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 Commission File Number
September 30, 1996 0-17345
W-J INTERNATIONAL, LTD.
(Exact name of small business issuer in its charter)
Delaware 41-1578316
(State of incorporation or organization) (IRS Employer Identification Number)
23 Washburne Avenue, Paynesville, Minnesota 56362
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 243-3311
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, 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. [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of December 15,
1996 was 12,214,632.
State Issuer's revenues (rental income) for its most recent fiscal year:
$87,237.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is not determinable as of a current date because there has been no
trading of the Registrant's Common Stock since March 31, 1994.
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
W-J International, Ltd. (the "Company") was incorporated as a Delaware
corporation in February 1987 under the name of Duo, Inc. When the Company merged
with Wetjet International, Ltd. in 1988, it changed its name to Wetjet
International, Ltd. Following the Transaction described below, the Company
changed its name to W-J International, Ltd.
Prior to March 31, 1993, the Company manufactured and marketed personal
watercraft under the Company's registered trademark, "WETJET." During the fiscal
years ended September 30, 1991, 1992 and 1993, working capital shortages
required the Company to minimize operating expenses and reduce inventory. The
working capital shortages were caused by the death and sickness of its two
distributors in 1989, which in turn caused the demand by the Company's bank for
repayment of the Company's bank line of credit.
Due to its financial condition, during fiscal year 1993 the Company
sold substantially all of its assets (the "Transaction") to Tennessee
Acquisition Corp., a wholly-owned subsidiary of MasterCraft Boat Company
(hereinafter referred to as "Mastercraft"). As consideration for the sale of its
assets, the Company received $310,000 on March 31, 1993 and an additional
$166,667 on each of June 30, 1993, September 30, 1993 and December 31, 1993.
Mastercraft's principal executive offices are located in Vonore, Tennessee.
Substantially all of the proceeds from the Company's sale of assets have been
used to pay existing debts of the Company. During fiscal years 1993 and 1994,
the Company negotiated with creditors to settle all existing debts.
The Company's current operations consist primarily of renting land and
a building to a single lessee under a short-term rental agreement.
The Company has satisfied substantially all of its debts and continues
to evaluate alternatives in order to improve the Company's financial condition,
including merger and acquisition opportunities. There is no assurance that the
Company will be successful in obtaining such opportunities. If a merger or
acquisition opportunity does arise, the Company's value as a partner in a merger
or other business combination will rest primarily upon the potential public
market for the Company's shares.
The Product and Manufacturing
The Company currently manufactures and sells no products.
Prior to its sale of substantially all of its assets, the Company's
principal product was the WETJET watercraft, a recreational watercraft designed
to be ridden by one or two people (the "WETJET"). The Company offered five
models of the WETJET--the"432," the "Special Edition 432," the "Sport II,"
"Sport II Spirit," and the "Sport." WETJET watercraft produced after June 30,
1988 were powered by the Brut engine, manufactured by Koronis Parts, Inc.
- 2 -
<PAGE>
("Koronis"), of which Edward Webb and Kathy Webb own substantially all of the
outstanding stock of Koronis. Koronis also sold certain assets to Mastercraft,
including the Brut engine technology.
The Market and Competition
The Company currently has no competition since it is producing no
products.
Sales and Distribution
The Company did not distribute any products domestically or
internationally during fiscal years 1994 through 1996.
Patents and Trademarks
The Company owns no patents or trademarks.
Employees
Since January 1994, the Company has had no employees.
Environmental Compliance
Management believes that the Company properly disposed of all
production material or liquids that may be considered an environmental hazard
prior to the Transaction, when all production ceased.
Government Regulations
The Company is not subject to any material governmental regulations on
its business.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's assembly operations, warehousing and other operations
prior to the Transaction were conducted in a combined manufacturing, warehouse
and office facility located in Paynesville, Minnesota, which facility is owned
by the Company, subject to a mortgage. The building has approximately 28,000
square feet. The Company currently leases 26,400 square feet of this building to
Mastercraft pursuant to the terms of a one-year lease ending March 31, 1997 at
the current minimum rate of $6,709 per month.
ITEM 3. LEGAL PROCEEDINGS
In November 1989, the Company terminated its relationship with a
distributor, Wetworks, Ltd. (Wetworks), a related party which owned
approximately 4.7% of W-J's outstanding Common Stock. In settlement of a dispute
arising from the termination of Wetworks as a distributor, the Company's
President and majority shareholder agreed to repurchase the Common Stock owned
by Wetworks and the Company agreed to sign a note payable to Wetworks of
$165,000. In April 1996, Wetworks, Ltd. accepted a settlement of $150,000 as
full and final satisfaction of a note of $153,998 and accrued interest of
$93,475, which resulted in the Company recognizing a $97,473 gain on
extinguishment of debt. As part of the satisfaction, 569,250 shares of Company
common stock owned by an officer of the Company and held by Wetworks, Ltd. as
security of the note payable were transferred back to the officer.
- 3 -
<PAGE>
In fiscal year 1995, the City of Paynesville agreed to accept a
$100,000 payment from the Company in full payment and satisfaction of an
outstanding loan in the amount of $156,156, including principal and interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Currently, there is no public trading market for Company stock. In the
past the Company's Common Stock was traded on the local over-the-counter market
in Minneapolis, Minnesota. The following table sets forth the range of closing
bid prices per share for the Company's Common Stock for the periods indicated as
reported by Metro Data Company, Minneapolis, Minnesota.
<TABLE>
<CAPTION>
Bid Prices Bid Prices
Fiscal 1995 High Low Fiscal 1994 High Low
- ----------- ---- --- ----------- ---- ---
<S> <C> <C> <C> <C> <C>
Oct. 1 - Dec. 31, 1994 None None Oct. 1 - Dec. 31, 1993 .005 .005
Jan. 1 - March 31, 1995 None None Jan. 1 - March 31, 1994 .005 .005
April 1 - June 30, 1995 None None April 1 - June 30, 1994 None None
July 1 - Sept. 30, 1995 None None July 1 - Sept. 30, 1994 None None
</TABLE>
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
There is no record of the volume of transactions in the purchase and sale of the
Company's securities, and such market volume may be insignificant. The Company
has not declared any dividends in the past, and it is not anticipated that the
Company will declare any dividends in the foreseeable future. As of December 15,
1996, the Company had approximately 227 shareholders.
- 4 -
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Fiscal 1996 v. 1995
Rental Income. During the fiscal year ended September 30, 1996, the
Company's rental income increased to $87,237 from fiscal 1995 rental income of
$81,954. The increase in rental income from fiscal 1995 to 1996 was due
primarily to the fact that the one-year lease agreement beginning April 1, 1996
called for an increase in the rent per square foot from $2.65 to $3.05.
Operating Expenses. The Company's operating expenses decreased 66.8% to
$20,518 in fiscal 1996 from $61,776 in fiscal 1995. As a percentage of rental
income, the Company's operating expenses were 23.5% and 75.4% in fiscal 1996 and
1995, respectively.
General and administrative expenses decreased 73.7% from fiscal 1995 to
fiscal 1996 due primarily to decreased activity. Interest expense decreased
$12,138, or 31.1%, due to the forgiveness of debt in 1996.
Discontinued Operations. The Company experienced a loss from
discontinued operations in fiscal 1996 of $13,785, as compared to a gain of
$62,641 in fiscal 1995. This loss was the result of no settlements that resulted
in cash receipts as occurred in previous years.
Net Income (Loss). In fiscal 1996, the Company experienced net income
of $150,407 as compared to net income in fiscal year 1995 of $138,975. The 1996
net income figure resulted primarily from the settlement with Wetworks, Ltd.
which resulted in a $97,473 gain on extinguishment of debt. The Company's net
loss in fiscal 1994 resulted directly from the Company's extremely curtailed
operations and limited rental income.
Fiscal 1995 v. 1994
Rental Income. During the fiscal year ended September 30, 1995, the
Company's rental income decreased to $81,954 from fiscal 1994 rental income of
$110,223. The decrease in rental income from fiscal 1994 to 1995 was due
primarily to the fact that the 1994 rental income amount included amounts
collected on certain rents accrued in 1993, but not invoiced and paid until
fiscal year 1994.
Operating Expenses. The Company's operating expenses decreased 34.3% to
$61,776 in fiscal 1995 from $93,963 in fiscal 1994. As a percentage of rental
income, the Company's operating expenses were 75.4% and 85.2% in fiscal 1995 and
1994, respectively.
General and administrative expenses increased 46.8% from fiscal 1994 to
fiscal 1995 due primarily to increased legal expenses. Interest expense
decreased $30,648, or 44.0%, due to the forgiveness of debt in 1994 and 1995.
- 5 -
<PAGE>
Discontinued Operations. The Company experienced a gain from
discontinued operations in fiscal 1995 of $62,641, as compared to a loss of
$79,168 in fiscal 1994. This gain was the result of the out of court settlement
with PPD, net of attorneys' fees and miscellaneous expenses.
Net Income (Loss). In fiscal 1995, the Company experienced net income
of $138,975 as compared to a net loss in fiscal year 1994 of $62,908. The 1995
net income figure resulted primarily from the out of court settlement with PPD,
and from a one-time gain of $56,156 on extinguishment of debt. The Company's net
loss in fiscal 1994 resulted directly from the Company's extremely curtailed
operations and limited rental income.
Inflation
Inflation has not had a material impact on the Company's results of
operations.
Seasonality
Due to the Company's discontinuation of operations, seasonality no
longer affects its business.
Liquidity and Capital Resources
The Company's working capital increased to $149,220 at September 30,
1996 from $3,419 at September 30, 1995 primarily due to the reduction of
outstanding current liabilities which were made possible as a result from the
settlement with Wetworks, Ltd.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included herein immediately
following the signature page on the pages as set forth below:
Page
Independent Auditor's Report dated October 22, 1996....................... F-1
Balance Sheets as of September 30, 1996
and as of September 30, 1995 ........................................ F-2
Statements of Operations for the Fiscal Years Ended September 30, 1996
and September 30, 1995 .............................................. F-3
Statements of Stockholders' Equity for the Fiscal Years Ended
September 30, 1996 and September 30, 1995 ........................... F-4
Statements of Cash Flows for the Fiscal Years Ended September 30,
1996 and September 30, 1995 ......................................... F-5
Notes to Financial Statements ............................................ F-6
- 6 -
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table provides certain information with respect to the
directors and executive officers of the Company.
Name Age Position
Edward H. Webb 52 President, Chief Executive Officer and
Director
Kathy V. Webb 51 Vice President, Secretary and Director
Gerald C. Westergaard 59 Director
Edward H. Webb, the Company's founder, served as President, Chief
Executive Officer and Director, of its predecessor from April 1985 until it
merged with Duo, Inc. in June 1988 and became the Company. Since then, Mr. Webb
has served as the Company's President, Chief Executive Officer and Director.
Since 1972, Mr. Webb has also been the principal shareholder (together with his
wife, Kathy Webb) of Koronis Parts, Inc. ("Koronis"), a Minnesota corporation
located in Paynesville, Minnesota, which is in the business of manufacturing and
selling replacement parts for many brands of snowmobiles. Prior to the
Transaction with Mastercraft, Koronis also manufactured the Brut engine used in
the Company watercraft. Since the completion of the transactions contemplated in
the agreement with Mastercraft, Mr. Webb has devoted substantially less time to
the Company's affairs.
Kathy V. Webb was Secretary and Director of the Company's predecessor
from April 1985 until it merged with Duo, Inc. in June 1988 and became the
Company. Since the merger, Ms. Webb has served as the Company's Vice-President,
Secretary and Director. Ms. Webb has worked in various capacities for Koronis
and other replacement parts manufacturing enterprises operated by Mr. and Ms.
Webb for more than ten years prior to the date of this Annual Report on Form
10-KSB. Ms. Webb is also currently a Director and Secretary of Koronis. Kathy
Webb is the spouse of Edward Webb.
- 7 -
<PAGE>
Gerald C. Westergaard was a Director of Duo, Inc. prior to its merger
with the Company's predecessor in June 1988. Mr. Westergaard has been a Director
of the Company since June 1988. Mr. Westergaard has been a Loss Prevention
Manager for Erickson's Diversified Corporation in Hudson, Wisconsin since
November 1991. From March 1990 until November 1991, Mr. Westergaard was an
independent business consultant. From September 1981 to March 1990, Mr.
Westergaard was a controller of Flower City Stores, a Minneapolis- based patio
supply, casual furniture and Christmas decoration store.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and 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
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1996, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements, except that Edward Webb and Kathy Webb each reported one
transaction late.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued, during
fiscal years 1995 and 1994 to the Chief Executive Officer:
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------
Awards Payouts
--------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compen-
Position Year Annual Compensation Awards ($) Options ($) sation ($)
- ------------------ ----- ---------- ------- ----- ----------
-----------------------------------------------
Salary ($) Bonus ($) Other ($)
---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward H. Webb 1996 0 0 -- -- -- -- --
Chief Executive 1995 0 0 -- -- -- -- --
Officer, President 1994 0 0 -- -- -- -- --
and Chief Financial
Officer
</TABLE>
Option Grants During 1996 Fiscal Year
The Company has not granted any stock options during fiscal 1996 to the
named executive officer in the Summary Compensation Table. In addition, the
Company has not granted any stock appreciation rights.
- 8 -
<PAGE>
Option Exercises During 1996 Fiscal Year and Fiscal Year-End Option Values
The named executive officer in the Summary Compensation Table did not
exercise any stock options during fiscal 1996, and there were no outstanding
stock options at September 30, 1996. The Company does not have any outstanding
stock appreciation rights.
Compensation to Directors
The Directors of the Company are not directly compensated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table provides information as of December 15, 1996
concerning the beneficial ownership of the Company's Common Stock by (i) persons
known to the Company to be beneficial owners of more than five percent (5%) of
the Company's outstanding Common Stock, (ii) each director of the Company, (iii)
the named executive officer in the Summary Compensation Table, and (iv) all
directors and officers as a group. Unless otherwise indicated, the person or
entity listed as the beneficial owner of the shares has sole voting and sole
investment power over the shares.
Amount and
Name (and Address Nature of Shares Percent
of 5% Holders) Beneficially Owned (1) Of Class (1)
Edward H. Webb 7,155,500 (2) 58.6%
Route 3, Box 59
Paynesville, MN 56362
Kathy V. Webb 7,155,500 (2) 58.6%
Route 3, Box 59
Paynesville, MN 56362
Gerald D. Westergaard 62,500 0.5%
All officers and directors 7,218,000 59.1%
as a group (three persons)
- ------------------
(1) Under the rules of the SEC, shares not actually outstanding are deemed
to be beneficially owned by an individual if such individual has the
right to acquire the shares within 60 days. Pursuant to such SEC Rules,
shares deemed beneficially owned by virtue of an individual's right to
acquire them are also treated as outstanding when calculating the
percent of the class owned by such individual and when determining the
percent owned by any group in which the individual is included.
(2) Shares jointly owned by Edward and Kathy Webb.
- 9 -
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" beginning on page E-1
immediately following the Financial Statements.
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the last quarter of fiscal year 1996.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, The Company has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
W-J INTERNATIONAL, LTD.
("Company")
Dated: December 20, 1996 /s/ Edward H. Webb
Edward H. Webb, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company,
in the capacities, and on the dates, indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
Edward H. Webb and Kathy V. Webb as his or her true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Signature Title Date
/s/ Edward H. Webb President and Director December 20, 1996
Edward H. Webb (Principal Executive Officer
and Principal Financial and
Accounting Officer)
/s/ Kathy V. Webb Vice President, Secretary December 20, 1996
Kathy V. Webb and Director
/s/ Gerald C. Westergaard Director December 20, 1996
Gerald C. Westergaard
- 11 -
<PAGE>
To The Stockholders
W-J International, Ltd.
Paynesville, Minnesota
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of W-J International, Ltd. as of
September 30, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of W-J International, Ltd. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Stirtz Bernards Boyden Surdel & Larter, P.A.
Edina, Minnesota
October 22, 1996
F-1
<PAGE>
W-J INTERNATIONAL, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,708 $ 54,784
Certificates of deposit 190,133 283,574
----------- -----------
Total current assets 209,841 338,358
----------- -----------
Property:
Land 30,648 30,648
Buildings 374,266 374,266
----------- -----------
404,914 404,914
Less accumulated depreciation (98,582) (86,137)
----------- -----------
Net property 306,332 318,777
----------- -----------
$ 516,173 $ 657,135
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - related parties $ 9,647 $ 20,264
Accrued liabilities 3,638 3,638
Accrued interest - Wetworks, Ltd. -- 84,234
Due to related parties 26,400 53,941
Current portion of long-term debt 20,936 172,862
----------- -----------
Total current liabilities 60,621 334,939
----------- -----------
Long-term debt, net of current portion 78,994 96,045
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized, none issued -- --
Common stock, $.01 par value; 20,000,000
shares authorized, 12,214,632 shares
issued and outstanding in 1996 and 1995 122,146 122,146
Additional paid-in capital 2,274,840 2,274,840
Accumulated deficit (2,020,428) (2,170,835)
----------- -----------
Total stockholders' equity 376,558 226,151
----------- -----------
$ 516,173 $ 657,135
=========== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
W-J INTERNATIONAL, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Rental income $ 87,237 $ 81,954
------------ ------------
Other (income) expenses:
General and administrative 9,402 35,748
Interest expense 26,824 38,962
Interest income (15,708) (12,934)
------------ ------------
20,518 61,776
------------ ------------
Income from continuing operations
before discontinued operations and
extraordinary item 66,719 20,178
Discontinued operations:
Gain (loss) from discontinued operations (13,785) 62,641
------------ ------------
Income before extraordinary
item 52,934 82,819
Extraordinary item:
Gain on extinguishment of debt 97,473 56,156
------------ ------------
Net income $ 150,407 $ 138,975
============ ============
Weighted average number of common shares
outstanding during year 12,214,632 12,214,632
============ ============
Income (loss) per common share:
Continuing operations $ 0.005 $ 0.001
Discontinued operations (0.001) 0.005
------------ ------------
Income before extraordinary item 0.004 0.006
Extraordinary item 0.008 0.005
------------ ------------
Net income per common share $ 0.012 $ 0.011
============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
W-J INTERNATIONAL, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1994 12,214,632 $ 122,146 $ 2,274,840 $(2,309,810) $ 87,176
Net income -- -- -- 138,975 138,975
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1995 12,214,632 122,146 2,274,840 (2,170,835) 226,151
Net income -- -- -- 150,407 150,407
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1996 12,214,632 $ 122,146 $ 2,274,840 $(2,020,428) $ 376,558
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
W-J INTERNATIONAL, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
and Cash Equivalents
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from continuing/discontinued activities:
Net income $ 150,407 $ 138,975
Adjustments to reconcile net income
to net cash flows from continuing/
discontinued activities:
Depreciation 12,445 12,445
Accounts payable -- (18,540)
Accrued liabilities and interest (84,234) 2,866
Due to related parties (27,541) 3,895
Extraordinary item (97,473) (56,156)
--------- ---------
Net cash flows from continuing/
discontinued activities (46,396) 83,485
--------- ---------
Cash flows from investing activities:
Certificates of deposit 93,441 (283,574)
--------- ---------
Cash flows from financing activities:
Repayment on notes payable -
related parties (10,617) (8,581)
Principal payments on long-term debt (71,504) (94,855)
--------- ---------
Net cash flows from financing
activities (82,121) (103,436)
--------- ---------
Net change in cash and
cash equivalents (35,076) (303,525)
Cash and cash equivalents, beginning of year 54,784 358,309
--------- ---------
Cash and cash equivalents, end of year $ 19,708 $ 54,784
========= =========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies
Organization
W-J International, Ltd. (the Company or W-J) was formed on March 19,
1985 to produce, market and distribute personal recreational
watercraft. As discussed in Note 6, the Company discontinued its
recreational watercraft operations effective December, 1992. The
Company's current operations consist primarily of renting land and a
building to a single lessee under a short-term rental agreement.
Estimates and Assumptions
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 disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could
differ from those estimates.
Concentrations
Nearly all of the Company's cash is deposited with a single financial
institution, thus exceeding the federally insured limit. The Company
has not experienced any losses on its cash deposits in the past.
The Company's major source of revenue is rental income from a single
lessee. The term of the lease expires March, 1997, with an option to
renew on a month to month basis. Rental income under this lease was
$75,237 in 1996 and $69,545 in 1995. The Company expects the lessee to
renew the lease, to find a new lessee or sell the land and building
without having an adverse affect on the Company's financial position.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, cash in bank and marketable securities with
maturities of three months or less.
(Continued)
F-6
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies (Continued)
Property
Property is stated at cost. Depreciation on buildings is computed
using the straight-line method over their estimated useful life of 31
years. Expenditures for maintenance and repairs are charged to expense
as incurred, and expenditures for renewals and betterments are
capitalized.
Net Income Per Common Share
Net income per common share is computed by dividing the net income by
the weighted average number of common shares outstanding during the
year. There are no outstanding common stock equivalents.
Income Taxes
The Company accounts for income taxes under FAS #109. Income taxes are
provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred income
taxes. Deferred income taxes relate to differences between the
financial and tax bases of certain assets and liabilities. Temporary
differences that result in significant deferred income taxes are net
operating loss carryforwards.
2. Certificates of Deposit
Certificates of deposit at September 30, 1996 consist of seven
certificates of deposit which are classified as available for sale and
are stated at cost plus accrued interest which approximates market value.
The certificates of deposit mature between January and March, 1997 and
earn interest at rates ranging from 5% to 5.5%.
(Continued)
F-7
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions
Related party transactions consisted of the following:
1996 1995
--------- ---------
Notes payable - related parties:
Note payable - officer $ 6,000 $ 6,000
Note payable - Koronis Parts, Inc. 3,647 14,264
--------- ---------
$ 9,647 $ 20,264
========= =========
Due to related parties:
Accrued expenses - officer $ - $ 27,541
Accrued rent - officer 26,400 26,400
--------- ---------
$ 26,400 $ 53,941
========= =========
The note payable to officer was due on demand and was paid in October,
1996.
The note payable to Koronis Parts, Inc. bears interest at 1.5% over
prime, is due on demand and is secured by equipment. Koronis Parts, Inc.
is owned by an officer of the Company.
Accrued rent of $26,400 is payable to an officer of the Company at
September 30, 1996 and 1995, relating to a facility the Company leased
from an officer in 1988 and prior.
The Company leases a building to Koronis Parts, Inc. on a month-to-month
basis for $1,000 per month.
(Continued)
F-8
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
4. Long-Term Debt
Long-term debt consisted of the following:
1996 1995
---- ----
Mortgage note payable to bank, interest at 9.5%;
principal and interest due in monthly installments
of $2,407, with balance due December, 1997;
secured by land and buildings. $ 99,930 $ 114,909
Note payable to Wetworks, Ltd., interest at 12%;
personally guaranteed by the Company president
and his spouse. A settlement was made on the note
and accrued interest in April, 1996. See Note 7. - 153,998
---------- ----------
99,930 268,907
Less current portion (20,936) (172,862)
---------- ----------
$ 78,994 $ 96,045
========== ==========
Future portions of long-term debt at September 30, 1996 are as follows:
1997 $ 20,936
1998 22,794
1999 25,056
2000 31,144
----------
Total $ 99,930
==========
The mortgage note payable to bank is extended on a bi-annual basis with
payments remaining consistent. It is the lender's intention not to
accelerate the repayment schedule during 1997. Accordingly, the current
portion related to this note has been determined based on the repayment
schedule provided by the bank.
(Continued)
F-9
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
5. Income Taxes
The provision for income taxes was comprised of the following:
1996 1995
---------- -------
Current:
Federal $ 17,000 $ 5,000
State 3,000 1,000
---------- ----------
20,000 6,000
Utilization of net operating loss
carryforwards (20,000) (6,000)
---------- ----------
$ - $ -
========== ==========
Net operating loss carryforwards were utilized to offset tax expense of
approximately $25,000 in 1996 and $36,000 in 1995 related to the net gain
from extraordinary item and discontinued operation in those years.
At September 30, 1996, the Company has net operating loss carryforwards
for tax purposes of approximately $2,020,000 which expire through 2007.
The Company has fully reserved the tax benefit of the net operating loss
carryforwards and the temporary difference related to nondeductible
compensation because the likelihood of the realization of the benefit
cannot be established.
The Internal Revenue Code contains provisions which may limit the net
operating loss carryforwards available if significant changes in
stockholder ownership of the Company occur.
Deferred income taxes consisted of the following:
1996 1995
------ ------
Deferred income tax assets:
Net operating loss carryforwards $ 605,000 $ 650,000
Less valuation allowance (605,000) (650,000)
---------- ----------
$ - $ -
=========== ==========
(Continued)
F-10
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
6. Discontinued Operations
In December, 1992, the Company entered into an agreement to dispose of its
recreational watercraft operations. Effective March 31, 1993, the Company
sold certain assets for $810,000 in cash with final settlement in October,
1993. The sale resulted in a pre-tax gain of $410,993. The gain on
disposal has been accounted for as discontinued operations and prior
year's financial statements have been restated to reflect the
discontinuation. The loss from discontinued operations was $13,785 in 1996
and the gain was $62,641 in 1995.
7. Extinguishment of Debt
In April, 1996, Wetworks, Ltd. accepted a settlement of $150,000 as full
and final satisfaction of a note payable of $153,998 and accrued interest
of $93,475, which resulted in the Company recognizing a $97,473 gain on
extinguishment of debt. As part of the satisfaction, 569,250 shares of
Company common stock owned by an officer of the Company and held by
Wetworks, Ltd. as security of the note payable, were transferred back to
the officer.
In December, 1994, the City of Paynesville accepted a settlement of
$100,000 as full and final satisfaction of their notes payable which
resulted in the Company recognizing a $56,156 gain on extinguishment of
debt.
8. Supplemental Disclosures of Cash Flow Information
Cash paid during the years for:
1996 1995
------ ------
Interest $ 111,058 $ 13,894
Noncash investing and financing activities:
Extinguishment of debt $ 97,473 $ 56,156
(Continued)
F-11
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
9. Fair Values of Financial Instruments
The estimated fair values of the Company's financial instruments at
September 30, 1996, and the methods and assumptions used to estimate such
fair values, were as follows:
The fair values of cash and cash equivalents, certificates of deposit,
notes payable - related parties and due to related parties approximate
the carrying amounts because of the short maturity of those financial
instruments.
The fair value of long-term debt approximates the carrying amount, as
the interest rates approximate current interest rates.
10. Reclassifications
Certain 1995 balances have been reclassified to conform to the 1996
presentation which had no effect on net income.
F-12
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-KSB
For the Fiscal Year Ended Commission File No. 0-17345
September 30, 1996
W-J INTERNATIONAL, LTD.
Exhibit
Number Description
3.1 Certificate of Incorporation, as amended (Incorporated by Reference to
Exhibit 3.1 of the Form 10-KSB for the fiscal year ended September 30,
1994.)
3.2 Bylaws (Incorporated by Reference to Exhibit 3.2 to the Registration
Statement on Form S-4 of Duo, Inc. filed with the SEC on February 29,
1988*--hereinafter referred to as "Duo's Registration Statement on Form
S-4")
4.1 Specimen Common Stock Certificate (Incorporated by Reference to Exhibit
4.1 to the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1993)
10.1 Security Agreement between the Company and Koronis Parts, Inc. dated
July 8, 1987 (Incorporated by Reference to Exhibit 10.6 to Duo's
Registration Statement on Form S-4*)
10.2 The Company's 1988 Stock Option Plan and form of option agreements to
be issued pursuant to the Plan (Incorporated by Reference to Exhibit
10.12 to Duo's Registration Statement on Form S-4*)
10.3 Notice of termination of distributorship agreement to Wetworks, Ltd.
from the Company dated October 26, 1989 (Incorporated by Reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year
ended September 30, 1989**)
10.4 Mortgage Note between Farmers & Merchants State Bank and the Company
for $191,929.95 dated December 21, 1989. (Incorporated by Reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended September 30, 1989**)
10.5 Demand Note for $75,000 loan to the Company from Koronis dated April
11, 1989 (Incorporated by Reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1989**)
E-1
<PAGE>
10.6 Settlement Agreement with Wetworks, Ltd. dated September 24, 1991
(Incorporated by Reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1991)
10.7 Lease between the Company and Mastercraft Acquisition Corp. dated March
31, 1993 (Incorporated by Reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-KSB for the year ended September 30, 1994.)
24 Power of Attorney (Included in signature page of this Form 10-KSB)
27 Financial Data Schedule (included with electronic version only)
- --------------------------
* SEC File No. 33-20419
** SEC File No. 0-17345
E-2
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