Mail Stop 3561
July 29, 2005
Via U.S. Mail and Fax
Mitchell S. Segal
Chief Executive Officer
Walker Financial Corporation
990 Stewart Avenue, Suite 60A
Garden City, New York 11530
Re: Walker Financial Corporation
Amendment No. 1 to Registration Statement on
Form SB-2
Filed July 1, 2005
File No. 333-120748
Forms 10-KSB for the fiscal year ended December 31, 2004
and December 31, 2003
Filed April 15, 2005 and April 14, 2004, respectively
Forms 10-QSB for the quarter ended March 31, 2005
and September 30, 2004
Filed May 26, 2005 and November 22, 2004, respectively
File no. 000-05418
Dear Mr. Siemens:
We have reviewed your filing and your July 1, 2005 response
letter and have the following comments. Where indicated, we think
you should revise your Form SB-2 in response to these comments.
If
you disagree with any of our comments, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments. Please note that all page number references are to the
black-lined version of the first amendment to the Form SB-2.
We welcome any questions you may have about our comments or
on
any other aspect of our review. Feel free to call us at the
telephone numbers listed at the end of this letter.
Amendment No. 1 to the Form SB-2
General
1. Please provide a reasonably detailed table of contents, as
required by Item 502(a) of Regulation S-B.
Prospectus Summary, page 1
2. After your revisions, it is still difficult to understand what
services your company is currently offering, versus those services
the company is developing or that it plans to develop in the
future.
For example, you refer to your pre-need funding products on page 1
of
your registration statement, but it appears that your company acts
solely as an insurance agent, selling pre-need funding products
that
are created by companies other than your own. As another example,
you intimate in the prospectus summary that National Preplanning,
Inc. has begun marketing pre-need products, yet on page 16 you
state
that National Preplanning will not begin marketing the insurance
products until the third or fourth quarter of 2005 and on page 17
that marketing will not occur until the second quarter of 2005.
As
yet another example, you state on page 22 that you plan to direct
most potential customers of National Preplanning to your
enrollment
website, but it does not appear that you currently have an
enrollment
website that is viewable or operational. Please revise to clearly
explain those services and products that you actually offer at
this
time and those that are currently generating revenues versus those
that are in the developmental stages, and disclose the status of
the
services you plan on offering. Also revise the remainder of your
document to paint a clear picture of your current operations and
future plans.
3. You state that "we sell, as agent, life insurance policies."
Clarify what you mean by selling as an agent.
4. We note your statement that you have entered into numerous
third
party marketing agreements with larger and more established
insurance
agencies. Please revise to disclose that: (1) you have not begun
marketing these products; (2) the other insurance agencies have
not
begun marketing the products; and (3) you are required to share
any
insurance commissions on the sale of pre-need products with these
agencies.
5. Please revise to clarify that much of the substantial increase
in
your net losses for the quarter ended March 31, 2005 was caused by
your default under the terms of the indenture governing the
promissory notes and the recording of $933,793 in debt conversion
expense in connection with that default.
Management`s Discussion and Analysis of Financial Condition and
Plan
of Operations, page 12
General
6. When discussing your results of operations and liquidity and
capital resources for the last two fiscal years, please revise to
discuss material line items not only from your December 31, 2004
fiscal year end but also from your December 31, 2003 fiscal year
end.
See Item 303(b)(1) of Regulation S-B. We note that you omitted
much
of this disclosure that appeared in your prior filing. For
example,
you no longer discuss your net sales for the year ended December
31,
2003. Please revise to not only discuss changes in material line
items, but to also (1) quantify the percentage change in those
line
items from year to year and quarter to quarter; (2) disclose the
cause or causes of those changes; and (3) quantify how much each
cause contributed to the change in each line item. See prior
comment
18.
Overview, page 12
7. Please do not repeat in the Overview section the same
disclosure
you provide in the Business section and the Prospectus Summary.
Instead, revise to highlight the most important developments
during
the years ended December 31, 2004 and December 31, 2003, as well
as
the quarters ended March 31, 2004 and March 31, 2005. The
discussion
should be from the executives` point of view, focusing on
important
economic or industry-wide factors, such as state regulation of the
insurance industry, market demand for your company`s, not just any
company`s, products, , your markets, and the degree to which your
sector is flooded with multiple competitors seeking to market the
same products created by the same companies. See also prior
comment
14.
8. Please note that the executive-level overview should also hone
in
on opportunities, challenges, and risks that management deems to
be
the most material in the short term and long term, as well as the
actions management is taking to address those opportunities,
challenges, and risks. For example, we note that your company is
in
default under its promissory notes` indenture, that National
Preplanning has not yet begun marketing its services, that
National
Preplanning did not contribute to Walker`s revenues during the
quarters ended March 31, 2004 and March 31, 2005, and that many of
the marketing agreements between National Preplanning and other
insurance agencies require the sharing of insurance commissions on
the sale of pre-need products.
9. On page 13, you state that National Preplanning generates
revenues
"from the sale of pre-need and final expense insurance policies"
and
earns insurance commissions from those sales. You also state on
page
12 that National Preplanning sells pre-need insurance policies
accompanied by an inflation rider. On page 17, however, you
disclose
that National Preplanning will not begin marketing its products
until
the third or fourth quarter of 2005. Further, in your discussion
of
results of operations, you note that National Preplanning did not
contribute to Walker Financial`s revenues for the quarters ended
March 31, 2004 and March 31, 2005. Please revise the disclosure
on
pages 12-13, as well as the remainder of the registration
statement,
to clarify, if true, that National Preplanning has not yet earned
revenues from the sales of insurance products created by other
companies, and that its business plan is to generate revenues from
earning insurance commissions that it will share with other
insurance
agencies upon the sale of those products. Also indicate when you
believe National Preplanning will begin generating revenues.
10. Your discussion of the material weakness in your internal
controls refers generally to your limited ability to detect
potential
misstatements and fraudulent accounting and transactions which
were
recorded improperly. Revise to more specifically describe any
material impact the material weakness has had or may have on your
financial statements, ensuring that you provide quantification and
further analysis of the uncertainties and trends associated with
the
material weakness.
Critical Accounting Policies, page 14
11. We reissue prior comment 17. Please revise your discussion of
critical accounting policies and new accounting pronouncements to
address the material implications of uncertainties associated with
the methods, assumptions and estimates underlying your critical
accounting measurements, instead of merely duplicating the
description of accounting policies already disclosed in the notes
to
the financial statements. For further guidance, please refer to
Section V of the Commission`s Interpretive Release No. 33-8350,
"Commission Guidance Regarding Management`s Discussion and
Analysis
of Financial Condition and Results of Operations," located on our
website at http://www.sec.gov/rules/interp/33-8350.htm.
12. Your discussion of accounting for stock-based compensation
focuses on the accounting methodology used to calculate that
compensation, instead of offering a basic summary of how the
methods,
assumptions, and estimates underlying your calculation of stock-
based
compensation impact the presentation in your financial statements.
Does the type of valuation method you use have an impact on the
resulting compensation expense recognized in your Statement of
Operations? Do you actually use the methodology for valuation of
stock compensation set forth in SFAS 123, or do you use some other
method? If you use another method, how does use of the other
method
impact your financial statements differently than use of the
Black-
Scholes method?
13. You state that one of your most important critical accounting
policies involves the recognition of transaction revenues, but it
appears that you did not discuss that important policy anywhere in
the Critical Accounting Policies section. Please revise to
provide
that discussion, following the guidance in Section V of the
Commission`s Interpretive Release No. 33-8350.
New Accounting Pronouncements, page 14
14. For each of the accounting pronouncements you discuss under
this
section, you state that adoption of the pronouncement, as well as
implementation of each standard, has not had a material impact on
your financial statements. Please revise to remove your
discussion
of each accounting pronouncement that is not material. You should
only highlight accounting estimates or assumptions where: (1) the
nature of the estimates or assumptions is material due to the
level
of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change;
or
(2) the impact of the estimates and assumptions on your financial
condition or operating performance is material. See prior comment
17.
15. We note your discussion of SFAS No. 146 regarding Costs
Associated with Exit or Disposal Activities. Was this guidance
used
in connection with the discontinuing of your Kelly Color
operations?
If so, what impact did it have on the presentation of your
financial
statements for the fiscal year ended December 31, 2004? In
addition,
are there other accounting estimates, assumptions, or methods used
in
connection with the discontinuance of Kelly Color`s operations
that
either had a material impact on the presentation of your financial
statements, or were contingent upon highly uncertain judgment
calls?
Results of Operations for the Three Months Ended March 31, 2005
and
March 31, 2004, page 16
16. Please revise to further discuss your default under your
promissory notes` indenture, clarifying whether you are still in
default, the impact that default will have on your results of
operations and financial performance going forward (such as the
impact of having to pay penalties), and whether you believe you
are
likely to cure that default within the next three months.
17. We note that during the quarter ended March 31, 2005, 94% of
your
revenues were generated by sales to three customers, up from 88%
of
your revenues generated by sales to three customers during the
December 31, 2004 fiscal year end. Do you expect to increasingly
rely on a few major customers? If so, how are you planning for
the
potential loss of one or more of these customers? Will you be
able
to generate revenues sufficient to stay afloat if one or more of
these customers decides to seek services from another company?
Year Ended December 31, 2004 and 2003, page 17
18. Disclose the source of the $2,177 in revenues that National
Preplanning generated for the December 31, 2004 fiscal year end.
In
this regard, your disclosure is confusing in light of your
statement
on page 16 that National Preplanning will not begin marketing the
insurance products until the third or fourth quarter of 2005, and
that no assurance can be given that National Preplanning will
generate any revenue.
Liquidity and Capital Resources, page 18
19. Please provide further disclosure regarding your recent
default
under the promissory notes` indenture. Discuss the amounts
payable
to the remaining holder of the promissory notes. Also address the
potential impact that the default has had or will have on your
ability to secure the $1 million in additional financing needed to
fund your operations for the next 12 months in light of your
default.
20. Quantify the total amount of your indebtedness, highlighting
the
total amount overdue, and disclose your debt service requirements
for
the next 12 months. Also discuss your ability to satisfy your
debt
repayment obligations.
21. We note your discussion of the Fusion Capital $6 million
equity
line arrangement. Revise to state whether you believe the equity
line arrangement will result in receipt of the $1 million or only
a
portion of that amount needed to finance your operations for the
next
12 months. Also disclose when you anticipate the equity line
financing will begin to provide the money needed to fund
operations.
Furthermore, clearly state that there is no guarantee that you
will
receive any funds from Fusion and disclose your alternative
sources
of funds. If you have not secured a viable source of additional
capital, disclose that fact and discuss the consequences to your
operations.
Plan of Operations, page 22
22. We note that as of March 31, 2005 you had negative working
capital of $1,104,435, $5,860 in cash, and that your attempted
acquisition of Disability Access Consultants was unsuccessful. We
also note your statement on page 23 (and elsewhere in the
document)
that you have changed your focus to acquiring companies in the
employee benefit and work-site marketing areas. Please revise to
explain how you plan on funding these acquisitions, while at the
same
time resolving your default under your indenture, securing the $1
million in financing needed to fund operations, and spending the
money necessary to start up your operations.
Recent Developments, page 23
23. On April 13, 2005 you filed an Item 1.01 Form 8-K to disclose
that you had entered into an agreement to purchase 90% of the
outstanding shares of Disability Access Consultants, Inc. On page
23, however, you state that the agreement to purchase that company
was terminated. Please disclose when and why the agreement was
terminated. Also tell us in your response letter why you did not
file an Item 1.02 Form 8-K to disclose the termination of the
agreement. We may have further comments based on your response.
Business, page 24
24. We reference Note 12 to your financial statements for the
period
ending March 31, 2005, which indicates that 94% of your revenues
were
attributable to three customers. Please revise the business
section
to identify your material customers and discuss your dependence on
them in accordance with Item 101(b)(6) of Regulation S-B. In
addition, clarify whether any of these customers are otherwise
affiliated with your company, and if so, the nature of that
affiliation. Please also file all contracts between your company
and
the three customers as they appear to be material contracts under
Item 601(b)(10) of Regulation S-B, or verify that those contracts
have already been filed as exhibits and clearly identify the
periodic
report or registration statement with which the contracts were
filed.
25. You continually characterize the pre-need and final expense
insurance products you sell as "your products." On page 22,
however,
you state that National Preplanning will generate revenues from
the
sale of those products, and that insurance commissions are to be
paid
"by the insurance companies which create and issue these [pre-need
and final expense insurance] products." Please revise your
registration statement to clarify, if true, that you do not market
insurance products that you create, but instead market products
created by other insurance companies.
26. Update your disclosure to address whether or not National
Preplanning`s strategic partners have commenced the marketing
efforts
as of the most recent date practicable. For instance, you state
on
pages 22 and 25 that a few of its partners will commence marketing
its products in April of 2005, but it is unclear whether that
actually took place, particularly in light of your statement on
page
16 that the marketing of National Preplanning`s products will not
commence until the third and fourth quarters of 2005. To the
extent
there are any delays in the commencement of marketing activities,
disclose the reasons for such delays and when you anticipate the
marketing will begin, if known.
27. Revise to clarify whether you are currently generating any
revenues as a result of the various agreements listed on pages 25
and
26. For example, clearly state that you do not currently derive
any
revenues from the agreements with Stewart Enterprises and Hilb
Rogal
& Hobbs as indicated in your response to prior comment 46. Also
disclose, if true, that you cannot guarantee that you will earn
any
revenues as a result of these agreements.
28. You discuss the creation of an advisory board composed of
individuals who have received stock-option compensation in return
for
their services. Please disclose in the "Management" section if
this
advisory board is part of your board of directors. In addition,
disclose the compensation to members of the advisory board in the
"Executive Compensation" section as required by Item 402(f) of
Regulation S-B. Finally, delete the duplicative disclosure of the
advisory board on page 26 of your registration statement, as you
provide identical disclosure on page 27 of your document.
Certain Relationships and Related Party Transactions, page 36
29. Because Fusion Capital currently owns 5.8% of your common
stock,
please disclose the equity line financing arrangement with that
entity under the "Certain Relationships and Related Party
Transactions" section and provide the disclosure required by Item
404
of Regulation S-B.
Plan of Distribution, page 40
30. We note that the Investment Banking Consulting Agreement
(filed
as Exhibit 10.3 to the Form 10-QSB for the quarter ended September
30, 2004) entered into with Vantage Group says that Vantage will
maintain relationships with registered broker/dealers and "will
enable contact between the Company [Walker] and such professionals
to
facilitate transactions among them," and that Vantage will use its
contacts with brokers and dealers to "assist the Company [Walker]
in
establishing relationships with securities dealers on a regular
and
continuous basis." Further, we note in Exhibit 10.4 ("Consulting
Agreement") to the same Form 10-QSB, you agreed to pay Phoenix
Holdings for providing advice concerning financial matters,
business
acquisitions, and business opportunities. Please advise us
whether
Phoenix Holdings and Vantage Group are "finders" and, if so,
revise
to provide the disclosure about them required by Item 508(g),
including the nature of any material relationship between those
finders and your company, your company`s associates, or your
company`s affiliates.
Selling Stockholders, page 43
31. In your response letter, please tell us whether any of the
selling stockholders are broker-dealers or affiliates of broker-
dealers. We may have further comments after reviewing your
response
to this comment.
Financial statements
Notes to the consolidated financial statements for the fiscal
years
ended December 31, 2004 and 2003
Note 1. Merger and organization of entities, page F-6
32. Your response to our prior comment 44 does not address the
information we requested. Please tell us in your response to this
comment how you determined the fair value of the assets and
liabilities acquired in the merger transactions. You used $2.69
as
the fair value of the common stock of Walker. However, based on
the
information presented under Item 5 of the Form 10-KSB for the year
ended December 31, 2002, the market price of the common stock of
Walker was approximately $.30 per share. Please explain in detail
your basis to support the fair value of $2.69 used in the
computation
of the purchase price of Walker and ADS. We may have further
comments after the review of your response.
Note 11. Economic Dependency
33. According to this footnote, 48% of your revenue was generated
by
sales to one customer. Based on the disclosed amount of those
sales,
however, it appears that 78% of your net revenues for the December
31, 2003 fiscal year end were generated by sales to one customer.
Please advise or revise.
Notes to Condensed Consolidated Financial Statements for the
quarter
ended March 31, 2005
Note 5. 10% Senior Subordinated Secured Convertible Promissory
Notes,
page F-29
34. You recorded $933,793 in conversion expense in connection with
the issuances of additional common stock to the holders of your
10%
promissory notes. On page F-30, however, you state that you
recorded
a conversion charge of $993,793 in connection with the issuance of
those shares. Please explain this discrepancy in your response to
this comment and revise accordingly.
Recent Sales of Unregistered Securities, page II-3
35. Please clarify the exemption upon which you relied to issue
stock
to Vantage Group and Phoenix Holdings. In this regard, we note
that
the agreement between Walker Financial and Vantage Group requires
you
to issue "unrestricted" shares to Vantage Group.
36. Your agreement with Vantage Group also requires you to issue
300,000 shares of common stock to Vantage Group upon execution of
the
agreement and 700,000 shares of common stock over a 450 day period
from the execution date. According to the disclosure in this
section
and Note 9 to the March 31, 2005 financial statements, however,
Walker has issued only 450,000 shares of common stock to Vantage.
Please clarify whether you have issued to Vantage the additional
shares listed in the agreement, and if not, when you intend to
issue
those shares.
Forms 10-KSB for the fiscal year ended December 31, 2004 and
December
31, 2003 and Forms 10-QSB for the quarter ended March 31, 2005 and
September 30, 2004
37. Please amend these documents to comply with all of our
comments
as applicable to your Forms 10-KSB for the fiscal years ended
December 31, 2003 and December 31, 2004, Form 10-QSB for the
quarter
ended September 30, 2004, and Form 10-QSB for the quarter ended
March
31, 2005.
38. While you removed your reference to Section 27A of the
Securities
Act and Section 21E of the Securities Exchange Act from the
prospectus, those references are still present in your Form 10-KSB
for the December 31, 2003 fiscal year end and Form 10-QSB for the
quarter ended September 30, 2004. In addition, you have referred
to
those statutory sections in your Form 10-KSB for the fiscal year
ended December 31, 2004 and Form 10-QSB for the quarter ended
March
31, 2005. Please revise to remove your reference to Section 27A
of
the Securities Act and Section 21E of the Securities Exchange Act
from the periodic reports listed in this comment. In addition,
confirm that you will comply with this comment in all periodic
reports filed after the date of this comment letter.
39. We note your response to prior comments 48-53, indicating that
you would amend those periodic reports when we resolve our
comments
on the Form SB-2. We also note that you did not comply with those
comments in your periodic reports filed after the date of our
comment
letter, namely the Form 10-KSB for the fiscal year ended December
31,
2004 and Form 10-QSB for the quarter ended March 31, 2005. Please
note that we will not recommend effectiveness of your Form SB-2
until
we clear our comments on your periodic reports. In addition,
please
confirm that you will comply with our comments in all periodic
reports filed after the date of this comment letter.
* * * *
Please amend your Form SB-2 in response to these comments.
You
may wish to provide us with marked copies of the amendment to
expedite our review. Please file on EDGAR a cover letter with
your
amendment that keys your responses to our comments and provides
any
requested supplemental information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they may relate to the proposed public
offering of the securities specified in the above registration
statement. We will act on the request and, pursuant to delegated
authority, grant acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Gopal Dharia, Staff Accountant, at (202)
551-
3353 or Terry French, Accountant Branch Chief, at (202) 551-3828
if
you have questions regarding comments on the financial statements
and
related matters. Please contact Derek Swanson, Staff Attorney, at
(202) 551-3366, Michele Anderson at (202) 551-3833, or me at (202)
551-3810 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
cc: Louis A. Brilleman
Sichenzia Ross Friedman Ference LLP
Via Facsimile: (212) 930-9725
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Mitchell S. Segal
Walker Financial Corporation
July 29, 2005
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