UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-5418
Walker Financial Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 13-2637172
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
370 Old Country Road
Garden City, New York 11530
(Address of principal executive offices)
(516) 746-4141
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: There were a total of
7,501,510 shares of the registrant's common stock, par value $.10 per share,
outstanding as of May 9, 2003.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Walker Financial Corporation
Quarterly Report on Form 10-QSB
Quarter Ended March 31, 2003
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet (Unaudited) as of March 31, 2003.................. 3
Condensed Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 2003 and 2002........................................................ 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 2003 and 2002........................................................ 5
Notes to Condensed Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation........................ 11
Item 3. Controls and Procedures........................................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 14
Item 2. Changes in Securities............................................................ 14
Item 3. Defaults Upon Senior Securities.................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders.............................. 14
Item 5. Other Information................................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................................. 14
Signatures................................................................................ 15
Certification............................................................................. 16
Exhibit Index............................................................................. 17
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2003
-----------------
ASSETS
Current assets -
Cash and cash equivalents................................................................... $ 133,616
Accounts receivable, net of allowance for doubtful accounts of $1,000....................... 195,171
Inventories................................................................................. 30,493
Prepaid expenses and other current assets................................................... 102,234
------------------
Total current assets...................................................................... 461,514
------------------
Property and equipment, net.................................................................... 435,519
Other assets -
Intangibles - customer list, net............................................................ 236,714
Other assets................................................................................ 2,460
------------------
Total assets............................................................................ $ 1,136,207
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
Accounts payable and accrued expenses....................................................... $ 138,982
Customer deposits........................................................................... 4,190
Line of credit, bank........................................................................ 98,464
Note payable and accrued interest........................................................... 177,375
------------------
Total current liabilities................................................................. 419,011
------------------
Stockholders' equity -
Common stock, par value $.10 per share
100,000,000 authorized
7,501,510 shares issued and outstanding................................................... 750,151
Additional paid-in capital.................................................................. 3,178,084
Accumulated deficit......................................................................... (3,211,039)
------------------
Total stockholders' equity................................................................ 717,196
------------------
Total liabilities and stockholders' equity.............................................. $ 1,136,207
==================
See notes to condensed consolidated financial statements
-3-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2003 2002
------------------ ------------------
Net sales.................................................................. $ 481,250 $ 198,269
Costs of sales............................................................. 131,760 42,251
------------------ ------------------
Gross profit............................................................ 349,490 156,018
Operating expenses......................................................... 564,359 269,404
------------------ ------------------
Operating loss.......................................................... (214,869) (113,386)
Interest expense, net...................................................... (2,113) (11,247)
------------------ ------------------
Loss before extraordinary item.......................................... (216,982) (124,633)
Extraordinary item......................................................... -- 158,690
------------------ ------------------
Net (loss) income before income taxes................................... (216,982) 34,057
Income tax expense......................................................... (15,160) --
------------------ ------------------
Net (loss) income..................................................... $ (232,142) $ 34,057
================== ==================
Per share data - basic and diluted
Loss before extraordinary item.......................................... $ (0.03) $ (0.03)
Extraordinary item...................................................... -- 0.04
------------------ ------------------
Net (loss) income per common share.................................... $ (0.03) $ 0.01
================== ==================
Weighted average number of common shares outstanding.................... 7,501,510 4,034,900
================== ==================
See notes to condensed consolidated financial statements
-4-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2003 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.......................................................... $ (232,142) $ 34,057
Adjustments to reconcile net(loss) income to net cash
provided by (used in) operating activities -
Extraordinary item...................................................... -- (158,690)
Depreciation and amortization........................................... 57,546 11,933
Accrued interest........................................................ 2,250 9,450
Accounts receivable, net................................................ (70,118) (9,959)
Inventories............................................................. 2,833 4,313
Prepaid expenses and other current assets............................... (53,147) 96,957
Customer deposits....................................................... (2,507) --
Other assets............................................................ -- 1,135
Accounts payable and accrued expenses................................... (26,289) 43,364
------------------ ------------------
Total adjustments..................................................... (89,432) (1,497)
------------------ -----------------
Net cash (used in) provided by operating activities................. (321,574) 32,560
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash proceeds from merger transaction, net of $380,000 cash paid....... -- 472,209
Purchase of property and equipment......................................... (10,199) --
------------------ ------------------
Net cash (used in) provided by investing activities................. (10,199) 472,209
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of notes payable....................................... -- (175,000)
Net proceeds from line of credit, bank..................................... 98,464 --
Proceeds from notes payable................................................ -- 80,000
Proceeds from sale of common stock......................................... -- 60,000
Repayment of due to stockholder............................................ -- (17,100)
------------------ ------------------
Net cash (used in) provided by financing activities................. 98,464 (52,100)
------------------ ------------------
Net (decrease) increase in cash and cash equivalents....................... (233,309) 452,669
Cash and cash equivalents - beginning...................................... 366,925 --
------------------ ------------------
Cash and cash equivalents - ending......................................... $ 133,616 $ 452,669
================== ==================
See notes to condensed consolidated financial statements
-5-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1 - Merger and Organization of Entities
On March 19, 2002, effective as of March 1, 2002, Walker Financial Corporation
(formerly known as Walker International Industries, Inc.) and subsidiaries (the
"Company" and or "Walker") (which operates in the film processing industry
through its wholly-owned subsidiary, Kelly Color, Inc. ("Kelly")), acquired, all
of the issued and outstanding common stock of American DataSource, Inc. ("ADS")
and National Preplanning, Inc. ("NPI"), through a series of simultaneous
mergers.
In the merger with ADS, the Company, issued to James N. Lucas, Sr., the sole
stockholder of ADS, 183,984 shares of common stock, and $325,000 in cash. In
addition, the Company issued 18% subordinated promissory notes to the sole
stockholder of ADS and his assignees in the aggregate principal amount of
$500,000 due November 30, 2002. These were subsequently canceled as a condition
to their repayment failed to occur by a stated date. ADS provides trust
administrative services to independent funeral homes, state master trusts and
companies that own funeral homes or cemeteries for pre-need funeral and cemetery
trust accounts.
In the merger with NPI, we issued to the stockholders of NPI a total of 272,573
shares of common stock. In addition, the Company issued 18% subordinated
promissory notes in the aggregate principal amount of $750,000, due November 30,
2002. These were subsequently canceled as a condition to their repayment failed
to occur by a stated date. Mitchell Segal, the president, chief executive
officer, and the owner of approximately 67.5% of the outstanding shares of NPI,
received 183,967 of the shares of common stock and $506,221 principal amount of
the notes. Mr. Segal also agreed to forego $304,000 of unpaid salary. NPI, which
was a development stage company through February 28, 2002, is a managing general
insurance agency and third party marketer of prearranged death care services to
corporations, unions and affinity groups.
The Company has agreed to register a total of 91,308 shares of common stock that
was issued in the ADS and NPI acquisitions for resale by the former stockholders
of ADS and NPI. Such 91,308 shares represent approximately 20% of the shares of
common stock that were issued in the two acquisitions.
The mergers were accounted for as purchase transactions, pursuant to the
guidance of Staff Accounting Bulletin Topic 2a issued by the Securities and
Exchange Commission (the "SEC"), whereby NPI not Walker was the accounting
acquirer. The historical financial statements prior to March 1, 2002 are those
of NPI. NPI has established a new basis for Walker and ADS assets and
liabilities based upon an allocation of the fair value of the merger. The
subordinated promissory notes are considered contingent consideration and will
be recorded when the contingency is resolved. The condensed consolidated
financial statements reflect the Company's best estimate at the date of the
mergers. Such estimate may be subject to adjustment in the near term. The
adjustments to reflect the fair values of the assets and liabilities of ADS and
Walker acquired by NPI in the merger transactions are as follows:
American DataSource, Inc.
Number of shares of common stock issued.......... 183,984
Per share fair value of stock issued............. $ 2.69
----------------
Fair value of common stock ...................... $ 494,917
Cash ............................................ 325,000
---------------
Total purchase price........................ $ 819,917
===============
6
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
(Continued)
Fair value of net assets acquired -
Current assets...................................... $ 293,446
Property and equipment.............................. 401,933
Intangibles - customer list......................... 371,597
Liabilities assumed................................. (247,059)
---------------
Fair value of net assets acquired................................... $ 819,917
================
Walker Financial Corporation
Number of shares of common stock outstanding [i]................................. 228,271
Per share fair value of stock outstanding........................................ $ 2.69
----------------
Fair value of common stock....................................................... $ 614,049
Merger costs .................................................................... 55,000
----------------
Total purchase price........................................................ $ 669,049
================
Fair value of net assets acquired -
Current assets...................................... $ 866,110
Property and equipment [ii]......................... --
Other assets [ii]................................... --
Liabilities assumed................................. (38,371)
---------------
Fair value of net identifiable assets acquired...................... $ 827,739
Negative goodwill [iii]............................................. (158,690)
----------------
$ 669,049
[i] The number of shares of common stock outstanding is net of 249,539
shares of treasury stock which were retired as part of the merger
transactions.
[ii] The excess of fair value of net assets acquired over the purchase
price was allocated first to reduce property and equipment and other
assets to zero, then to negative goodwill.
[iii] Negative goodwill was immediately reflected as an extraordinary gain
in the condensed consolidated financial statements for the three
months ended March 31, 2002.
The pro forma unaudited condensed consolidated results of operations for the
three months ended March 31, 2002, as if the mergers occurred on January 1,
2002, are as follows:
Pro forma
------------------
Net sales.............................................. $ 558,816
Cost of sales.......................................... 163,543
------------------
Gross profit........................................ 395,273
Operating expenses..................................... 533,912
-----------------
Operating loss...................................... (138,639)
Extraordinary item..................................... 297,068
------------------
Net income.......................................... $ 158,429
==================
Basic and diluted net income per common share.......... $ 0.23
==================
Weighted average number of common shares outstanding... 684,828
==================
This pro forma information does purport to be indicative of what would have
occurred had the mergers been completed as of January 1, 2002 or results which
may occur in the future.
-7-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
(Continued)
Subsequent to the mergers, the Company changed its fiscal year end from November
30th to December 31st to correspond with the fiscal year end of NPI.
In December 2002, the Company effectuated a stock dividend, pursuant to which
the holder of each one outstanding share of common stock received an additional
nine shares as a dividend. The dividend has been deemed to be a significant
stock dividend, and pursuant to applicable to Delaware General Corporation Law
the stock dividend was accounted for as in a manner similar to a stock split. As
a result of the stock dividend, the Company has issued approximately 6.7 million
shares of common stock. All share information for the three months ended March
31, 2002 have been retroactively restated to January 1, 2002.
NOTE 2 - Basis of Presentation
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments (consisting of normal,
recurring adjustments) necessary to summarize fairly the Company's financial
position and results of operations. The results of operations for the three
months ended March 31, 2003 are not necessarily indicative of the results of
operations for the full year or any other interim period. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31,2002.
NOTE 3 - Selected Significant Accounting Policies
Earnings Per Share
- ------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires the
presentation of basic and diluted Earnings Per Share ("EPS"). Basic EPS is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
includes the potential dilution that could occur if options or other contracts
to issue common stock were exercised or converted. The effect of the shares
issued in the NPI merger transaction on the Company has been given retroactive
application in the earnings per share calculation. The Company's outstanding
warrants are not reflected in diluted earnings per share because their effects
would be anti-dilutive. Accordingly, basic and diluted earnings per share are
identical.
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), provides guidance on
the recognition and measurement of liabilities for costs associated with exit or
disposal activities. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company
implemented this standard effective January 1, 2003 with no material impact to
the Company's financial statements
-8-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
(Continued)
Intangibles
- -----------
Intangibles consist of a customer list obtained in the merger with ADS. The
customer list was recorded at its estimated fair value at the merger date and is
being amortized using the greater of the income forecast method or straight-line
method over its estimated useful life of three years.
NOTE 4 - Line of Credit, Bank
In July 2002, the Company entered into a new credit facility with a bank
consisting of a $150,000 secured line of credit (the "Line"), with interest
payable monthly at the bank's prime rate plus 1.25%, expiring on July 3, 2004.
During the three months ended March 31, 2003, the Company began drawing on this
line, and there was $98,436 outstanding under this line as of March 31, 2003.
The line is collateralized by a building owned by the Company that is located in
North Carolina.
NOTE 5 - Commitment and Contingencies
Litigation
- ----------
The Company is involved in litigation through the normal course of business. The
Company believes that the resolution of these matters will not have a material
adverse effect on the financial position of the Company.
Commitments
- -----------
The Company has entered into an employment agreement with Mitchell Segal to
serve as the Company's president and chief executive officer through December
31, 2005. Under Mr. Segal's employment agreement, the Company will pay Mr. Segal
an annual base salary of $200,000 for 2002, with annual increases of not less
than $10,000, plus a bonus equal to a minimum of 3% to a maximum of 5% of the
gross proceeds received from equity financings and a minimum of 3% to a maximum
of 7.5% of the Company's net income, provided the Company's net income is at
least $500,000. The bonus is payable through 2008, even if Mr. Segal's
employment with the Company is terminated by the Company except in the event the
termination is for cause. In no event may the bonuses due Mr. Segal exceed an
aggregate of $304,025. Mr. Segal also is entitled to discretionary bonuses, if
any, awarded by the Company's board of directors.
The Company also has entered into an employment agreement with Peter Walker to
serve as president of the Company's Kelly Color Laboratories, Inc. subsidiary
through March 18, 2012. Under Mr. Walker's employment agreement, the Company
will pay Mr. Walker an annual base salary of $100,000, plus a monthly
non-accountable expense allowance of $1,000. Mr. Walker's employment agreement
does not require Mr. Walker to devote a minimum number of hours to the business
of Kelly Color. Mr. Walker's employment agreement does require the Company to
use the Company's best efforts to cause Mr. Walker to be nominated for election
to the Company's board of directors during the term of Mr. Walker's employment
agreement.
NOTE 6 - Segment Reporting
Commencing March 1, 2002, the Company began classifying its operations into two
business segments: (a) the administrative services to independent funeral homes,
state master trusts and companies that own funeral homes or cemeteries for
-9-
WALKER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
(Continued)
pre-need funeral and cemetery accounts and (b) film processing. Information
concerning the Company's business segments for the three months ended March 31,
2003 and 2002 are as follows:
Segment
-------------------------------------
(a) (b) Total
----------------- ------------------ ------------------
2003
- ----
Revenue................................................ $ 332,604 $ 148,646 $ 481,250
================= ================== ==================
Net loss............................................... $ (157,444) $ (74,698) $ (232,142)
================= ================== ==================
Total identifiable assets at March 31, 2003............ $ 948,086 $ 188,121 $ 1,136,207
================= ================== ==================
2002
- ----
Revenue................................................ $ 136,310 $ 61,959 $ 198,269
================= ================== ==================
Loss before extraordinary item......................... $ (113,173) $ (11,460) $ (124,633)
================= ================== ==================
NOTE 6 - Letter of Intent
The Company has entered into a non-binding letter of intent, dated March 17,
2003, to acquire Ensure Agency, LLC, a licenced insurance brokerage providing
pre-need funeral services. A member of Ensure Agency, LLC is a significant
stockholder of the Company. The acquisition contemplated by the letter of intent
is subject to, among other matters, satisfaction of customary due diligence
reviews and the execution of a definitive acquisition agreement. No assurance
can be given that a definitive acquisition agreement will be entered into by the
parties or that the acquisition will be consummated.
-10-
Item 2. Management's Discussion and Analysis or Plan of Operation.
Throughout this Current Report on Form 10-QSB, the terms "we," "us," "our" and
"our company" refers to Walker Financial Corporation (formerly known as Walker
International Industries, Inc.) ("Walker") and, unless the context indicates
otherwise, includes Walker's wholly-owned subsidiaries, National Preplanning,
Inc. ("NPI"), American DataSource, Inc. ("ADS") and Kelly Color, Inc. ("Kelly").
Introductory Comment - Forward-Looking Statements.
Statements contained in this report include "forward_looking statements" within
the meaning of such term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward_looking statements
involve known and unknown risks, uncertainties and other factors which could
cause actual financial or operating results, performances or achievements
expressed or implied by such forward_looking statements not to occur or be
realized. Such forward_looking statements generally are based on our best
estimates of future results, performances or achievements, predicated upon
current conditions and the most recent results of the companies involved and
their respective industries. Forward_looking statements may be identified by the
use of forward_looking terminology such as "may," "will," "could," "should,"
"project," "expect," "believe," "estimate," "anticipate," "intend," "continue,"
"potential," "opportunity" or similar terms, variations of those terms or the
negative of those terms or other variations of those terms or comparable words
or expressions. Potential risks and uncertainties include, among other things,
such factors as:
-- the results our business strategies and future plans of operations,
-- our ability to integrate our recent mergers of ADS and NPI into our
business and administrative operations,
-- our ability to obtain stockholder approval for the issuance of shares
to permit the conversion of promissory notes we issued in connection
with the merger transactions,
-- general economic conditions in the United States and elsewhere, as
well as the economic conditions affecting the industries in which we
operate,
-- our historical losses,
-- the decline in sales by our Kelly subsidiary due to the rising use of
digital cameras,
-- the competitive environments within the photographic development,
funeral home administrative services and pre-arranged death care
services industries,
-- our ability to raise additional capital, if and as needed,
-- the cost-effectiveness of our product and service development
activities,
-- political and regulatory matters affecting the industries in which we
operate,
-- our ability to combine our various operations so that they may work
together and grow successfully,
-- the market acceptance, revenues and profitability of our current and
future products and services,
-- the extent that our sales network and marketing programs achieve
satisfactory response rates, and
-- the other risks detailed in this Quarterly Report on Form 10-QSB and,
from time to time, in our other filings with the Securities and
Exchange Commission.
Readers are urged to carefully review and consider the various disclosures made
by us in this Form 10-QSB, our Annual Report on Form 10-KSB for the year ended
December 31, 2002 and our other filings with the SEC. These reports attempt to
advise interested parties of the risks and factors that may affect our business,
financial condition and results of operations and prospects. The forward-looking
statements made in the Form 10-QSB speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future
events.
Financial Condition and Liquidity
We had working capital of $42,503 at March 31, 2003, compared to working capital
of $353,640 at December 31, 2002. The decline in our working capital is
primarily a result of our cash used to fund operations for the current quarter.
Net cash used in operating activities was approximately $322,000 for the three
months ended March 31, 2003, compared to net cash provided by operating
activities of $33,000 for the three months ended March 31, 2002. This is a
-11-
result of NPI increasing the infrastructure and marketing efforts related to its
rollout of marketing pre-arrangements. NPI has begun to enter into marketing
agreements with independent agents to sell its products, and we expect NPI to
start generating revenues during the third quarter of 2003. In addition, Kelly
is experiencing a decline in revenues as a direct result of an industry-wide
transition to digital photography. We are closely monitoring Kelly, and we are
looking to cut costs and may curtail some or all of Kelly's operations.
Net cash used in investing activities was approximately $10,000 for the three
months ended March 31, 2003, resulting from the purchase of equipment, as
compared to net cash provided by investing activities of $472,209 for March 31,
2002 received as a result of the acquisition transactions, offset by purchases
of property and equipment of $70,338.
Net cash provided by financing activities was $98,464 for the three months ended
March 31, 2003 resulting from the borrowing under the $150,000 secured line of
credit the Company established in July 2002 that expires in July 2004. The
Company used these monies to fund operations.
As a result of these activities, our cash and cash equivalents decreased to
$133,616 as of March 31, 2003 compared to $366,925 as of March 31, 2002.
We are currently seeking to raise additional capital to fund our operations, our
acquisition of Ensure Agency, LLC and to retire the note payable and accrued
interest of $177,375. We cannot assure you that we will be successful in raising
additional capital on terms that are favorable to us, or at all. If we cannot
raise additional capital, we may have to curtail some or all or our operations.
Business Strategy
We intend to become a leading financial services company operating in the death
care industry. Through NPI, we anticipate seeking to market and sell
pre-arrangements of death care as a voluntary benefit to corporations, unions
and affinity groups. Through ADS, we intend to seek to increase the amount of
pre-need trust dollars currently under our administration. We anticipate
continuing to operate our Kelly subsidiary as a non-digital photographic
development laboratory to the photographic profession. However we are monitoring
Kelly's operations closely as sales continue to drop.
NPI is currently developing relationships with various distribution channels in
which to sell pre-arranged death care plans. NPI will seek to earn insurance
commissions and channel trust administration fees to ADS upon the sale of
pre-arrangements. Additionally, NPI may seek to acquire direct third party
marketers of pre-arranged death care which market pre-arranged death care
services primarily by direct mail, as well as run the pre-arrangement office in
many funeral home locations. On March 17, 2003, Walker entered into a
non-binding letter of intent to acquire Ensure Agency, LLC, a third party
marketer for the prearrangement of death care.
ADS is currently seeking to increase the amount of pre-need trust monies it
currently administrates. Currently, ADS administers approximately $170 million
in trust funds. We anticipate that ADS will seek to administer trust funds held
by various state funeral association trusts, establish and market master trusts
to the independent funeral home community and to acquire existing trust
administration companies. ADS is currently conducting a feasibility study for
the commencement of a master trust which will be marketed in New York.
There can be no assurance that we will achieve successful and profitable results
from our distribution and marketing efforts or that we will be able to complete
the acquisition of Ensure Agency, LLC or any other third party marketer segment
of the death care services industry.
We intend any acquisitions to be accomplished through issuances of stock, debt
and cash, or a combination of such forms of consideration. Accordingly, any
future merger or acquisition may have a dilutive effect on our stockholders as
of the time of such mergers and acquisitions. Additionally, our ability to
accomplish any future acquisitions may depend on our cash position, our ability
to raise capital, the stock price of our common stock, and our ability to
service any debt we may incur.
-12-
We believe that our operating results may fluctuate greatly quarter to
quarter due to several factors, including the success of our merger and
acquisition strategy and the impact of any increases in our results of
operations as we pursue new business in the death care services industry.
Results of Operations
Three Months Ended March 31, 2003
Net sales for the three months ended March 31, 2003 were $481,250, of which
$148,646 was generated by Walker and $332,604 was generated by ADS. In the three
months ended March 31, 2002, Walker generated $61,959 in revenues and ADS
generated $136,310 in revenues. For the 2002 fiscal period, Walker's and ADS's
operations were included for only one month, as compared to the full quarter in
the 2003 fiscal period. Walker continues to see a deterioration in its revenues
as the professional photography industry migrates to the use of digital imagery
from film. NPI has not generated any revenues since its inception, but
management believes NPI will begin to generate revenues in the third quarter of
2003.
Cost of sales for the three months ended March 31, 2003 was $131,760 all of
which was incurred by Walker. Costs of sales as a percentage of Walker's net
sales was 89.64%. Walker has seen a trend in the photographic development
industry of reduced costs of certain raw materials, which results in lower
sales. The benefits of this trend at Walker has been offset in part by an
inability at Walker to reduce all costs of sales proportionally as net sales are
reduced.
Operating expenses for the three months ended March 31, 2003 were approximately
$564,359 of which $115,586 was generated by NPI, $91,721 was generated by Walker
and $357,052 was generated by ADS. The operating expenses for the three months
ended March 31, 2002 was $269,404. However, we have expanded the marketing and
personnel costs at NPI in efforts to begin generating revenues beginning in the
third quarter of 2003.
During the three months ended March 31, 2002, the Company recorded an
extraordinary gain of $158,690 as a result of the March 1, 2002 mergers. (See
Note 1 to the Condensed Consolidated Financial Statements.)
Interest expense for the three months ended March 31, 2003 was $2,113 as a
result of our draw down of a line of credit and the accrual of interest related
to a promissory note of the company.
As a result of the foregoing, we incurred a net loss of approximately $232,000
for the three months ended March 31, 2003 or $0.03 per share, compared to net
income of $34,057 or $0.01 per share for the three months ended March 31, 2002.
Of the loss for the three months ended March 31, 2003, a loss of $74,698 can be
attributable to Walker, a loss of $28,273 can be deemed attributable to ADS and
a loss of $129,171 can be attributable to NPI.
Item 3. Controls and Procedures.
An evaluation was performed, as of March 31, 2003, under the supervision and
with the participation of our management, including our President, Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on such
evaluation, our management has concluded that our disclosure controls and
procedures were effective as of March 31, 2003. There have been no significant
changes in our internal controls or in other factors that could significantly
affect our internal controls subsequent to March 31, 2003.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to Item 3 of our Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 2002, filed with the Securities and Exchange
Commission on March 31, 2003 (Commission File No.: 0-5418), and to the
references made in such Item, for a discussion of all material pending legal
proceedings to which we or any of our subsidiaries are parties.
Item 2. Changes in Securities.
None.
Item 3. Defaults on Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below is a list of the exhibits to this Quarterly Report on Form
10-QSB.
Exhibit
Number Description
- ---------- -----------
99.1 Statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
-14-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 15, 2003 Walker Financial Corporation
By: /s/ Mitchell S. Segal
------------------------------------
Mitchell S. Segal, President
-15-
CERTIFICATION
I, Mitchell S. Segal, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Walker
Financial Corporation;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report my conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Mitchell S. Segal
-------------------------------------------
Mitchell S. Segal
President and Chief Executive Officer
(Principal Executive and Financial Officer)
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Walker Financial Corporation
Quarterly Report on Form 10-QSB
Quarter Ended March 31, 2003
EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------
99.1 Statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
-17-