Mail Stop 0407
March 11, 2005
Mr. Mitchell S. Segal
Chief Executive Officer
Walker Financial Corporation
990 Stewart Avenue, Suite 60A
Garden City, New York 11530
RE: Walker Financial Corporation
Registration Statement on Form SB-2
Filed February 11, 2005
File No. 333-120748
Form 10-KSB for the year ended December 31, 2003
Forms 10-QSB for the quarters ended
March 31, June 30, and September 30, 2004
File No. 0-28173
Dear Mr. Segal:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. The financial statements and MD&A and should be updated to
December 31, 2004, as required by Rule 3-10(g) of Regulation S-B.
In
addition, please update your other disclosure where required (e.g.
executive compensation information).
Prospectus Cover Page
2. Please note that companies do not "list" their securities on
the
OTC Bulletin Board. Brokers must apply to the NASD to quote a
company`s securities on the OTC Bulletin Board. Therefore, revise
the reference to your stock being listed on the OTC Bulletin
Board.
Prospectus Summary, Overview, page 5
3. As currently drafted, the description of your business is vague
and contains industry jargon that does not provide any meaningful
information. For example, what do you mean that you provide
"prearrangement" and "pre-need products?" Also, what does it mean
that you have "established a worksite and affinity marketing
strategy?" Instead of this disclosure, simply state, if true,
that
you sell funeral plans to individuals on behalf of funeral
companies.
In addition, in light of your financial history and condition, it
is
unclear the nature and extent of your current and future
operations.
Please revise to discuss what products/services you currently
provide, the extent of those operations to date, and how you
provide
these operations. In addition, please discuss what
product/service
you intend to provide as well as status of that product/service in
development. Revise your entire document, including this section,
your Business section, and your MD&A, so that ordinary investors
have
a clear understanding of what you do and the goods and services
that
you sell and how you sell them.
4. Further, as part of your revisions, please continue to provide
a
balanced picture of your operations, financial condition, and
structure. Please disclose that you have an accumulated deficit
of
$4.1 million and only recently entered into your current business.
In addition, disclose that you need $1 million to fund your
operations for the next twelve months.
5. In this regard, please revise throughout the prospectus where
appropriate to discuss your corporate history including when and
how
you entered into your current business.
Risk Factors, page 6
6. Please delete the second and third sentences of the
introductory
paragraph. Once you describe all material risks, and tailor each
one
to your specific facts and circumstances, you will not need this
generic, boilerplate risk disclosure.
7. Please revise each risk factor caption so that it reflects the
risk that you discuss in the text. Currently, many of your risk
factor captions are unduly vague, such as "We have a limited
operating history with which to judge our performance" on page 3,
or
merely state a fact about you, such as "Our auditors have
recognized
a material weakness in our internal controls" on page 4. Others
captions simply allude to a future event, such as "Changes or
increases in, or failure to comply with, regulations applicable to
our business could increase our costs" on page 5. These are only
examples. Revise throughout to identify briefly in your captions
the
risks that result from the facts or uncertainties. Potential
investors should be able to read the risk factor captions and come
away with an understanding of what the risk is and the result of
the
risk as it specifically applies to you. As a general rule, your
revised captions should work only in this document. If they are
readily transferable to other companies` documents, they are
probably
too generic. Please revise accordingly.
8. Please avoid the generic conclusion in the captions and
discussions that if a risk occurs, your business and results of
operations could be adversely affected or substantially harmed.
This
does not represent meaningful disclosure. Instead, replace this
language with specific disclosure of the possible impact upon your
operating results, business, liquidity, cash flow, financial
condition, share price, etc.
Our auditors have recognized a material weakness..., page 4
9. Please provide more disclosure regarding the risk to you and
your
investors resulting from your auditors identifying a material
weakness in your internal controls. In this regard, we note your
statement on page 4 that management "believes that sufficient
compensating controls have been implemented to minimize the risks
associated with this material weakness." Please delete this
disclosure as mitigating language is not appropriate in the risk
factor section.
Increased advertising or better marketing by our
competitors...,
page 5
10. To the extent possible, please quantify your market share in
the
industry.
Changes or increases in, or failure to comply with,
regulations..., page 5
11. Please provide more disclosure how this risk may affect you
and
your investors. For example, are you in compliance with all
applicable laws? Have you incurred any costs due to these laws?
If we fail to remain current on our reporting requirements...,
page 7
12. In order for investors to understand the likelihood of this
risk
occurring, please disclose whether you have been delinquent in
your
periodic reporting during the last twelve months.
Forward-Looking Statement, page 9
13. Please delete your reference to Section 27A and Section 21E as
these safe harbors do not apply to any issuer who has issued penny
stock. See Section 27A(b)(1)(C) of the Securities Act of 1933 and
Section 21E(b)(1)(C) of the Securities Exchange Act of 1934.
Management`s Discussion and Analysis..., Overview, page 11
14. Please revise this section to highlight the most important
developments of the period being reported without being repetitive
of
or summarizing the ensuing MD&A discussion. This discussion
should
be written in Plain English from the CEO`s perspective, focusing
on
issues "that keep him up at night." Such topics could include:
* economic or industry-wide factors relevant to the company;
* how the company earns revenues and income and generates cash;
* the company`s lines of business, locations of operations and
principal products and services without being repetitive of the
Business section or disclosure elsewhere in the prospectus; and
* the material opportunities, challenges and risks that management
are most focused on for the short and long term, as well as
actions
that they are taking to address these opportunities, challenges
and
risks. For example, we note your disclosure on page 13 that
National
Preplanning "expects to start achieving more substantial revenues
in
the second quarter of 2005." Your overview should highlight why
management expects revenues to increase substantially in the
second
quarter of 2005.
15. Please discuss any future plans to expand your services and
offerings including a discussion of the funding and timing
requirements to complete any expansions for each subsidiary.
16. We note that your auditors cited a material weakness in your
internal control over financial reporting for the period ended
September 30, 2004. Please revise this section to discuss any
potential material impacts on your financial condition related to
the
weaknesses in the company`s internal control over financial
reporting.
Critical Accounting Policies, page 11
17. We note that your discussion of your critical accounting
policies
basically repeats the discussion of your accounting policies in
note
1 to your financial statements. Please note that this is not the
purpose of this disclosure. This section should only highlight
accounting estimates or assumptions where:
* the nature of the estimates or assumptions is material due to
the
levels of subjectivity and judgment necessary to account for
highly
uncertain matters or the susceptibility of such matters to change;
and
* the impact of the estimates and assumptions on financial
condition
or operating performance is material.
Such disclosures should supplement, not duplicate, the description
of
accounting policies required in the notes to the financial
statements. The accounting policy note to the financial statements
generally describes the method used to apply an accounting
principle
while the MD&A disclosure should present a company`s analysis of
the
uncertainties involved in applying a principle at the current time
or
the variability that is reasonably likely to result from its
application over time. Please revise accordingly.
Results of Operations..., page 13
18. Throughout this subsection, you frequently attribute a
material
change to two or more events or factors that you describe without
quantification. In discussing the material changes, please
quantify
the amount of change attributed to each factor. For example,
operating expenses were a significant reason for your net loss for
the nine months ended September 30, 2004; however, there is no
detail
as to how much each component of your operating expenses (new
employee hires, website development and marketing costs)
contributed
to the overall increase from the comparable earlier period. Refer
to
Item 303 of Regulation S-B.
19. Also, in this regard, please provide disclosure that will
provide
insight into the underlying business developments or conditions
that
resulted in the changes. Discuss whether any of these factors
represent part of a trend that will continue to affect your
operations going forward. For example, how do you expect
competing
with larger and more established funeral companies will impact
you?
In addition, discuss trends within your margins as you commence
and
expand operations. See Item 303(b)(1)(iv) of Regulation S-B.
20. Please disclose why your net sales for the nine months ended
September 30, 2004 decreased so much from $505,098 for the nine
months ended September 30, 2003. In your explanation, please
discuss
the extent to which change in revenues was attributable to changes
in
volume versus changes in price.
21. Please provide more detail on your history of net losses.
Discuss the company, industry or other events or trends that
contributed to your net losses and discuss whether and how you
expect
these trends and events to continue to affect you in the future.
22. Please revise the presentation of statement of operations on
pages F-3 and F-21, to disclose separate line items for operating
expenses and selling and general and administrative expenses.
23. In the last paragraph of the Results of Operations for the
year
ended December 31, 2003 as compared to December 31, 2002, there is
a
reference to cash and cash equivalents derived from "Walker."
Please
explain this reference.
Liquidity and Capital Resources, page 25
24. In addition, to the extent known, please quantify your
expected
capital expenditures to fund and expand your business for the next
twelve months.
25. Your discussion of net cash provided by financing is difficult
to
read due to the amount of detailed disclosure you provide. Revise
this paragraph to individually identify each source of financing
you
received during 2004 and disclose the material terms of each
source
of financing.
26. In this regard, please discuss the extent to which you have
relied on loans and advances from company insiders as well as from
private placements. Quantify the amount of funds you have
received
from these sources for the past twelve months.
27. Please quantify your obligation to the current holders of your
10% promissory notes due to your failure to register the
underlying
common stock and your default under the notes. Please advise
whether
your defaults under the indenture create a risk to investors that
should be highlighted in the risk factors section. Advise whether
any of the shares underlying the convertible notes are being
registered for resale on this registration statement.
Plan of Operations, page 15
28. Please clarify what you mean by the statement that National
Preplanning "continues its affiliation" with eight funeral homes
in
New Jersey. Does National Preplanning have a contractual
arrangement
with these funeral homes? Revise your Business section as well.
Description of Business, General, page 27
29. This section is difficult to read due to your use of vague
terms
and industry jargon. For example, we note your disclosure on page
20
that you partner with "beneficial administration firms." What
does
this mean? As another example, you state on page 20 that your
products include an "inflation rider." What is this and how does
it
make your products more favorable than others without an inflation
rider? You must revise this entire section to delete vague terms
and
industry jargon and describe in simple clear language what
specific
products /services you provide and how you provide them.
30. Please provide more disclosure throughout this section
regarding
how you create and market death care financial service products.
Please discuss how you procure your arrangements with funeral
homes.
In addition, please characterize the nature of these
"arrangements."
Revise throughout this section to clarify, if true, that you do
not
provide death care services, rather you package death care
services
provided by other parties and sell those services to the public.
Furthermore, what do you mean that you establish "strategic
partnerships with firms that will become distribution channels for
the prearrangement products?" In this regard, please provide more
detail regarding your distribution process. Also, please explain
more fully how insurance companies and insurance agents assist in
the
provisioning of your products/services. Do you seek out insurance
companies to underwrite policies for your death care packages?
How
can insurance agents distribute your products?
31. Please clarify, if true, that once you have sold a death care
package to a customer, the customer has the option of financing
the
package through the purchase of insurance or through placing funds
in
a trust that you manage.
32. Please provide your basis for the following statements:
* "National Preplanning...began to achieve operating results by
positioning itself as one of the first movers and leaders in the
sale
of funeral pre-arrangements...," page 16
* "...12% of American workers are current caring for an older
person
and this figure is expected to grow in the next few years...,"
page
19
* "The death care industry is projecting over $17 billion in
revenues
for 2004, with over $5 billion derived from the prearrangement of
death care services...," page 20
* "The United State Bureau of the Census also projects that the
number of deaths in the U.S. will increase by one percent per
year,
from 2.4 million to 2.6 million in 2010...," page 20
* "This generation includes 78 million Americans born between 1946
and 1965 and represents nearly 30% of the total U.S.
population..."
page 20
Benefits Delivery Companies, page 20
33. Please disclose who RewardsPlus is and whether you have an
arrangement with them to offer your products/services.
Competition, page 21
34. Please revise this section to discuss how you compete within
your
industry despite having limited operations and assets. In this
regard, please discuss your competition`s advantages over you and
discuss how this will affect your competitive position within the
industry.
Employees, page 22
35. Describe the material terms of your consulting agreements.
Executive Compensation, page 25
36. As a result of the discontinuation of Kelly Color`s operations
and the statement that Mr. Walker is no longer an employee of the
company (page 23), please confirm that Mr. Walker`s employment
agreement has been terminated and revise the disclosure to confirm
that he is no longer considered an employee. If this is not the
case, explain how he can be considered a non-employee director.
Revise the description of his employment agreement to confirm that
the agreement has been terminated.
Certain Relationships and Related Transactions, page 27
37. Please update this section to discuss the material terms of
all
financing and loan arrangements with your president and any other
insiders.
Security Ownership of Certain Beneficial Owners and Management,
page
28
38. Please disclose who retains voting and investment control over
the shares held by Fusion Capital Fund.
Description of Securities, page 29
39. Please include a description of your convertible securities in
compliance with Item 202(c) of Regulation S-B, including
conversion
prices, expiration dates, etc.
Selling Stockholders, page 32
40. Please disclose who retains voting and investment control over
the shares held by Adkins & Co., J & V Services, Strategic Growth
International, Pisces Partners, RS & VS Ltd., Sybesma Research
Corp.,
Reese Cole Partnership, and Phoenix Holding LLC.
Financial statements
Consolidated statements of stockholders` equity, page F-4
41. We note that some issuances of shares have not been disclosed
in
Note 9. Also, disclose and tell us how you valued each share
issued
for non cash consideration, including the market price used and
assumptions you used. Please revise Note 9 on page F-15 and Item
26
of the Form SB-2.
Consolidated statements of cash flows, page F-5
42. Please consider disclosing in the notes to the financial
statements, the information about non-cash issuance of equity
securities during the fiscal years ended December 31, 2003 and
December 31, 2002 in the amended filing. Refer to paragraph 32 to
SFAS no. 95.
Notes to the consolidated financial statements
Note 1. Merger and organization of entities, page F-6
43. We note that in second paragraph that ADS was issued 1,839,840
of
common shares, while in fifth paragraph you indicate that ADS was
issued 183,984 shares of Walker`s common stock. It appears to us
that
you have not given effect to the stock split which was declared in
December 2002. Please revise.
44. We note in Note 1, that in order to determine the fair value
of
the assets and liabilities acquired in the merger transactions,
you
have used $2.69 as fair value of the common stock of Walker.
Also,
we note that the merger agreements were dated March 19, 2002.
Based
on the information presented under Item 5 of the From10-KSB for
the
year ended December 31, 2002, the market price of the common stock
of
Walker was approximately $.30 per share. Please explain in detail
your basis to support the fair value of $2.69 used in the
computation
of the purchase price of Walker and ADS. We may have further
comments
after review of your response.
Recent sales of unregistered securities, page II-2
45. Please refer to the disclosures provided on page F-4 and Item
26-
Recent sales of unregistered securities on page II-2. For each
issuance of shares and warrants disclose in the notes to the
financial statements both the aggregate and per share or option
price, along with the amounts of each form of consideration
received.
Also, separately disclose each issuance of options and warrants,
along with their terms.
Exhibits
46. Advise why you have not filed National Preplanning`s third
party
sales and marketing agreement with Stewart Enterprises, Inc. and
strategic pre-need sales and marketing agreement with Hilb Rogal &
Hobbs Insurance Services of Northern California as material
agreements.
Exhibit 5.1
47. Revise the legality opinion to identify the appropriate state
law
which the opinion is based on.
Form 10-KSB for December 31, 2003
Controls and Procedures, page 17
48. We note your disclosure in this section that there have been
no
"significant changes" in your internal controls that could
significantly affect those controls since the most recent
evaluation
of such controls. Item 308(c) of Regulation S-B requires you to
disclose any change in your internal control over financial
reporting
identified in connection with your evaluation that occurred during
your last fiscal quarter (your fourth fiscal quarter in the case
of
an annual report) that has materially affected, or is reasonably
likely to materially affect, your internal control over financial
reporting. If true, please confirm that there were no changes in
your internal control over financial reporting that occurred
during
your fourth fiscal quarter of 2003 that had materially affected or
was reasonably likely to materially affect your internal control
over
financial reporting. In addition, please confirm, if true, for
the
quarters ended March 31, 2004 and June 30, 2004 and confirm that
you
will use the correct phrasing in your future periodic reports.
Form 10-QSB for ended September 30, 2004
Controls and Procedures
49. We note that you cite a material weakness in your internal
controls for the period ended September 30, 2004. Please disclose
how your CEO and CFO concluded that your disclosure controls and
procedures were effective in light of the weaknesses communicated
to
the company by its auditors regarding the company`s internal
controls. Please discuss in specific terms the processes and
procedures that you had in place for the period covered by this
report that enabled the officers to reach the conclusion that the
company`s controls and procedures were effective.
50. Please disclose in more detail what your auditors considered
to
be weaknesses in your internal controls relating to the
"inadequate
structure within our accounting department."
51. Please discuss in detail what steps you are taking to remedy
the
weakness in your internal controls.
52. We also note your statement in the first paragraph that
"management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance
of achieving the desired control objectives." Please revise to
state
clearly, if true, that your chief executive officer and chief
financial officer concluded that your disclosure controls and
procedures are effective at the reasonable assurance level. In
the
alternative, remove the reference to the level of assurance of
your
disclosure controls and procedures. Please refer to Section
II.F.4
of Management`s Reports on Internal Control Over Financial
Reporting
and Certification of Disclosure in Exchange Act Periodic Reports,
SEC
Release No. 33-8238, available on our website at
<http://www.sec.gov/rules/final/33-8238.htm>.
53. We note your disclosure that "[e]xcept as discussed in the
following paragraph, subsequent to the date of this evaluation,
there
have been no significant changes in our internal controls or in
other
factors that could significantly affect these controls." (emphasis
added). Revise to state clearly, if correct, that there were
changes
in your internal control over financial reporting that occurred
during the this fiscal quarter that have materially affected, or
are
reasonably likely to materially affect, your internal control over
financial reporting, and clearly identify these changes in your
internal control over financial reporting that occurred during
this
period.
* * * *
Please amend your registration statement and your Form 10-
QSB
for September 30, 2004 in response to these comments. You may
wish
to provide us with marked copies of the amendments to expedite our
review. Please furnish a cover letter with your amendments that
keys
your responses to our comments and provides any requested
supplemental information. Indicate in the cover letter where you
have made changes in the amendments. Detailed cover letters
greatly
facilitate our review. Please file your cover letter on EDGAR.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Ghopal Dharia, Staff Accountant, at (202)
942-
1973, or Terry French, Accountant Branch Chief, at (202) 942-1998
if
you have questions regarding comments on the financial statements
and
related matters. Please contact Reginald A. Norris, Staff
Attorney,
at (202) 942-2875, or me at (202) 942-1990 with any other
questions.
Sincerely,
Larry Spirgel
Assistant Director
??
??
??
??
Mr. Mitchell S. Segal
Walker Financial Corporation
March 11, 2005
Page 12