charles Snow 66 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, 1997 through November 30,
1998, 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,
1998, 1997 and 1996, 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 1998 $110,000 $10,000
Executive Officer and 1997 110,000 10,000
Director 1996 110,000 5,000
The Company did not grant any stock options, nor were any
options exercised, during the fiscal year ended November 30,
1998. 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 19, 1999,
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) 129,211(4) 51.4%
Richard Norris(3) 3,320 1.3%
Charles Snow 2,151 .9%
605 Third Avenue
New York, NY 10158
Peter Walker as Trustee of 79,834(5) 31.8%
The Robert Walker Life
Insurance Trust(3)
All Officers and Directors
as a Group (Three Persons) 134,682(4) 53.6%
_________________________________
(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 251,043 shares outstanding as of February 19, 1999.
(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) 79,834 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; and (b) 16,500 Shares held in trust for the benefit
of Peter Walker, as to which Peter Walker serves as trustee.
(5) The beneficiaries of the Robert Walker Life Insurance Trust
are Peter Walker (45,000 shares) and Richard Walker (34,834 shares).
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, 1998 F-2
Consolidated Statements of Operations
for each of the two years in the
period ended November 30, 1998 F-3
Consolidated Statements of Stockholders'
Equity for each of the two years in
the period ended November 30, 1998 F-4
Consolidated Statements of Cash Flows
for each of the two years in the
period ended November 30, 1998 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, 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years ended November 30, 1998 and 1997. 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,
1998, and the consolidated results of its operations and its cash flows for
the years ended November 30, 1998 and 1997, in conformity with generally
accepted accounting principles.
Kofler, Levenstein, Romanotto & Co., P.C.
Certified Public Accountants
Rockville Centre, New York
January 6, 1999
F-1
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1998
ASSETS
<CAPTION>
<S> <C>
Current assets
Cash and cash equivalents $ 389,846
Trading securities 179,001
Accounts receivable - less allowance for doubtful
accounts of $1,000 23,030
Inventories 64,400
Prepaid expenses 17,478
Prepaid income taxes 7,349
U.S. Government securities 79,264
Total current assets 760,368
Property, plant and equipment - at cost 978,825
Less accumulated depreciation 823,908
154,917
Other assets
U.S. Government securities 470,061
Available-for-sale securities 18,000
Security deposits 1,700
Total other assets 489,761
Total $1,405,046
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable and accrued expenses $ 145,364
Customer deposits 22,366
Income taxes payable 6
Total current liabilities 167,736
Stockholders' equity
Common stock, $.10 par value, authorized
1,000,000 shares, issued 477,810 shares 47,781
Additional paid-in capital 1,082,843
Retained earnings 675,367
Unrealized gain on marketable equity securities 18,000
1,823,991
Less treasury stock - at cost - 218,701 shares 586,681
Total stockholders' equity 1,237,310
Total $1,405,046
</TABLE>
F-2
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended November 30,
1998 1997
<S> <C> <C>
Net sales $1,409,751 $1,406,006
Costs and expenses
Cost of sales 714,903 699,394
Selling, general and administrative 720,703 720,182
Recoveries of bad debts (1,222) (6,469)
1,434,384 1,413,107
Operating loss (24,633) (7,101)
Investment income 109,397 94,334
Income before provision for
income taxes 84,764 87,233
Provision for income taxes 10,981 17,438
Net income $ 73,783 $ 69,795
Earnings per common share $.28 $.25
Weighted average number of common shares
outstanding 266,918 276,246
</TABLE>
F-3
<PAGE>
<TABLE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO YEARS ENDED NOVEMBER 30, 1998
<CAPTION>
Unrealized
Common Gain on
Stock Capital in Marketable Total
Par Excess 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, 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
Acquisition of common
stock for treasury 15,002 (47,868) (47,868)
Net income for year 73,783 73,783
Treasury stock
retired (1,150) (36,037) (11,500) 37,187
Unrealized gain on
available-for-sale
securities (4,500) (4,500)
Balance -
November 30,
1998 $ 47,781 $1,082,843 $ 675,367 $ 18,000 218,701 $ 586,681
$1,237,310
The number of common shares issued was 477,810 and 489,310 as of November
30, 1998 and 1997, respectively.
</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,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 73,783 $ 69,795
Items not requiring the current use of cash
Gain on sale of available-for-sale
securities (32,620) -
Depreciation 35,285 31,631
Amortization of bond premium and discount (1,945) (1,571)
Recoveries of bad debts (1,222) (6,469)
Changes in items affecting operations
Investment in trading securities (31,037) 25,514
Accounts receivable (5,933) (4,793)
Inventories (2,480) (2,802)
Prepaid expenses 4,383 293
Prepaid income taxes (6,574) 68
Accounts payable and accrued expenses (10,321) (11,331)
Customer deposits 9,615 (2,535)
Income taxes payable (8,675) 4,956
Net cash provided by operating
activities 22,259 102,756
Cash flows from investing activities
Purchase of held-to-maturity securities (549,326) -
Maturity of held-to-maturity securities 520,000 -
Proceeds from sale of available-for-sale
securities 131,620 -
Payments for purchase of equipment (36,407) (6,508)
Net cash provided (used) by investing
activities 65,887 (6,508)
Cash flows from financing activities
Acquisition of common stock for treasury (47,868) (32,868)
Net cash used by financing activities (47,868) (32,868)
Net increase in cash and cash
equivalents 40,278 63,380
Cash and cash equivalents - beginning 349,568 286,188
Cash and cash equivalents - end $ 389,846 $ 349,568
</TABLE>
F-5
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWO YEARS ENDED NOVEMBER 30, 1998
Supplemental Cash Flow Information
Net cash provided by operating activities reflects cash payments for
income taxes of approximately $24,500 in 1998 and $12,500 in 1997.
Supplemental Schedule of Non-Cash Operating Activity
During 1998 and 1997, the Company received investment securities with a
value of $1,222 and $5,469, 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.
In June 1998, the Company was advised by the 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.
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.
F-7
<PAGE>
(NOTE A) - ACCOUNTING POLICIES (Continued)
Inventories - Inventories are valued at the lower of cost determined on a
first-in, first-out basis or market.
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 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 was seasonally
operated under an annual licensing agreement in the facility of one national
retailer which is located in the New York City area. Approximately 24% of the
Company's sales are generated through the portrait studio maintained at a
national retailer.
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.
Management does not believe significant credit risk exists at November 30,
1998.
(NOTE C) - 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 $ 79,264 $ 353 $ - $ 79,617
U.S. Government
securities -
maturing
January 2000 470,061 - 879 469,182
$ 549,325 $ 353 $ 879 $ 548,799
F-9
<PAGE>
(NOTE C) - INVESTMENT SECURITIES (Continued)
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 $ 177,705 $ 179,001 $ 179,001
(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, 1998, 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) - INVENTORIES
Inventories are summarized as follows:
Raw materials $ 27,345
Work-in-process 10,484
Finished goods 26,571
$ 64,400
F-10
<PAGE>
(NOTE F) - 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 579,783
Office furniture and equipment 96,805
Transportation equipment 52,596
$ 978,825
(NOTE G) - INVESTMENT INCOME
The analysis of investment income is as follows:
Years ended November 30,
1998 1997
Interest and dividends $ 46,442 $ 42,753
Realized gain on sale of trading
securities 66,146 50,889
Unrealized gain (loss) on trading
securities (3,191) 692
$ 109,397 $ 94,334
(NOTE H) - INCOME TAXES
The components of income tax expense are as follows:
Years ended November 30,
1998 1997
Current
Federal $ - $ -
State and local 10,981 17,438
Total $ 10,981 $ 17,438
The components of deferred tax asset are as follows:
November 30,
1998 1997
Net operating loss carryforward $ 542,580 $ 546,430
Other 22,468 13,565
565,048 559,995
Valuation allowance (565,048) (559,995)
$ - $ -
The Company has available a net operating loss carryforward of
approximately $1,520,000 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, 1998, differs from the statutory federal income tax rate as
follows:
Years ended November 30,
1998 1997
Income tax at the statutory federal
income tax rate $ 28,820 $ 29,659
Increases (reductions) in taxes
result from the following:
State and local income taxes,
net of federal tax benefit 7,247 11,509
Benefit of operating loss
carryforward (27,841) (26,199)
Other - net 2,755 2,469
Tax provision on financial statements $ 10,981 $ 17,438
(NOTE I) - 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,
1998 1997
Minimum rentals $ 17,910 $ 17,340
Contingent rentals 84,445 84,549
$ 102,355 $ 101,889
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 2001. The
lease provides for rent escalations based upon increases in real estate taxes
and other operating expenses. The following table presents the future minimum
payments required under agreements which have initial or remaining
noncancelable terms in excess of one year:
1999 $ 18,000
2000 18,000
2001 9,000
$ 45,000
F-12
<PAGE>
WALKER INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING
Years ended November 30,
1998 1997
Weighted average number of shares issued 484,632 489,310
Weighted average number of treasury shares 217,714 213,064
Weighted average number of shares outstanding 266,918 276,246
F-13
<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 22, 1999
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 22, 1999
Peter Walker Officer and Chairman
(Principal Executive Officer)
/s/ Richard
Norris Vice-President, Treasurer February 22, 1999
Richard Norris Secretary and Director
(Principal Financial
and Accounting Officer)
/s/ Charles Snow Director February 22, 1999
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
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 389846
<SECURITIES> 649062
<RECEIVABLES> 24030
<ALLOWANCES> (1000)
<INVENTORY> 64400
<CURRENT-ASSETS> 760368
<PP&E> 978825
<DEPRECIATION> (823908)
<TOTAL-ASSETS> 1405046
<CURRENT-LIABILITIES> 167736
<BONDS> 0
<COMMON> 47781
0
0
<OTHER-SE> 1189529
<TOTAL-LIABILITY-AND-EQUITY> 1405046
<SALES> 1409751
<TOTAL-REVENUES> 1519148
<CGS> 714903
<TOTAL-COSTS> 1434384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84764
<INCOME-TAX> 10981
<INCOME-CONTINUING> 73783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73783
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
