UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission file number: 000-30480
The Neptune Society, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2492929
- ----------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4312 Woodman Avenue, 3rd Floor,
Sherman Oaks, California 91505 98105
- ----------------------------------- -------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (818) 953-9995
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,920,531 shares of Common Stock, $0.001 par value, outstanding as of August 7,
2002.
The Neptune Society, Inc.
Form 10-Q
Index
Page
PART 1 -- FINANCIAL INFORMATION..............................................1
Item 1: Financial Statements...................................................1
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................14
Item 3: Quantitative and Qualitative Disclosures About Market Risk...........24
PART II -- OTHER INFORMATION................................................25
Item 1. Legal Proceedings....................................................25
Item 2. Changes in Securities................................................25
Item 3. Defaults Upon Senior Securities......................................26
Item 4. Submission of Matters to a Vote of Security Holders.................26
Item 5. Other Information....................................................27
Item 6. Exhibits and Reports on Form 8-K.....................................28
ii
PART 1 -- FINANCIAL INFORMATION
Item 1: Financial Statements
The Neptune Society, Inc.
Condensed Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
------------- -----------------
June 30, December 31,
2002 2001
(unaudited) (audited)
------------- -----------------
Assets
------
Current assets:
Cash $ 886,831 213,219
Accounts receivable 2,218,185 1,751,276
Prepaid expenses and other
current assets 215,596 113,644
------- -------
Total current assets 3,320,612 2,078,139
Property and equipment, net 539,270 548,469
Names and reputations, net 24,374,713 24,364,472
Non compete agreements, net 24,166 48,333
Deferred financing costs 1,275,177 1,539,132
Deferred charges and other assets 5,642,955 4,343,159
--------- ---------
35,176,893 32,921,704
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt 907,410 2,890,215
Accounts payable 1,388,698 1,700,487
Accrued and other current liabilities 1,424,357 1,478,188
--------- ---------
Total current liabilities 3,720,465 6,068,890
Long-term debt 2,069,005 2,291,575
Convertible debentures 5,826,654 5,000,000
Other long-term liabilities 996,158 848,861
Deferred pre-need revenues 15,642,240 11,688,952
---------- ----------
28,254,522 25,898,278
1
Shareholders' equity:
Common stock 3,921 2,153
Additional paid-in capital 30,357,912 27,901,241
Accumulated deficit (23,439,462) (20,879,968)
---------- ----------
Total shareholders' equity 6,922,371 7,023,426
---------- ---------
$ 35,176,893 32,921,704
=========== ==========
See accompanying notes to consolidated financial statements.
2
The Neptune Society, Inc.
Condensed Consolidated Statements of Operations
Three and Six Months ended June 30, 2002 and 2001
(Unaudited)
------------ ------------ ------------- ---------------
Three Three
months months
ended ended Six months Six months
June 30, June 30, ended June ended June
2002 2001 30, 2002 30, 2001
------------ ------------ ------------- ---------------
Revenues:
Services and merchandise $ 2,942,033 2,871,393 5,453,368 5,113,081
Management and finance fees 173,364 312,546 438,884 760,158
------------ ------------ ------------- ---------------
Total revenues 3,115,397 3,183,939 5,892,252 5,873,239
Costs and expenses 1,428,494 1,386,622 2,817,534 2,771,772
------------ ------------ ------------- ---------------
Gross profit 1,686,903 1,797,317 3,074,718 3,101,467
General and administrative expenses 2,188,258 2,154,197 4,013,751 3,912,887
Amortization and depreciation expense 55,695 516,467 131,790 1,057,772
Professional fees 197,964 369,743 373,081 546,163
------------ ------------ ------------- ---------------
Total general and admin expenses 2,441,917 3,040,407 4,518,622 5,516,822
------------ ------------ ------------- ---------------
Loss from operations (755,014) (1,243,090) (1,443,904) (2,415,355)
Interest expense 616,425 426,405 1,115,589 1,044,918
------------ ------------ ------------- ---------------
Loss before income taxes (1,371,439) (1,669,495) (2,559,493) (3,460,273)
Income tax expense - - - -
------------ ------------ ------------- ---------------
Net loss $ (1,371,439) (1,669,495) (2,559,493) (3,460,273)
============ ============ ============= ===============
Loss per share - Basic and
Diluted $ (0.35) (0.87) (0.84) (1.81)
Weighted average number of shares-
Basic and Diluted 3,865,153 1,915,822 3,038,271 1,915,583
See accompanying notes to consolidated financial statements.
3
The Neptune Society, Inc.
Condensed Consolidated Statements of Cash Flows
Three and Six Months ended June 30, 2002 and 2001
(Unaudited)
--------------- -------------- --------------- ---------------
Three Months Three Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2002 30, 2001 30, 2002 30, 2001
--------------- -------------- --------------- ---------------
Net loss $(1,371,439) (1,669,495) (2,559,493) (3,460,273)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 55,695 516,467 131,790 1,057,772
Accretion of discount on notes payable 42,689 28,749 50,201 57,499
Non-cash interest & amortization
of deferred finance costs 356,444 256,640 637,148 565,584
Stock compensation 81,058 379,167 156,058 380,532
Change in operating assets and liabilities:
Accounts receivable 191,796 (979,729) (466,909) (1,078,548)
Prepaid expenses and other current assets (273,132) 126,791 (101,952) (39,895)
Deferred charges and other assets (641,611) (483,035) (1,002,761) (1,048,381)
Accounts payable 157,705 (21,653) (311,789) (320,707)
Accrued and other liabilities 6,128 121,043 109,915 341,747
Deferred pre-need revenues 1,799,748 1,841,139 3,953,287 3,390,624
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities: 405,082 116,085 595,494 (154,046)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (87,206) (4,321) (98,424) (7,529)
Acquisitions, net of cash acquired (10,240) - (10,240) -
---------- ---------- ---------- ----------
Net cash used in investing activities (97,446) (4,321) (108,664) (7,529)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Payments on notes payable (505,281) (6,054) (1,513,217) (11,976)
Proceeds from issuance of debt, net - - 200,000 -
Net proceeds of common stock issued 316,475 - 1,500,000 -
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (188,806) (6,054) 186,783 (11,976)
---------- ---------- ---------- ----------
Net increase (decrease) in cash 118,829 105,710 673,612 (173,551)
Cash, beginning of period 768,002 786,078 213,219 1,065,339
---------- ---------- ---------- ----------
Cash, end of period $ 886,831 891,788 886,831 891,788
========== ========== ========== ==========
Supplemental disclosure of cash flow information -
Cash paid during the period for Interest $ 217,293 227,290 428,241 421,835
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
THE NEPTUNE SOCIETY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 and 2001
(Unaudited)
(1) The Business
Neptune Society, Inc., (the "Company") a Florida Corporation, is the
holding company for Neptune America, Inc., a California Corporation. On
March 31, 1999, the Company acquired a group of private companies engaged
in marketing and administering pre-need and at-need cremation services in
California, Florida and New York. The business combination was accounted
for using the purchase method of accounting, and the excess of the purchase
price over the fair value of identifiable net assets acquired, $26,809,237,
was recorded as names and reputations. Neptune Society, Inc. currently
operates crematories in Los Angeles, California, Ankeny, Iowa and Spokane,
Washington.
As of June 30, 2002, the Company had a working capital deficit of
approximately $400,000. The Company is currently exploring various
financing alternatives to address such working capital deficiency.
(2) Interim Financial Statements (Unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements for the three
and six months ended June 30, 2002 and 2001 include the accounts of the
Company and all majority-owned subsidiaries and are unaudited but include
all adjustments, consisting of normal recurring accruals and any other
adjustments which management considers necessary for a fair presentation of
the results for these periods. These condensed consolidated financial
statements have been prepared in a manner consistent with the accounting
policies described in the annual report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") for the year ended
December 31, 2001, and should be read in conjunction therewith. Operating
results for interim periods are not necessarily indicative of the results
that may by expected for the full year period.
Summary of Significant Accounting Policies
At-need cremation services--The Company recognizes revenue on at-need
cremation services and merchandise sales at the time the services are
provided and the merchandise is delivered.
Pre-need cremation arrangements--The Company sells pre-need cremation
services and merchandise under contracts that provide for delivery of the
services at the time of need.
5
Revenues related to pre-need cremation services are recorded as revenue in
the period the services are performed.
Prior to 2000, revenue related to merchandise sold with a pre-need
cremation service arrangement was recognized upon meeting certain state
regulatory criteria, which, in California and Washington may be prior to
the performance of cremation services. The Company considered such criteria
met when the Company was permitted to receive one hundred percent of the
unrestricted funds associated with the merchandise sale, the merchandise
was in a condition for its intended use and the Company did not retain any
specific performance obligations essential to the functionality of the
merchandise, the customer accepted the merchandise as evidenced by a
written transfer of title to the customer and certificate of ownership,
and, if the customer so requested, the Company stored the merchandise in an
insured location on the customer's behalf until customer pick-up or the
time of need, but no later than the customer's death. Customers that
purchase pre-need cremation arrangements do not have cancellation rights
with respect to the purchase of merchandise.
In response to SAB No. 101, the Company changed its revenue recognition
accounting policy with respect to merchandise sold in a pre-need
arrangement to include certain conditions beyond state regulatory
requirements. As of January 1, 2000, the Company added the following
criteria related to its revenue recognition policy for the sale of
merchandise: (i) a definitive delivery date, (ii) stored merchandise is
required to be segregated and specifically identified by customer, and
(iii) a customer's merchandise is labeled or marked for such customer and
may not be used to fill another customer's order, and exchange for a
different piece of merchandise in the future is remote. In addition, the
merchandise must not be subject to claims of the Company's creditors, the
risks and rewards of merchandise ownership must have transferred to the
customer, and the Company's custodial risks are insurable and insured. The
Company shall defer pre-need merchandise sales until such time as the
merchandise has been physically delivered or upon satisfaction of the
additional criteria noted. The Company recognizes revenue on the sale of
future pre-need merchandise sales upon the physical delivery of the
merchandise or upon the satisfaction of the Company's current revenue
recognition policy criteria outlined above.
Florida and New York do not allow the Company to deliver cremation
merchandise prior to the provision of cremation services, and as such,
revenue related to merchandise sold with a pre-need cremation arrangement
in these states is not recognized until the merchandise is delivered, which
is generally concurrent with the period services are performed.
The Company is allowed under state regulations in Colorado, Illinois, Iowa,
Washington, Oregon and Florida to retain certain cash receipts received
related to services to be performed in the future. These cash receipts are
recorded as deferred revenue and recognized when services are provided.
During the three months ended June 30, 2002, the Company recognized
previously deferred pre-need merchandise revenues and costs of
approximately $9,000 and $4,000, respectively, related to the fiscal year
2000 cumulative effect of change in accounting principle adjustment. During
the six months ended June 30, 2002, the Company recognized previously
deferred pre-need merchandise revenues and costs of approximately $23,000
and $9,000, respectively related to the above-mentioned cumulative effect
of change in accounting principle adjustment.
6
Pre-need installment sales--The Company also sells pre-need cremation
arrangements under installment plans. Under such plans, the customer makes
an initial down-payment and pays the balance in monthly installments plus
interest. To the extent that cash received is not trusted, the Company
accounts for this cash as deferred revenue until the transaction qualifies
for revenue recognition under its accounting policies. Prior to January 1,
2001, due to the uncertainty of collections of these accounts, the Company
recorded these transactions in accordance with its revenue recognition
accounting policies as cash was received.
Worldwide travel sales--The Company sells a worldwide travel assurance plan
(the "plan") which guarantees the provision of cremation services anywhere
in the world to the extent the plan holder is more than 75 miles away from
their legal residence at the time of death. The plan is underwritten by a
third party carrier who receives a premium payment, and is obligated to
perform services if the above criteria is met. The Company recognizes
revenue related to these plans at the time of sale. The Company also sells
worldwide travel plans under installment plans. Under such plans, the
customer makes an initial down-payment and pays the balance in monthly
installments plus interest.
Commission income-- Under pre-need cremation services and merchandise
arrangements funded through insurance purchased by customers from third
party insurance companies, the Company earns a commission on the sale of
the policies. Commission income, net of related expenses, is recognized at
the point at which the commission is no longer subject to refund, generally
3 to 5 days after the contract is sold. Policy proceeds are paid to the
Company as cremation services and merchandise are delivered.
Direct and indirect costs--The Company expenses direct and indirect costs
in the period incurred, with the exception of expenses specifically
identifiable to individual pre-need cremation arrangements, such as
commissions. Such expenses are recognized when the related pre-need
merchandise and/or service revenues, respectively, are recognized.
(3) Computation of Earnings (Loss) Per Common Share
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. For
the three and six months ended June 30, 2002, options to purchase 607,296
of common stock at prices ranging from $10.00 to $56.04 per share, 13%
convertible debentures (which are convertible into 1,666,667 shares of
common stock at $3.00 per share with detachable warrants to purchase
200,000 shares of common stock at $3.00 per share) and 13.75% convertible
debentures (which are convertible into 893,045 shares of common stock at
$1.20 per share), were not included in the computation of diluted loss per
share because the effect would be antidilutive.
7
For the three and six months ended June 30, 2001, options to purchase
89,750 and 218,625 shares, respectively, of common stock at prices ranging
from $48.48 to $57.00 per share and 13% convertible debentures (which are
convertible into 125,000 shares of common stock at $40.00 per share with
detachable warrants to purchase 50,000 shares of common stock at prices
ranging from $41.68 to $50.00 per share) and 8% convertible debentures
(which are convertible into 20,833 shares of common stock at $48.00 per
share), were not included in the computation of diluted loss per share
because the effect would be antidilutive.
(4) Shareholders' Equity
Effective as of March 22, 2002, the Company's Board of Directors authorized
and affected a 1 for 4 reverse split of its common stock. Per share amounts
in the accompanying consolidated financial statements give retroactive
effect to the reverse stock split.
In April 2002, the Company completed a private placement of 1,388,889
shares of common stock at $1.08 per share to raise $1,500,000. The Company
received $1.2 million of the proceeds in March 2002. The Company received
the remaining $300,000 in April 2002, and issued 1,388,889 shares of the
Company's common stock pursuant to the private placement agreement. The
Company granted resale registration rights to the investors in the private
placement.
In May 2002, the Company completed a private placement of 13.75%
convertible debentures in the principal amount of $1,000,000 to CCD
Consulting Commerce Distribution AG in consideration of $200,000 in cash
and the satisfaction of a promissory note in the principal amount of
$800,000. The convertible debenture is exercisable for shares of common
stock of The Neptune Society, Inc. at $1.20 per share. The Company became
obligated to issue 83,333 shares of the Company's common stock as a loan
conversion fee. These debentures automatically convert into common shares
at $1.20 per share on March 31, 2004. The Company granted resale
registration rights to this investor.
In May 2002, the Company issued 64,448 shares of common stock to CapEx,
L.P. and 42,992 shares of common stock to D.H. Blair Investment Banking
Corp. at $1.08 per share in connection with their exercise of preemptive
rights granted under the terms of a Debenture and Warrant Amendment
Agreement dated effective December 31, 2001. The Company granted resale
registration right to the investors.
In May 2002, the Company issued 13.75% convertible debentures in the
principal amount of $42,992 to CapEx, L.P. and $28,661 to D.H. Blair
Investment Banking Corp. in connection with their exercise of preemptive
rights granted under the terms of a Debenture and Warrant Amendment
Agreement dated effective December 31, 2001. The convertible debentures are
convertible into common stock at $1.20 per share. The Company granted
resale registration right to the investors.
In May 2002, the Company issued 6,250 shares of common stock as
compensation in connection with the employment of certain senior staff.
8
On May 31, 2002, the Company amended its Articles of Incorporation to
increase the authorized capital to consist of 85,000,000 shares, including
75,000,000 shares of common stock, $0.001 par value, and 10,000,000 share
of preferred stock, $0.001 par value.
During the three and six months ended June 30, 2002, no options to acquire
common stock were granted. Zero and 2,625 options, respectively, were
canceled during the three- and six-month periods ended June 30, 2002.
At June 30, 2002, 3,920,531 shares of the Company's common stock were
issued and outstanding.
(5) Debt
Long-term debt at June 30, 2002 and December 31, 2001, respectively, is as
follows:
June 30, December 31,
2002 2001
13% Convertible debentures, due February 24, 2005. $ 5,000,000 5,000,000
Note payable, non-amortizing, interest accruing at 13%, due July 31, 2003. 2,123,393 2,391,940
Note payable to a private investor, non-interest bearing, non-amortizing, due
on September 30, 2001. - 1,000,000
13.75% Convertible debentures, non-amortizing, due March 2004. The balance
is net of unaccreted discount of $245,000. (c) 755,000 800,000
Note payable, 13% non-amortizing, due July 2003. 350,000 350,000
13% Convertible debentures, non-amortizing due July 31, 2002. 75,000 75,000
Notes payable, due November 2003 and February 2004. The balance is net of
unaccreted discount of $45,372. 294,589 369,872
Note payable, interest accruing at 10%, due July 2002 75,948 94,102
Notes payable, interest accruing at 9%, due May 31, 2002. - 10,876
Line of credit, interest accruing at 9%, due April 1, 2002 (paid July 2002). 45,000 90,000
13.75% Convertible debentures, non-amortizing, due April 2004. (b) 71,653 -
9
June 30, December 31,
2002 2001
Note payable, non-amortizing, due April 2005. The balance is net of
unaccreted discount of $3,978. (a) 12,486 -
8,803,069 10,181,790
Less current installments 907,410 2,890,215
--------- ----------
$ 7,895,659 7,291,575
=========== ==========
(a) In April 2002, the Company issued an amortizing, non-interest
bearing, note payable in the amount of $17,432 in connection with the
purchase of a vehicle. The note was collateralized by the vehicle. The
note was discounted to its approximate fair market value.
(b) In May 2002, the Company issued 13.75% convertible debentures in
the principal amount of $71,653 to certain convertible debt holders in
connection with their exercise of preemptive rights granted under the
terms of a Debenture and Warrant Amendment Agreement dated effective
December 31, 2001. The convertible debentures are convertible into
common stock at $1.20 per share.
(c) In May 2002, the Company completed a private placement of 13.75%
convertible debentures in the principal amount of $1,000,000 to CCD
Consulting Commerce Distribution AG in consideration of $200,000 in
cash and the satisfaction of a promissory note in the principal amount
of $800,000. The convertible debenture is exercisable for shares of
common stock of The Neptune Society, Inc. at $1.20 per share. The
Company became obligated to issue 83,333 shares of the Company's
common stock as a loan conversion fee. These debentures automatically
convert into common shares at $1.20 per share on March 31, 2004. The
Company granted resale registration rights to this investor.
(6) Income Taxes
As a result of the Company's continuing losses, during the three and six
months ended June 30, 2002, the Company did not recognize any tax benefit
related to its tax net operating losses.
(7) Subsequent Events
In July 2002, the holder of a 13%, $75,000 convertible debenture due July
31, 2002 converted its debenture into 225,000 shares of the Company's
common stock.
In July 2002, the Company extinguished the $45,000 balance of its
line-of-credit.
10
(8) Contingent Liabilities
The Company guaranteed the obligations of Wilhelm Mortuary, Inc.
("Wilhelm"), a wholly-owned subsidiary, to Green Leaf Investors I, LLC
("Green Leaf") in the principal amount of $1.5 million due July 31, 2002.
This obligation was assumed by Western Management Services, LLC ("Western")
in connection with the sale of the assets of Wilhelm. The Company remains
obligated under its guarantee to Green Leaf, which is secured by a security
interest granted in the Company's assets. On August 12, 2002, the Company
received notice that Western and Green Leaf agreed in principle to extend
the due date of the note to November 1, 2002.
(9) New Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not
be accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in
a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement
141 for recognition apart from goodwill. Upon adoption of Statement 142,
the Company will be required to reassess the useful lives and residual
values of all intangible assets acquired in purchase business combinations,
and make any necessary amortization period adjustments by the end of the
first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the
Company will be required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in
the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether
there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this the Company must identify its reporting units
and determine the carrying value of each reporting
11
unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it
to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the
reporting unit's goodwill may be impaired and the Company must perform the
second step of the transitional impairment test. In the second step, the
Company must compare the implied fair value of the reporting unit's
goodwill, determined by allocating the reporting unit's fair value to all
of it assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation in accordance with Statement 141, to
its carrying amount, both of which would be measured as of the date of
adoption. This second step is required to be completed as soon as possible,
but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of earnings.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $24.4 million which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was $1.8 million and $1.7 million, respectively, for
the years ended December 31, 2001 and 2000. The Company has, as of June 30,
2002, completed the first step of determining the fair value of each
reporting unit and comparing it to the reporting unit's carrying amount,
and does not believe that an impairment exists.
In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (Statement 121) and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (Opinion 30), for the disposal of a segment of a business (as
previously defined in that Opinion). Statement 144 retains the fundamental
provisions in Statement 121 for recognizing and measuring impairment losses
on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated
with Statement 121. Statement 144 retains the basic provisions of Opinion
30 on how to present discontinued operations in the income statement but
broadens that presentation to include a component of an entity (rather than
a segment of a business). Unlike Statement 121, an impairment assessment
under Statement 144 will never result in a write-down of goodwill. Rather,
goodwill is evaluated for impairment under Statement No. 142.
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value
of a liability for asset retirement obligations in the period in which they
occurred. The statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that results from the
acquisition, construction, and development or through the normal operation
of a long-lived asset. When a liability is initially recorded, the company
would capitalize the cost, thereby increasing the carrying amount of the
related asset. The capitalized asset retirement cost is depreciated over
the life of the respective asset while the liability is accreted to its
12
present value. Upon settlement of the liability, the obligation is settled
at its recorded amount or the company incurs a gain or loss. The statement
is effective for fiscal years beginning after June 30, 2002. The Company
does not expect the adoption to have a material impact to the Company's
financial position or results of operations.
The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001. Accordingly, the Company will adopt
Statement 144 in the first quarter of 2002. Management does not expect the
adoption of Statement 144 for long-lived assets held for use to have a
material impact on the Company's financial statements because the
impairment assessment under Statement 144 is largely unchanged from
Statement 121. The provisions of the Statement for assets held for sale or
other disposal generally are required to be applied prospectively after the
adoption date to newly initiated disposal activities. Therefore, management
cannot determine the potential effects that adoption of Statement 144 will
have on the Company's financial statements.
13
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934, as amended. Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
using words and phrases such as "expects," "believe," "believes," "plans,"
"anticipate," "anticipates," "is anticipated," or stating that certain actions,
events or results "will," "may," "should," or "can" be taken, occur or be
achieved) are not statements of historical fact and may be "forward-looking
statements." Forward-looking statements are based on expectations, estimates and
projections at the time the statements are made that involve a number of risks
and uncertainties which could cause actual results or events to differ
materially from those anticipated by the Company. Such forward-looking
statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions, including our ability
to expand our operations, our ability to manage an increasing number of sales
offices, our ability to retain key management personnel and to continue to
attract and retain skilled funeral home and crematory management personnel, our
ability to comply with state and federal regulations, our ability to satisfy our
debt obligations as they become due, changes in the death rate or deceleration
of the trend towards cremation, the availability and cost of capital and general
industry and economic conditions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated
or expected. Important factors which could cause actual results of the Company
to differ materially from those in forward-looking statements include, among
others, the following:
1) Changes in general economic conditions impacting financial markets that
could negatively affect the Company.
2) Changes in credit relationships impacting the availability of credit and
the general availability of credit in the marketplace.
3) Changes in consumer demand and/or pricing for the Company's products and
services caused by several factors, such as local death rates, cremation
rates, competitive pressures and local economic conditions.
4) The Company's ability to successfully finance and implement certain
strategic growth initiatives that could result in increased pre-need
contract sales and case volume.
5) Changes in domestic political and/or regulatory environments in which the
Company operates, including tax and accounting policies.
6) The Company's ability to successfully raise financing to extinguish certain
debt coming due in the current year.
Other specific risks and uncertainties are set forth in the Company's
annual report on Form 10-K filed with the Securities and Exchange Commission.
Our management has included projections and estimates in this quarterly report,
which are based primarily on management's experience in the industry,
assessments of our results of operations, discussions and negotiations with
third parties and a review of information filed by its competitors with the
Securities and Exchange Commission. Investors are cautioned against attributing
undue certainty to management's projections. The Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
14
Overview
We are a provider of cremation services in North America. As of August 1,
2002, we operate 19 locations serving Arizona, California, Colorado, Florida,
Illinois, Iowa, Oregon, New York and Washington. Our strategy is to grow by: (i)
initiating start-up operations; (ii) selectively acquiring small, family-owned
cremation service providers strategically located across the United States;
(iii) operating all of our locations under one nationally branded name, "The
Neptune Society" (where permitted); (iv) avoiding direct competition with the
larger competitors in the death care industry by concentrating solely on
marketing and selling cremation services and cremation products; and (v)
improving revenue and profitability of newly acquired operations by
consolidating administrative and management functions within our organization.
We believe that implementing these initiatives are critical to achieving
profitability and are our most important challenges in competing effectively in
the death care industry.
We have made no acquisitions since August 2000. We opened offices in the
suburbs of Denver, Colorado and Chicago, Illinois in January 2002 and June 2002,
respectively.
Effective March 22, 2002, we completed a consolidation of our share capital on a
four share (old) for one share (new) basis (the "Reverse Split"). As a result of
the Reverse Split, our authorized capital was reduced from 25,000,000 shares of
common stock to 6,250,000 shares of common stock, and our issued and outstanding
share capital consisting of 9,697,604 shares of common stock was reduced to
2,424,401 shares. Information contained in this report gives effect to the
Reverse Split.
On May 31, 2002, we amended our Articles of Incorporation to increase our
authorized capital to consist of 85,000,000 shares, including 75,000,000 shares
of common stock, $0.001 par value, and 10,000,000 share of preferred stock,
$0.001 par value. Information contained in this report gives effect to the
amendment.
SELECTED FINANCIAL INFORMATION
The selected financial information presented below as of and for the three
and six months ended June 30, 2002 and 2001 are derived from our unaudited
condensed consolidated financial statements. The following discussion and
analysis is provided to increase understanding of, and should be read in
conjunction with, the unaudited condensed consolidated financial statements and
accompanying notes.
Three Three
Months Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2002 30, 2001 30, 2002 30, 2001
------------ ------------ ------------ -------------
(in 000's, except for per share (unaudited) (unaudited) (unaudited) (unaudited)
information)
INCOME STATEMENT DATA:
Total Revenue $ 3,115 3,184 5,892 5,873
Gross Profit 1,687 1,797 3,075 3,101
General and Administrative Expenses 2,188 2,154 4,014 3,913
Professional Fees 198 370 373 546
Amortization and Depreciation Expense 56 516 132 1,058
Operating Loss (755) (1,243) (1,444) (2,415)
Interest Expense 616 426 1,116 1,045
15
Three Three
Months Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2002 30, 2001 30, 2002 30, 2001
------------ ------------ ------------ -------------
(in 000's, except for per share (unaudited) (unaudited) (unaudited) (unaudited)
information)
Net Loss (1,371) (1,669) (2,559) (3,460)
Loss per share $ (0.35) (0.87) (0.84) (1.81)
The following table set forth the Company's comparable financial information as
a percentage of revenues:
Three
Months Three Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2002 30, 2001 30, 2002 30, 2001
------------- -------------- ------------ --------------
Total Revenue 100% 100% 100% 100%
Gross Profit 54% 56% 52% 53%
General and Administrative Expenses 70% 68% 68% 67%
Professional Fees 6% 12% 6% 9%
Amortization and Depreciation Expense 2% 16% 2% 18%
Operating Loss -24% -39% -25% -41%
Interest Expense 20% 13% 19% 18%
Net Loss -44% -52% -43% -59%
BALANCE SHEET DATA:
(in 000's, except number of offices) June 30, December 31,
2002 2001
---- ----
(unaudited) (audited)
----------- ---------
Current Assets $ 3,321 2,078
Current Liabilities 3,720 6,069
Long-Term Debt 2,069 2,292
Convertible Debentures 5,827 5,000
Shareholders' Equity $ 6,922 7,023
OTHER FINANCIAL DATA:
Number of Offices 19 18
THREE AND SIX MONTHS ended June 30, 2002 compared with THE Three AND SIX months
ended June 30, 2001:
Results of Operations
The following discussion compares our results of operations for the three
and six months ended June 30, 2002 to our results of operations for the three
and six months ended June 30, 2001.
Revenues
Effective on October 1, 2001, we adopted changes to our inventory
management policy in an effort to reduce expenses related to storing certain
delivered merchandise in connection with the sale of pre-need contracts. We will
continue to deliver and store certain merchandise sold in connection with
pre-need sales contracts as required by applicable law, but because this certain
merchandise is identical in each pre-need contract, we will no longer segregate
and specifically identify such merchandise by customer. As a result of this
change in our inventory management policy, we will not continue to recognize
revenue on
16
the sale of certain future pre-need merchandise sales. Merchandise and service
sales of $3,953,000 were deferred during the six months ended June 30, 2002. Our
change in inventory management is expected to result in an improvement in cash
flow. We anticipate recognizing cost savings of approximately $300,000 during
the year ending December 31, 2002. See "Liquidity and Capital Resources."
Cremation service and merchandise revenues were $2,942,000 for the three
months ended June 30, 2002 compared to $2,871,000 for the same period in 2001,
an increase of $71,000 or 2.5%. The increase was primarily due to increased
travel plan sales, $746,000 during the quarter ended June 30, 2002, compared to
$593,000 during the same quarter in 2001. This increase was partially off-set by
a reduction in cremation revenues. The reduction of cremation revenues was the
result of our sale of our crematory business in Portland, Oregon.
Cremation service and merchandise revenues were $5,453,000 for the six
months ended June 30, 2002 compared to $5,113,000 for the same period in 2001,
an increase of $340,000 or 6.7%. The increase was primarily due to increased
travel plan sales, $1,478,000 during the quarter ended June 30, 2002, compared
to $888,000 during the same quarter in 2001. This increase was partially off-set
by a reduction in cremation revenues. The reduction of cremation revenues
resulted primarily of our sale of our crematory business in Portland, Oregon.
The six months ended June 30, 2001 included $389,000 of pre-need merchandise
revenues as we met our revenue recognition criteria during the period.
During the three months ended June 30, 2002 and 2001, merchandise and
service sales of $1,967,000 and $1,849,000, respectively, were deferred as we
did not meet our revenue recognition criteria. The $118,000 or 6.4% increase was
primarily due to increased pre-need merchandise and service sales activity. The
quarter ended June 30, 2001 included $389,000 of pre-need merchandise revenues
as we met our revenue recognition criteria during the quarter.
During the six months ended June 30, 2002 and 2001, merchandise and service
sales of $3,953,000 and $3,407,000, respectively, were deferred as we did not
meet our revenue recognition criteria. The $456,000 or 13.0% increase was
primarily due to increased pre-need merchandise and service sales activity.
We opened new offices in the suburbs of Denver, Colorado in January 2002
and Chicago, Illinois in June 2002. We did not acquire or open any new
properties or offices during the same six month- period in 2001. We operated 19
offices at June 30, 2002. We intend to open two additional offices during the
last half of 2002.
Cremation service and merchandise revenues related to new office openings
after December 31, 2000 were $102,000 and $58,000 for the three and six month
periods ended June 30, 2002.
Revenues earned for the three months ended June 30, 2002 and 2001 from
trust fund management and finance fees were $173,000 and $313,000, respectively.
The trust fund management and finance fees declined $139,000 or 44.5%, when
compared to the same quarter in 2001. Trust fund management fees decreased
$61,000 or 27.9% as a result of declining investment yields. Finance fees
decreased $85,000 or 57.0% due to a decrease in pre-need contracts sold on an
installment sales basis.
Revenues earned for the six months ended June 30, 2002 and 2001 from trust
fund management and finance fees were $439,000 and $760,000, respectively. The
trust fund management and finance fees declined $321,000 or 42.3%, when compared
to the first half of 2001. Trust fund management fees decreased $105,000 or
22.5% as a result of declining investment yields. Finance fees decreased
$207,000 or 61.8% due to decrease in pre-need contract sold on an installment
sales basis.
Costs and Expenses and Gross Profit
Direct costs and expenses were $1,428,000 or 45.9% of revenues for the
three months ended June 30, 2002 compared to $1,387,000 or 43.6% of revenues for
the comparable period in 2001. The $42,000 or 3% increase was primarily
attributable to costs to open new offices and increased variable costs related
to travel revenues. These cost increases were partially off-set by reduced
cremation costs resulting from the
17
sale of our Portland, Oregon crematory operations. The gross profit during the
three months ended June 30, 2002 was $1,687,000 or 54.1% of total revenues
compared to $1,797,000 or 56.4% for the comparable period in 2001, a $110,000 or
6.1% decrease.
The gross profit margin for the three months ended June 30, 2002 decreased
4.1% compared to the same period in 2001. The decrease was due primarily to the
recognition of approximately one month of pre-need merchandise revenues
($389,000) in the second quarter of 2001. The decrease was partially off-set by
reduced fixed cremation costs resulting from the sale of our crematory in
Portland, Oregon, and increased travel plan sales in the second quarter of 2002.
Direct costs and expenses were $2,818,000 or 47.8% of revenues for the six
months ended June 30, 2002 compared to $2,772,000 or 47.2% of revenues for the
comparable period in 2001. The $46,000 or 1.7% increase was primarily
attributable to costs to open new offices and increased variable costs related
to travel plan revenues. These cost increases were partially off-set by reduced
cremation costs resulting from the sale of our Portland, Oregon crematory
operations. The gross profit during the six months ended June 30, 2002 was
$3,075,000 or 52.2% of total revenues compared to $3,101,000 or 52.8% for the
comparable period in 2001, a $27,000 or 0.9% decrease.
The gross profit margin for the six months ended June 30, 2002 decreased
1.2% over the comparable 2001 period. The decrease was due primarily to the
recognition of approximately one month of pre-need merchandise revenues
($389,000) in the first half of 2001. The decrease was partially off-set by
reduced fixed cremation costs resulting from the sale of our crematory in
Portland, Oregon, and increased travel plan sales in the first half of 2002.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30,
2002 were $2,188,000 or 70.2% of revenues. General and administrative expenses
for the three months ended June 30, 2001 were $2,154,000 or 67.7% of revenues.
General and administrative expenses increased $34,000 or 1.6% in the second
quarter of 2002 compared to 2001 due primarily to additional costs associated
with supporting an increased number of geographic locations. These increased
costs were partially off-set by reduced general and administrative costs
resulting from the sale of our crematory in Portland, Oregon.
General and administrative expenses for the six months ended June 30, 2002
were $4,014,000 or 68.1% of revenues. General and administrative expenses for
the six months ended June 30, 2001 were $3,913,000 or 66.6% of revenues. General
and administrative expenses increased $101,000 or 2.6% in the first half of 2002
compared to 2001 due primarily to additional costs associated with supporting an
increased number of geographic locations. These increased costs were partially
off-set by reduced general and administrative costs resulting from the sale of
our crematory in Portland, Oregon.
Amortization and Depreciation Expenses
Amortization and depreciation expenses were $56,000 and $516,000,
respectively, for the three months ended June 30, 2002 and 2001. Amortization
and depreciation expenses were $132,000 and $1,058,000, respectively, for the
six months ended June 30, 2002 and 2001. The decrease in amortization and
depreciation expenses resulted from the adoption of FASB Statements No. 141 and
142 and the divestiture of the Portland, Oregon properties. See "New Accounting
Pronouncements."
Professional Fees
Professional fees were $198,000 or 6.4% of revenues for the three months
ended June 30, 2002 compared to $370,000 or 11.6% of revenues for the three
months ended June 30, 2001. Professional fees were $373,000 or 6.3% of revenues
for the six months ended June 30, 2002 compared to $546,000 or 9.3% of revenues
for the six months ended June 30, 2001. Professional fees primarily related to
general business matters and audit and tax services. Professional fees also
include $167,000 of consulting fees paid by us to the former principal
shareholder for marketing and sales consultation services in the first half of
2001. The consulting agreement with the former principal shareholder was
terminated effective December 31, 2001,
18
and we incurred no consulting fees as a result of that agreement in the first
half of 2002.
Interest Expense
Interest expense was $616,000 or 19.8% of revenues for the three months
ended June 30, 2002 compared to $426,000 or 13.4% of revenues for the three
months ended June 30, 2001. Interest expense was $1,116,000 or 18.9% of revenues
for the six months ended June 30, 2002 compared to $1,045,000 or 17.8% of
revenues for the six months ended June 30, 2001. Interest expense increased
primarily due to the amortization of deferred financing costs incurred to
acquire or refinance certain debt during the fourth quarter of 2001 and/or the
first half of 2002. This increase was partially off-set by the reduction of
interest costs resulting from the payment of certain acquisition debt,
disposition of certain debt related to the sale of our Portland crematory and
building and the July 2001 expiration of a "stock purchase guarantee" obligation
related to a July 2000 restructuring of acquisition debt.
Net Loss
Net loss was $1,371,000 ($0.35 per share) and $1,669,000 ($0.87 per share)
for the three months ended June 30, 2002 and 2001, respectively. Net loss was
$2,559,000 ($0.84 per share) and $3,460,000 ($1.81 per share) for the six months
ended June 30, 2002 and 2001, respectively. During the comparative three month
periods, we deferred net earnings of $1,417,000 and $1,398,000, respectively, as
we did not meet our revenue recognition criteria. During the six month
comparative periods, we deferred net earnings of $2,664,000 and $2,415,000,
respectively, as we did not meet our revenue recognition criteria. The net loss
related to each respective period also differed for the other reasons described
above.
Liquidity and Capital Resources
At June 30, 2002, we had current assets of $3,321,000, which is comprised
of $887,000 in cash, $2,218,000 in accounts receivable and $216,000 in prepaid
expenses and other current assets. We had total current liabilities of
$3,720,000, comprised mainly of $1,389,000 in accounts payable, $1,424,000 in
accrued liabilities, and $907,000 in the current portion of long-term debt. We
had long-term debt of $2,069,000, convertible debentures with a carrying value
of $5,827,000 and other long-term liabilities of $996,000. We also had deferred
pre-need revenue of $15,642,000. We had a working capital deficit of $400,000 at
June 30, 2002.
We have also guaranteed the payment of a $1,500,000 debt, due July 31, 2002
(extended to November 1, 2002) assumed by the purchaser of our Portland, Oregon
crematory operations.
In April 2002, we completed a private placement of 1,388,889 shares of
common stock at $1.08 per share to raise $1,500,000 outside the United States to
non-U.S. persons. The private placement was completed pursuant to an exemption
from the registration requirements available under Regulation S of the
Securities Act of 1933, as amended. We used the proceeds to satisfy our
obligation under a $1,000,000 note we issued to Private Investment Company, Ltd.
We granted resale registration rights to the investors in the private placement.
In May 2002, we issued 64,448 shares of common stock to CapEx, L.P. and
42,992 shares of common stock to D.H. Blair Investment Banking Corp. at $1.08
per share in connection with their exercise of preemptive rights granted under
the terms of a Debenture and Warrant Amendment Agreement dated effective
December 31, 2001. In addition, we issued 13.75% convertible debentures in the
principal amount of $42,992 to CapEx, L.P. and $28,661 to D.H. Blair Investment
Banking Corp. in connection with their exercise of preemptive rights granted
under the terms of a Debenture and Warrant Amendment Agreement dated effective
December 31, 2001. The convertible debentures are convertible into common stock
at $1.20 per share. The securities were issued in reliance upon an exemption
from registration available under Section 4(2) of the Securities Act. We granted
investor registration rights to CapEx L.P. and D.H. Blair Investment Banking
Corp. in connection with the private placement.
In May 2002, we completed a private placement of 13.75% convertible
debentures due March
19
2004 in the principal amount of $1,000,000 to CCD Consulting Commerce
Distribution AG, a non-U.S. person, outside the United States, in consideration
of $200,000 in cash and the satisfaction of a promissory note in the principal
amount of $800,000. The convertible debenture is exercisable for shares of
common stock of The Neptune Society, Inc. at $1.20 per share. The convertible
debentures were issued in reliance upon an exemption from the registration
requirements available under Regulation S of the Securities Act.
In May 2002, we issued 6,250 shares of our common stock as compensation in
connection with the employment of certain senior staff. The shares were issued
in a private transaction pursuant to an exemption from the registration
requirements available under Section 4(2) of the Securities Act.
On May 31, 2002, we amended our Articles of Incorporation to increase our
authorized capital to consist of 85,000,000 shares, including 75,000,000 shares
of common stock, $0.001 par value, and 10,000,000 share of preferred stock,
$0.001 par value.
Debt Obligations
As of June 30, 2002, we had the following debt obligations:
Obligations as of June 30, 2002: Principal Monthly Interest Due
Due Payment Rate Date
Convertible debentures $ 5,000,000 Interest 13.00% Feb-2005
Convertible debentures 71,653 Interest 13.75% Apr-2004
Note payable (original acquisition debt) 2,123,393 Prin. & Int. 13.00% Jul-2003
Convertible debentures, net discount of $245,000 755,000 Interest 13.75% Mar-2004
Notes payable, net discount of $45,372 294,589 Principal 11.87% Nov-2003
Note payable 350,000 Interest 13.00% Jul-2003
Note payable 75,948 Prin. & Int. 10.00% Jul-2002
Line of credit* 45,000 Interest 9.00% Apr-2002
Convertible debentures** 75,000 Interest 13.00% Jul-2002
Notes payable, net discount of $3,978 12,486 Prin. & Int. 10.00% Apr-2005
8,803,069
Obligations coming due over next 12 months 907,410
---------
Long-term obligations $ 7,895,659
=========
*In July 2002, the Company extinguished the $45,000 balance of its line of
credit.
** In July 2002, the holder converted such debenture into 225,000 shares of
Company's common stock. See "Subsequent Events."
We had net cash provided by operating activities of $405,000 and $116,000
for the three months ended June 30, 2002 and 2001, respectively. We had net cash
provided by (used in) operating activities of $595,000 and $(154,000) for the
six months ended June 30, 2002 and 2001, respectively. Interest paid for the
three months ended June 30, 2002 and 2001 was $217,000 and $227,000,
respectively. Interest paid for the six months ended June 30, 2002 and 2001 was
$428,000 and $422,000, respectively.
20
In addition, we guaranteed the obligations of Wilhelm Mortuary, Inc., our
wholly-owned subsidiary, to Green Leaf Investors I, LLC in the principal amount
of $1.5 million due July 31, 2002 (extended to November 1, 2002). This
obligation was assumed by Western Management Services, LLC in connection with
the sale of the assets and properties used in our Portland, Oregon crematory
operations by Wilhelm. We remain obligated under our guarantee to Green Leaf,
which is secured by a security interest granted in our assets. We have not
included a reserve in our financial statements in connection with our guarantee,
which is disclosed as a contingent liability under Note 8 of our financial
statements.
Subsequent Events
In July 2002, a 13% convertible debenture in the principal amount of
$75,000 due July 31, 2002 was converted by Green Leaf Investors I, LLC into
225,000 shares of our common stock.
We have been informed that Western Management Services, LLC and Green Leaf
Investors I, LLC agreed in principle to extend the due date of the $1.5 million
promissory note due July 31, 2002 to November 1, 2002. We remain obligated under
our guarantee of the note, which is secured by a security interest in the
Wilhelm assets.
Plan of Operation
Our plan of operation is based, in part, on information provided in the
reports of our consultants and the decisions of management. Our independent
auditors have not examined, compiled or otherwise applied procedures to the plan
of operations presented herein, and, accordingly, do not express an opinion or
any other form of assurance on it. Information contained in this plan of
operation is presented on a cash basis, which is not in accordance with US GAAP,
and represents projections and assumptions of management. Actual results can
vary materially from the estimates of management and investors are cautioned not
to place undue reliance on management's projections and assumptions. See
"Forward-Looking Statements."
Management has revised its plan of operation for the fiscal year ending
December 31, 2002 as a result of weaker than anticipated sales of pre-need
contracts during the first six months of 2002. As a result, our plan of
operations differs from projections made in our annual report on Form 10-K for
the year ended December 31, 2001 and our quarterly report on Form 10-Q for the
quarter ended March 31, 2002. Set out below is a summary of our revised Plan of
Operation for the fiscal year ending December 31, 2002.
Material Commitments--Short-term Funding Requirements
Operating expenditures (incl. working capital) $17.5 million
Interest payments 1.1 million
Current portion of long-term debt 2.1 million
Capital expenditures 0.2 million
---------------
Estimated total Short-term commitments 20.9 million
Estimated total Cash from Operations 18.7 million
Cash from Equity Sales 1.5 million
Cash from Debt Proceeds 0.2 million
---------------
Estimated net Cash (Deficit) $ (0.5) million
----------------
Net Cash Flow operations: Management's current year forecast for the year ending
December 31, 2002 projects it will achieve approximately $1.2 million in
positive net cash flows from operations before the payment of debt and interest
and capital expenditures. We anticipate generating cash from operations (cash
receipts from sales and other income) of approximately $18.7 million, and
operating expenditures (cash expenditures) of approximately $17.5 million.
Working capital: Management had a net working capital deficit of approximately
$400,000 as of June 30, 2002. We had current assets of $3,321,000, offset by the
current portion of long-term debt of $907,000 coming due over
21
the next twelve months. See "Liquidity & Capital Resources". The remainder
relates to accounts payable of $1,389,000 and accrued expenses of $1,424,000 in
connection with our on-going operations. In addition, we guaranteed the
obligations of Wilhelm Mortuary, Inc., our wholly-owned subsidiary, to Green
Leaf Investors I, LLC in the principal amount of $1.5 million due July 31, 2002
(extended to November 1, 2002). This obligation was assumed by Western
Management Services, LLC in connection with the sale of the assets and
properties used in our Portland, Oregon crematory operations by Wilhelm. We
remain obligated under our guarantee to Green Leaf, which is secured by a
security interest granted in our assets.
Interest payments: We carry outstanding debt, including convertible debt,
requiring annual cash interest payments of approximately $1.1 million, payable
in monthly installments for the year ending December 31, 2002. There is no
guarantee that any convertible debt will be converted; therefore the maximum
amount of interest payments have been projected.
Capital Expenditures: We anticipate capital expenditures to amount to
approximately $200,000 for the year ending December 31, 2002. These expenditures
include office furniture and office and computer equipment.
We anticipate that we will have to raise capital during the next 12 months
to meet our obligations under the portions of long-term debt due. See "Liquidity
and Capital Resources". We intend to raise the capital required to fund our
financing needs by issuance of debt and equity. There can be no assurance
financing will be available or accessible on reasonable terms.
Our total operating and capital budgets for the fiscal year ended December
31, 2002 is estimated to be approximately $21 million. There is no assurance
that our actual expenditures for the fiscal year ending December 31, 2002 will
not exceed our estimated operating budgets. Actual expenditures will depend on a
number of factors, some of which are beyond our control including, among other
things, timing of regulatory approval of its projects, the availability of
financing on acceptable terms, reliability of the assumptions of management in
estimating cost and timing, the death and cremation rates in the geographical
locations that we serve, consumer acceptance of our pre-need plans, changes in
governmental regulation as they relate to our business, certain economic and
political factors, the time expended by consultants and professionals and fees
associated with applications related to obtaining and maintaining licenses for
our locations and the professional fees associated with our reporting
obligations under the Securities Exchange Act of 1934. If the actual
expenditures for such costs exceed the estimated costs or if events occur that
require additional expenditures, we will be required to raise additional
financing or to defer certain expenditures to meet other obligations. If we
cannot raise adequate financing to fund our plan of operation, we may be
required to suspend our growth strategy; consolidate our operations through
reductions in staffing, marketing and sales, promotion and hours of operation;
terminate our operations in unprofitable or difficult to service markets; sell
assets or operations in some of the markets we service and/or suspend our
operations in certain markets. The failure to meet certain expenditures may
cause us to default on material obligations and such default may have a material
adverse effect on our business and results of operations.
We expect operating cash flows, before debt servicing and expansion
expenditures, to be adequate to finance our basic operations. We anticipate that
we will finance long-term debt, additional acquisitions, if any, and growth, in
part, by issuing equity and/or debt securities.
New Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Statement 141 also specifies criteria intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require
22
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $24.4 million which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was $1.8 million and $1.7 million, respectively, for the years ended December
31, 2001 and 2000. The Company has, as of June 30, 2002, completed the first
step of determining the fair value of each reporting unit and comparing it to
the reporting unit's carrying amount, and does not believe that an impairment
exists.
In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144), which supersedes both FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement 121) and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions (Opinion 30), for the disposal of a segment of
a business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
Statement 121. Statement 144 retains the basic provisions of Opinion 30 on how
to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike Statement 121, an impairment assessment under Statement 144
will never result in a write-down
23
of goodwill. Rather, goodwill is evaluated for impairment under Statement No.
142.
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they occurred.
The statement applies to a company's legal obligations associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the Company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The Company does not expect the adoption to have a material
impact to the Company's financial position or results of operations.
The Company is required to adopt Statement 144 no later than the year
beginning after December 15, 2001. Accordingly, the Company will adopt Statement
144 in the first quarter of 2002. Management does not expect the adoption of
Statement 144 for long-lived assets held for use to have a material impact on
the Company's financial statements because the impairment assessment under
Statement 144 is largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities. Therefore, management cannot determine the potential effects that
adoption of Statement 144 will have on the Company's financial statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in our market risk sensitive instruments and
positions is the potential change arising from increases or decreases in
interest rates as discussed below. Our exposure to market risk as discussed
below includes "forward-looking statements" and represents an estimate of
possible changes in fair value or future earnings that would occur assuming
hypothetical future movements in interest rates. Our views on market risk are
not necessarily indicative of actual results that may occur and do not represent
the maximum possible gains and losses that may occur, since actual gains and
losses will differ from those estimated, based upon actual fluctuations in
interest rates and the timing of transactions.
24
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Our operations are subject to numerous laws, regulations and guidelines
adopted by various governmental authorities in the jurisdictions in which we
operate. Liabilities are recorded when liabilities are either known or
considered probable and can be reasonably estimated. Our policies are designed
to control risk upon acquisition through extensive due diligence and corrective
measures taken prior to acquisition. We believe liabilities to be immaterial
individually and in the aggregate.
On June 13, 2002, the Iowa State Board of Mortuary Science Examiners (No.
01-011, DIA No. 01DPHMS002 and No. 01-015, DIA No. 01DPHMS001) issued an order
against our Iowa operations and an employee of the Neptune Society under the
Iowa Code for failure to comply with appropriate procedures related to its
operations. Under the order, our license to operate a funeral establishment and
cremation establishment in Iowa would be suspended for a period of thirty days;
we would be required to make arrangements during the period of suspension with
other licensed funeral and/or cremation establishments to provide funeral or
cremation services during the suspension; we were required to pay a civil
penalty in the amount of $7,600 and we would be placed on probation for a period
of two years, subject to certain terms and conditions, including among others,
complying with Iowa requirements related to licensed funeral establishments
applicable to our business of providing cremation and funeral services,
designating an employee responsible for management and oversight of our Iowa
operations, only permitting a licensed funeral director to perform services
required to be performed by a licensed funeral director, maintaining a log of
our cremation and funeral services in the State of Iowa, being subject to random
inspections and notifying other states of the order. The order is not
anticipated to affect our ability to market and sell pre-need contracts in Iowa.
On June 26, 2002, we filed a rehearing application with the Iowa Board, which
was denied by order dated July 9, 2002. The order of the Iowa Board will be
effective on August 8, 2002, unless an appeal is filed. We intend to file an
appeal of the Iowa Board's decision.
We are party to other legal proceedings in the ordinary course of its
business, but do not expect the outcome of any of other proceedings,
individually or in the aggregate, to have a material adverse effect on our
financial position, results of operations or liquidity.
Item 2. Changes in Securities.
In April 2002, we completed a private placement of 1,388,889 shares of
common stock at $1.08 per share to raise $1,500,000. We used the proceeds to
satisfy our obligation under a $1,000,000 note we issued to Private Investment
Company, Ltd. and for working capital purposes. The private placement was made
to non-U.S. persons outside the United States pursuant to an exemption from the
registration requirements available under Regulation S of the Securities Act.
In May 2002, we completed a private placement of 13.75% convertible
debentures in the principal amount of $1,000,000 to CCD Consulting Commerce
Distribution AG, a non-U.S. person outside the United States, in consideration
of $200,000 in cash and the satisfaction of a promissory note in the principal
amount of $800,000. The convertible debenture is exercisable for shares of
common stock of The Neptune Society, Inc. at $1.20 per share. The Company became
obligated to issue 83,333 shares of the Company's common stock as a loan
conversion fee. These debentures automatically convert into common shares at
$1.20 per share on March 31, 2004. The private placement was completed pursuant
to an exemption from the registration requirements available under Regulation S
of the Securities Act.
In May 2002, the Company issued 64,448 shares of common stock to CapEx,
L.P. and 42,992 shares of common stock to D.H. Blair Investment Banking Corp. at
$1.08 per share in connection with their exercise of preemptive rights granted
under the terms of a Debenture and Warrant Amendment Agreement dated effective
December 31, 2001. In addition, we issued 13.75% convertible debentures in the
principal amount of $42,992 to CapEx, L.P. and $28,661 to D.H. Blair Investment
Banking Corp. in connection with their exercise of preemptive rights granted
under the terms of a Debenture and Warrant
25
Amendment Agreement dated effective December 31, 2001. The convertible
debentures are convertible into common stock at $1.20 per share. These
debentures automatically convert into common shares at $1.20 per share on March
31, 2004. The private placement was completed in reliance upon an exemption from
registration available under Section 4(2) of the Securities Act.
In May 2002, we issued 6,250 shares of our common stock as compensation in
connection with the employment of certain senior staff. The shares will be
issued in a private transaction pursuant to an exemption from the registration
requirements available under Section 4(2) of the Securities Act.
On May 31, 2002, we amended our Articles of Incorporation to increase our
authorized capital to consist of 85,000,000 shares, including 75,000,000 shares
of common stock, $0.001 par value, and 10,000,000 share of preferred stock,
$0.001 par value.
Subsequent Events
In July 2002, a 13% convertible debenture in the principal amount of
$75,000 due July 31, 2002 was converted by Green Leaf Investors I, LLC into
225,000 shares of our common stock.
We have been informed that Western Management Services, LLC and Green Leaf
Investors I, LLC agreed in principle to extend the due date of the $1.5 million
promissory note due July 31, 2002 to November 1, 2002. We remain obligated under
our guarantee of the note, which is secured by a security interest in our
assets.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual general meeting of shareholders was held on May 22,
2002 in Boca Raton, Florida pursuant to the notice of annual meeting and proxy
statement dated April 19, 2002. A total of 1,739,610 common shares of the
Company were represented in person or by proxy at the annual meeting, consisting
of approximately 45.5% of the total number of common shares of the Company
outstanding on April 19, 2002, the record date for the annual general meeting.
At the annual general meeting, 21 shareholders were represented in person or by
proxy.
Appointment of Auditors.
At the annual meeting, the shareholders ratified the appointment of
Stonefield Josephson, Inc. as the Company's auditors for the fiscal year ending
December 31, 2001 and approved the authorization of the directors to fix the
remuneration of the auditors. The following table sets forth the information
regarding the voting on the proposal:
Votes Cast Votes Cast Votes
For Against Withheld Abstentions Not Voted
- --------------------------------------------------------------------------------
1,732,927 6,089 0 594 0
Election of Directors.
At the annual meeting, the following persons were elected to serve as
Directors until the next Annual General Meeting or until their earlier
retirement, resignation, or removal. The following table sets forth the voting
in the election held at the annual meeting for Directors:
26
Votes Cast Votes Cast Votes Withheld
Nominee For Nominee Against Abstentions Not Voted
- ----------------------------- --------------- -------------- --------------- -------------- --------------
Gary Loffredo 1,782,913 32 0 10,665 0
Rodney M. Bagley 1,782,913 32 0 10,665 0
Marco P. Markin 1,782,913 32 0 10,665 0
David Schroeder 1,782,913 32 0 10,665 0
Bryan G. Symington Smith 1,782,913 32 0 10,665 0
Anthony George 1,782,913 32 0 10,665 0
Adoption of the 2002 Stock Plan.
At the annual meeting, the adoption of the 2002 Stock Plan was approved and
ratified. The following table sets forth the information regarding the voting on
the proposal:
Votes Cast Votes Cast Votes
For Against Withheld Abstentions Not Voted
- --------------------------------------------------------------------------------
1,062,819 14,506 0 409 662,646
Special Resolution to Amend the Company's Articles of Incorporation.
A special resolution was approved to amend the Company's Articles of
Incorporation to increase the authorized share capital of the Company to consist
of 75,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of "blank check" preferred stock, par value $0.001 per share. The
following table sets forth the information regarding the voting on the proposal:
Votes Cast Votes Cast Votes
For Against Withheld Abstentions Not Voted
- --------------------------------------------------------------------------------
1,039,819 36,150 0 995 662,646
We filed with the Securities and Exchange Commission our proxy statement
for the annual meeting pursuant to Regulation 14A of the Securities Exchange Act
of 1934, as amended, on April 29, 2002.
Item 5. Other Information.
During the quarter ended June 30, 2002, Tom Camp, Tom Soucy, and Gary
Harris resigned as directors.
On May 8, 2002, the Company announced the appointment of Douglas Irving as
the Company's Chief Operating Officer ("COO"). Doug Irving joined Neptune
Society as it's COO in May 2002. Prior to joining Neptune, Mr. Irving had his
own Management Consulting Business. From 1997-1998 he served as Vice President
of Operations for Service Corporation International, and from 1988-1996 had
several positions including Operations Controller for The Loewen Group, Inc. Mr.
Irving is also a Licensed Funeral Director and holds a Bachelor of Commerce
Degree from the University of British Columbia and is a Professional Accountant.
To accommodate Mr. Irving's appointment David Schroder resigned as Chief
Operating officer and will continue to serve as the Company's President.
On May 31, 2002, Gary Loffredo resigned as a director of the Company.
27
Effective at 5:00 p.m. (Eastern Standard Time) on May 31, 2002, the amended
its articles of incorporation to increase the authorized share capital of the
Company to consist of 75,000,000 shares of common stock, par value $0.001 per
share, and 10,000,000 shares of "blank check" preferred stock, par value $0.001
per share.
Subsequent Events
On July 1, 2002, we entered into an agreement for Mr. Irving to act as our
Chief Operating Officer. Mr. Irving's annual base compensation shall be $144,000
per annum, and a bonus of no less than 25% of base compensation upon successful
performance as defined by the Company. The Company is obligated to grant stock
options to purchase 50,000 shares of its common share at $2.00 per share. Such
stock options shall vest June 30, 2003. The term of the agreement extends to
June 30, 2005, unless terminated prior to that date. The Company may terminate
the agreement upon written notice and payment of any and all balances due. Mr.
Irving may terminate the agreement upon four weeks written notice.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX
Exhibit
Number Description
- --------- ---------------------------------------------------------------------
3.1(1) Articles of Incorporation of L R Associates, Inc., filed January 4,
1985
3.2(1) Articles of Amendment of L R Associates, Inc. changing name to Lari
Corp., filed August 3, 1998
3.3(1) Articles of Amendment of Lari Corp. changing name to Neptune Society,
filed April 26, 1999
3.4(1) Articles of Amendment of The Neptune Society, Inc. filed May 9, 2000,
effecting a combination of the Corporation's shares of common stock
3.5(1) Articles of Amendment of The Neptune Society, Inc. effective as of
March 22, 2002, related to a combination of the Corporation's shares
of common stock
3.6(6) Articles of Amendment of The Neptune Society, Inc.
3.7(1) Bylaws of Neptune Society (previously filed as Exhibit 3.6)
10.1(1) Form of Stock Option Plan
10.2(1) Share Purchase Agreement dated for reference March 26, 1999 by and
between Lari Acquisition Company, Inc., Emanuel Weintraub Inter Vivos
Trust, Emanuel Weintraub, Neptune Management Corp., Heritage
Alternatives, Inc., Neptune Pre-Need Plan, Inc. and Lari Corp.
10.3(1) Share Purchase Agreement dated March 31, 1999 by and between Lari
Acquisition Company, Inc., Lari Corp. and Stanley Zicklin
10.4(1) Share Purchase Agreement dated March 31, 1999 by and between Lari
Acquisition Company, Inc., Lari Corp. and Jill Schulman
10.5(1) Agreement dated August 1, 1999 by and between Lari Acquisition
Company, Inc., Neptune Society and Stanley Zicklin
10.6(1) Agreement dated August 1, 1999 by and between Lari Acquisition
Company, Inc., Neptune Society, Emmanuel Weintraub and Emmanuel
Weintraub Inter Vivos Trust
10.7(1) Interest Purchase Agreement dated for reference March 31, 1999 by and
between Neptune Management Corp. Lari Corp., Lari Acquisition Company,
Inc. and the limited partners of Neptune-Los Angeles, Ltd.,
Neptune-Santa Barbara, Ltd., Neptune-Miami, Ltd., Neptune-St.
Petersburg, Ltd., Neptune-Ft. Lauderdale, Ltd., Neptune-Nassau, Ltd.,
Neptune-Yonkers, Ltd.
28
Exhibit
Number Description
- --------- ---------------------------------------------------------------------
10.8(1) Interest Purchase Agreement dated for reference March 31, 1999 by and
between Heritage Alternatives, Inc., Lari Corp., Lari Acquisition
Company, Inc. and the limited partners of Heritage Alternatives, L.P.
10.9(1) Consulting Agreement dated March 31, 1999 by and between Lari
Acquisition Company, Inc. and Emanuel Weintraub
10.10(1) Amendment to Consulting Agreement dated August 1, 1999 by and between
Lari Acquisition Company, Inc. and Emanuel Weintraub
10.11(1) $19,000,000 Promissory Note dated March 31, 1999 by Lari Acquisition
Company, Inc.
10.12(1) Amendment to $19,000,000 Promissory Note dated August 1, 1999 by Lari
Acquisition Company, Inc. in favor of Emanuel Weintraub Inter Vivos
Trust
10.13(1) $2,000,000 Promissory Note dated March 31, 1999 by Lari Acquisition
Company, Inc.
10.14(1) Amendment to $2,000,000 Promissory Note dated August 1, 1999 by Lari
Acquisition Company, Inc. in favor of Emanuel Weintraub Inter Vivos
Trust
10.15(1) Pre-Need Trust Agreement dated October 1, 1993 by and between Neptune
Management Corp. and Sunbank/South Florida, N.A.
10.16(1) Asset Purchase Agreement dated March 31, 1992 by and between Heritage
Cremation Services, Inc., Joseph Estephan, Elie Estephan and Emanuel
Weintraub
10.17(1) Form of Commissioned Contractor Agreement
10.18(1) Agency Agreement dated for reference July 22, 1999 by and between
Neptune Society and Standard Securities Capital Corporation
10.19(1) Amendment to Agency Agreement dated August 5, 1999 by and between
Neptune Society and Standard Securities Capital Corporation
10.20(1) Form of Subscription Agreement
10.21(1) Form of Registration Rights Agreement
10.22(1) Debenture and Warrant Purchase Agreement dated November 24, 1999.
10.23(1) Form of Convertible Debenture
10.24(1) Asset Purchase Agreement dated December 31, 1999, by and among Neptune
Society, Crematory Society of Washington, Inc., and John C. Ayres.
10.25(1) Asset Purchase Agreement dated March 15, 2000, by and among Neptune
Society, Cremation Society of Iowa, Inc., Dave Noftsger, and John
Bethel
10.26(1) Asset Purchase Agreements and Merger Agreement dated July 5, 2000, by
and among Neptune Society, Heritage Memorial, Community Memorial
Centers, David Schroeder, and Michael Ashe
10.27(1) Agency Agreement dated for reference July 31, 2000 by and between
Neptune Society and Standard Securities Capital Corporation
10.28(2) Employment Agreement by and between the Company and Marco Markin
10.29(2) Employment Agreement by and between the Company and David Schroeder
10.30(2) Employment Agreement by and between the Company and Rodney M. Bagley
10.31(2) Memorandum of Understanding by and between the Company and Private
Investment Company
10.32(2) Loan Agreement dated August 8, 2001 with Green Leaf Investors I, LLC,
a California limited liability company
10.33(2) Warrant issued to Green Leaf
10.34(2) Guaranty issued to Green Leaf
10.35(2) Second Debt Restructuring Agreement
10.36(3) Third Debt Restructuring Agreement
10.37(4) Asset Purchase Agreement effective as of January 31, 2002 by and
between Western Management Services, L.L.C., an Oregon limited
liability company, Wilhelm Mortuary, Inc., a corporation incorporated
under the laws of the State of Oregon, and The Neptune Society, Inc.,
a Florida corporation, and Neptune Society of America, Inc., a
California corporation
29
Exhibit
Number Description
- --------- ---------------------------------------------------------------------
10.38(4) Service Agreement effective as of March 8, 2002, by and between
Western Management Services, L.L.C., an Oregon limited liability
company, and The Neptune Society, Inc., a Florida Corporation.
10.39(4) Note Extension And Assumption Agreement effective as of January 31,
2002, and is made by and between Western Management Services, L.L.C.,
an Oregon limited liability company, Wilhelm Mortuary, Inc., an Oregon
corporation, The Neptune Society, Inc., a Florida corporation, Neptune
Society of America, Inc., a California corporation, and Green Leaf
Investors I, LLC, a California limited liability company.
10.40(4) Convertible Debenture in the principal amount of $75,000, due July 31,
2002, issued to Green Leaf Investors I, LLC, a California limited
liability company.
10.41(4) Debenture and Warrant Amendment Agreement effective as of December 31,
2001, by and between The Neptune Society, Inc., a Florida corporation,
CapEx, L.P., a Delaware limited partnership, and D.H. Blair Investment
Banking Corp., a New York corporation.
10.42(4) Form of CapEx, L.P. Debenture Amendment
10.43(4) Form of D.H. Blair Investment Banking Corp. Debenture Amendment
10.44(4) Form of Warrant Amendment
10.45(5) Form of Debenture
99.1 Section 906 Certificate of Chief Executive Officer
99.2 Section 906 Certificate of Chief Financial Officer
- ---------------------
(1) Previously filed on February 12, 2001.
(2) Previously filed as an exhibit to Form 10-Q (for the Period ended June 30,
2001) on August 14, 2001.
(3) Previously filed as an exhibit to Form 10-Q/A (for the Period ended June
30, 2001) on August 20, 2001.
(4) Previously filed as an exhibit to Form 10-K (for the period ended December
31, 2001) on April 2, 2002.
(5) Previously filed on Form 10-Q (for the period ended March 31, 2002) on May
15, 2002.
(6) Previously filed on Form 8-K on June 3, 2002.
(b) Reports on Form 8-K
Form 8-K filed on June 3, 2002, regarding increase in authorized capital
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending June 30, 2002 to be
signed on its behalf by the undersigned duly authorized.
THE NEPTUNE SOCIETY
/s/ Marco Markin
August 14, 2002 -------------------------------------------
Marco Markin, Chief Executive Officer
(Principal Executive Officer)
/s/ Rodney M. Bagley
August 14, 2002 -------------------------------------------
Rodney M. Bagley, Chief Financial Officer
(Principal Accounting Officer)