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, 1998 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. [ X ]
Number of shares of Common Stock, $.01 par value, outstanding as of December 15,
1998 was 12,214,632.
State Issuer's revenues (rental income) for its most recent fiscal year:
$12,000.
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. Due to
its financial condition and inability to obtain adequate financing, 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.
The Company's current operations consist primarily of renting land and
a building to a related party under a month-to-month lease.
The Company has satisfied substantially all of its debts (except the
outstanding mortgage on one of its properties) 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.
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 1998.
Patents and Trademarks
The Company owns no patents or trademarks.
Employees
Since January 1994, the Company has had no employees.
<PAGE>
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, and has not been rented since March 31, 1997. The Company also owns
another building which was used to manufacture its fiberglass parts. This
facility is currently being rented to a single lessee, a related party, under a
month-to-month rental agreement. This building has approximately 9,700 square
feet. The Company continues to try to sell both buildings, a process it began in
1997.
ITEM 3. LEGAL PROCEEDINGS
None.
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 1998.
<PAGE>
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,
1998, the Company had approximately 227 shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Fiscal 1998 v. 1997
Rental Income. During the fiscal year ended September 30, 1998, the
Company's rental income decreased to $12,000 from fiscal 1997 rental income of
$62,400. The decrease in rental income from fiscal 1997 to 1998 was due
primarily to non-renewal of the lease on the Company's 28,000 square foot
building in 1997.
Operating Expenses. The Company's operating expenses (not including
interest income) increased substantially to $138,885 from $47,551 in 1997. The
$138,885 figure, however, includes a writedown of $100,000 due to impairment of
the Company's land and buildings.
General and administrative expenses decreased to $32,136 in fiscal 1998
from $37,571 in 1997. Interest expense decreased to $6,749 in fiscal 1998 from
$9,980 the prior year, due to the fact that the Company has only one interest
bearing debt remaining, that being the mortgage on its primary facility.
<PAGE>
Net Income (Loss). In fiscal 1998, the Company experienced a net loss
of $120,019 as compared to net income in fiscal year 1997 of $25,916. The
significant decrease in net income from fiscal 1997 to 1998 was due primarily to
having no renter of its 28,000 square foot building and the $100,000 writedown
of the value of the Company's land and buildings.
Fiscal 1997 v. 1996
Rental Income. During the fiscal year ended September 30, 1997, the
Company's rental income decreased to $62,400 from fiscal 1996 rental income of
$87,237. The decrease in rental income from fiscal 1996 to 1997 was due
primarily to the fact that the one-year lease agreement that the Company had
with one of its lessees was not extended beyond its March 31, 1997 termination
date. The Company has not yet replaced this renter.
Operating Expenses. The Company's operating expenses (not including
interest income) increased 31.26% to $47,551 in fiscal 1997 from $36,226 in
fiscal 1996. As a percentage of rental income, the Company's operating expenses
were 58.5% and 23.5% in fiscal 1997 and 1996, respectively.
General and administrative expenses increased 299.6% from fiscal 1996
to fiscal 1997 due to the loss of its primary renter. Certain expenses which had
been paid by the renter the Company now pays. Interest expense decreased
$16,844, or 62.8%, due to the fact that the Company has only one interest
bearing debt remaining, that being the mortgage on its primary facility. In
addition, the Company had no adjustment related to the extinguishment of debt as
it had in fiscal 1996.
Discontinued Operations. The Company experienced no loss or gain from
discontinued operations in fiscal 1997 as compared to a loss of $13,785 in
fiscal 1996.
Net Income (Loss). In fiscal 1997, the Company experienced net income
of $25,916 as compared to net income in fiscal year 1996 of $150,407. The
decrease in net income from fiscal 1996 to 1997 was due primarily to the fact
that in 1997 the Company had no recorded gain related to the extinguishment of
debt as had occurred in fiscal 1996. In addition, the Company had lost one of
its renters for the last six months of fiscal 1997.
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 decreased to $134,174 at September 30,
1998 from $164,415 at September 30, 1997 primarily due to having no renter of
its 28,000 square foot building.
<PAGE>
Year 2000
Because the Company has no operations (other than minimal rental
income), no products, and no key third party relationships, the Company's
assessment of its Year 2000 issues involves only internal computer and financial
systems and embedded technology in such things as its telephone system. For
these reasons, it believes the Year 2000 issues will have no material impact on
its business, results of operations or financial condition.
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 December 4, 1998 F-1
Balance Sheets as of September 30, 1998
and as of September 30, 1997 F-2
Statements of Operations for the Fiscal Years Ended September 30, 1998
and September 30, 1997 F-3
Statements of Stockholders' Equity for the Fiscal Years Ended
September 30, 1998 and September 30, 1997 F-4
Statements of Cash Flows for the Fiscal Years Ended September 30,
1998 and September 30, 1997 F-5
Notes to Financial Statements F-6
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 55 President, Chief Executive Officer and
Director
Kathy V. Webb 54 Vice President, Secretary and Director
Gerald C. Westergaard 62 Director
<PAGE>
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.
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 1998, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements.
<PAGE>
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 1998, 1997 and 1996 to the Chief Executive Officer:
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------
Awards Payouts
-------------------------- ------------
All Other
Annual Compensation Restricted LTIP Compen-
Name and Principal Fiscal Stock Awards Payouts sation
Position Year Salary ($) Bonus($) Other($) ($) Options ($) ($)
- ------------------------ ----- ---------- -------- -------- ------------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward H. Webb 1998 0 0 -- -- -- -- --
Chief Executive 1997 0 0 -- -- -- -- --
Officer, President 1996 0 0 -- -- -- -- --
and Chief Financial
Officer
</TABLE>
Option Grants During 1998 Fiscal Year
The Company has not granted any stock options during fiscal 1998 to the
named executive officer in the Summary Compensation Table. In addition, the
Company has not granted any stock appreciation rights.
Option Exercises During 1998 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 1998, and there were no outstanding
stock options at September 30, 1998. 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, 1998
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.
<PAGE>
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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1998, the Company guaranteed bank debt of Koronis Parts, Inc.,
an entity of which Mr. Webb is a principal shareholder, amounting to $70,000 by
providing certificates of deposit as collateral. In November 1998, the Company
cashed in certificates of deposit and repaid this note on Koronis' behalf.
Consequently, the Company set up an unsecured note receivable from Koronis for
$70,000, payable in quarterly installments of interest only at 6.98% and
maturing on November 18, 1999.
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 1998.
<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 16, 1998 /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 16, 1998
Edward H. Webb (Principal Executive Officer
and Principal Financial and
Accounting Officer)
/s/ Kathy V. Webb Vice President, Secretary December 16, 1998
Kathy V. Webb and Director
Director
Gerald C. Westergaard
<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, 1998 and 1997, 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, 1998 and 1997, 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
Edina, Minnesota
December 4, 1998
F-1
<PAGE>
W-J INTERNATIONAL, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,157 $ 8,741
Certificates of deposit 140,953 172,902
Accounts receivable - related party 12,375 6,950
----------- -----------
Total current assets 158,485 188,593
----------- -----------
Property:
Land 20,648 30,648
Buildings 284,266 374,266
----------- -----------
304,914 404,914
Less accumulated depreciation (122,728) (110,655)
----------- -----------
Net property 182,186 294,259
----------- -----------
$ 340,671 $ 482,852
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ -- $ 396
Current maturities of long-term debt 24,311 23,782
----------- -----------
Total current liabilities 24,311 24,178
----------- -----------
Long-term debt 33,905 56,200
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized, none issued -- --
Common stock, $0.01 par value; 20,000,000 shares authorized,
12,214,632 shares issued and outstanding in 1998 and 1997 122,146 122,146
Additional paid-in capital 2,274,840 2,274,840
Accumulated deficit (2,114,531) (1,994,512)
----------- -----------
Total stockholders' equity 282,455 402,474
----------- -----------
$ 340,671 $ 482,852
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
W-J INTERNATIONAL, LTD.
STATEMENTS OF OPERATIONS
Years Ended September 30,
---------------------------
1998 1997
--------- ---------
Rental income $ -- $ 50,400
Rental income - related party 12,000 12,000
--------- ---------
12,000 62,400
--------- ---------
Other (income) expenses:
General and administrative 32,136 37,571
Interest expense 6,749 9,980
Interest income (6,866) (11,067)
Impairment of assets 100,000 --
--------- ---------
132,019 36,484
--------- ---------
Net income (loss) $(120,019) $ 25,916
========= =========
Basic net income (loss) per share $ (.010) $ .002
========= =========
See Notes to Financial Statements.
F-3
<PAGE>
W-J INTERNATIONAL, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Shares Amount Additional Accumulated Total
Paid-In Capital Deficit
---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1996 12,214,632 $ 122,146 $ 2,274,840 $(2,020,428) $ 376,558
Net income -- -- -- 25,916 25,916
----------- ----------- ----------- ----------- ----------
BALANCE, September 30, 1997 12,214,632 122,146 2,274,840 (1,994,512) 402,474
Net loss -- -- -- (120,019) (120,019)
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1998 12,214,632 $ 122,146 $ 2,274,840 $(2,114,531) $ 282,455
=========== =========== =========== =========== ==========
</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,
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(120,019) $ 25,916
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Impairment of assets 100,000 --
Depreciation 12,073 12,073
Accounts receivable - related party (5,425) (6,950)
Accrued liabilities (396) (3,242)
Due to related parties -- (26,400)
--------- ---------
Net cash flows from operating activities (13,767) 1,397
--------- ---------
Cash flows from investing activities:
Certificates of deposit 31,949 17,231
--------- ---------
Cash flows from financing activities:
Repayment on notes payable-related parties -- (9,647)
Principal payments on long-term debt (21,766) (19,948)
--------- ---------
Net cash flows from financing activities (21,766) (29,595)
--------- ---------
Net change in cash and cash equivalents (3,584) (10,967)
Cash and cash equivalents, beginning of year 8,741 19,708
--------- ---------
Cash and cash equivalents, end of year $ 5,157 $ 8,741
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the years for interest $ 7,145 $ 10,598
========= =========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
W-J INTERNATIONAL, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(Continued)
1. Summary of Significant Accounting Policies
Organization
W-J International, Ltd. (the Company or W-J) was formed on February 21,
1987, to produce, market and distribute personal recreational
watercraft. The Company discontinued its recreational watercraft
operations effective March 1993. The Company's current operations
consist primarily of renting land and buildings.
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
The Company's cash is deposited with a single financial institution
which at times could exceed the federally insured limit. The Company
has not experienced any losses on its cash deposits.
The Company's major source of revenue was rental income from a lessee.
The lease expired March 1997. Rental income under this lease was
$50,400 in 1997. The Company's current source of revenue is rent income
of $1,000 per month under a month-to-month lease. (See Note 3.)
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.
F-6
<PAGE>
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.
Depreciation expense amounted to $12,073 in 1998 and 1997.
2. Summary of Significant Accounting Policies (Continued)
Earnings Per Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). SFAS
128 establishes accounting standards for computing and presenting
earnings per share. Basic earnings per common share are computed by
dividing net income (loss) by the weighted average number of shares of
common stock outstanding during the period. No dilution for potentially
dilutive securities is included. The adoption had no effect on
previously reported earnings per share.
Recently Issued Accounting Pronouncements
The Financial Accounting Standard Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) in June 1997. SFAS No. 130 requires the disclosure of other
comprehensive income in the Company's financial statements and is
effective for reporting periods beginning after December 15, 1997. The
adoption of SFAS No. 130 is not expected to have a material impact on
the Company's financial statements or the disclosures contained
therein.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131) in June 1997. SFAS
No. 131 establishes accounting standards for segment reporting and is
effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 is not expected to have a material impact on
the Company's financial statements or the disclosures therein.
Income Taxes
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.
F-7
<PAGE>
3. Certificates of Deposit
Certificates of deposit at September 30, 1998 consist of five certificates
of deposit which are stated at cost plus accrued interest which
approximates market value. The certificates of deposits earn interest at
rates ranging from 5.0% to 5.5% and mature from October 1998 through March
1999.
4. Related Party Transactions
Related party transactions consisted of the following:
1998 1997
----------- ----------
Accounts receivable - related party $ 12,375 $ 6,950
=========== ==========
The Company leases a building to Koronis Parts, Inc., a company owned by
the majority stockholder, on a month-to-month basis for $1,000 per month.
4. Long-Term Debt
Long-term debt consisted of the following:
1998 1997
-------- --------
Mortgage note payable to bank, interest
at 9.75%, principal and interest due
in monthly installments of $2,410,
maturing in December 2000, secured by
land and buildings.
$ 58,216 $ 79,982
Less current maturities (24,311) (23,782)
-------- --------
$ 33,905 $ 56,200
======== ========
Future maturities of long-term debt at September 30, 1998 are as follows:
1999 $ 24,311
2000 26,791
2001 7,114
--------
$ 58,216
========
F-8
<PAGE>
5. Income Taxes
The provision for income taxes was comprised of the following:
1998 1997
------------ ------------
Current:
Federal $ - $ 6,500
State - 1,500
------------ ------------
- 8,000
Utilization of net operating
loss carryforwards - (8,000)
------------ ------------
$ - $ -
============ ============
At September 30, 1998, the Company has net operating loss carryforwards for
tax purposes of approximately $2,015,000, which expire through 2013. The
Company has fully reserved the tax benefit of the net operating loss
carryforwards 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:
1998 1997
------------ -------------
Deferred income tax assets:
Impairment of land and buildings $ 30,000 $ -
Net operating loss carryforwards 605,000 597,000
Less valuation allowance (635,000) (597,000)
------------ ------------
$ - $ -
============ ============
F-9
<PAGE>
6. Impairment of Assets Held and Used
During 1998, land and buildings were deemed to be impaired and written down
to their fair value. Fair value was determined by reference to an offer
made by an arm's length party for the property. Carrying value of land and
buildings exceeded fair value by $100,000 and accordingly a loss has been
charged to operations in 1998.
7. Earnings Per Share Disclosures
Year Ended September 30, 1998
-------------------------------------------
Income Shares Rev - Share
(Numerator) (Denominator) Amount
---------- ------------ -------
Basic EPS:
Income (loss) available
to common stockholders $ (120,019) $ 12,214,632 $(.010)
========== ============ ======
Year Ended September 30, 1997
Income Shares Rev - Share
(Numerator) (Denominator) Amount
---------- ----------- --------
Basic EPS:
Income (loss) available
to common stockholders $ 25,916 $ 12,214,632 $ .002
========= ============ =======
8. Fair Values of Financial Instruments
The estimated fair values of the Company's financial instruments at
September 30, 1998, and the methods and assumptions used to estimate
such fair values, were as follows:
The fair values of cash and cash equivalents and certificates of
deposit 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 rate approximate current interest rates.
F-10
<PAGE>
9. Guarantee
In June 1998, the Company guaranteed bank debt of Koronis Parts, Inc.
(Koronis), a related party, amounting to $70,000 by providing certificates
of deposit as collateral. In November 1998 the Company cashed in
certificates of deposit and repaid this note on Koronis' behalf.
Consequently, the Company set up an unsecured note receivable from Koronis
for $70,000, payable in quarterly installments of interest only at 6.98%
and maturing on November 18, 1999.
F-11
<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, 1998
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 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*)
10.2 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**)
10.3 Promissory Note dated November 18, 1998 signed by Koronis Parts, Inc.
pursuant to a loan from the Company.
23 Consent of Independent Auditors
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
11/18/98
Lender's Name: W J International, Inc.
Address: 23 Washburne Ave., Paynesville, MN 56362
In this agreement, I, me and my refer to the borrower signing below. You and
your refer to the lender named above.
My Promise: One year after the date of this note, I promise to pay to your order
Seventy Thousand Dollars ($70,000.00) in full at the rate of 6.98% a year. I
will pay interest every 90 days.
Your Rights if I Default. If I do not make an interest payment on this loan when
due or in the full amount, you may require immediate payment of the unpaid
balance of this loan, including any interest I owe.
Legal and Collection Costs. I must pay any reasonable attorneys' fees, legal
expenses and costs of collection that result from my default (unless prohibited
by law).
Secured by Note
Koronis Parts, Inc.
/s/ Ed Webb, President
Board of Directors and Stockholders
W-J International, Ltd.
Paynesville, Minnesota
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation of our report dated December 4, 1998 appearing
in this Annual Report on Form 10-KSB of W-J International, Ltd. for the year
ended September 30, 1998.
/s/ Stirtz Bernards Boyden Surdel & Larter, P.A.
Edina, Minnesota
December 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,157
<SECURITIES> 140,953
<RECEIVABLES> 12,375
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 158,485
<PP&E> 304,914
<DEPRECIATION> 122,728
<TOTAL-ASSETS> 340,671
<CURRENT-LIABILITIES> 24,311
<BONDS> 33,905
0
0
<COMMON> 122,146
<OTHER-SE> 160,309
<TOTAL-LIABILITY-AND-EQUITY> 340,671
<SALES> 0
<TOTAL-REVENUES> 12,000
<CGS> 0
<TOTAL-COSTS> 132,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,749
<INCOME-PRETAX> (120,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (120,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,019)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
