SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF THE AMERICAS NEW YORK NY 10018
TEL 212 930 9700 FAX 212 930 9725 WEB WWW. SRFF.COM
October 6, 2005
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attention: Derek Swanson, Esq.
Mail Stop 3561
Re: Walker Financial Corporation (the "Company")
Amendment No. 2 to Form SB-2
File No. 333-122776
Form 10-KSB for the year ended December 31, 2003
Forms 10-QSB for the quarter ended September 30, 2004
File No. 0-28173
Dear Mr. Swanson:
On behalf of the Company, we are hereby enclosing two copies of Amendment No. 2
(the "Amendment") to the Company's registration statement on Form SB-2 (the
"Registration Statement"). One of the copies has been marked to show changes
from Amendment No. 1 to the Registration Statement. The Registration Statement
was filed on February 11, 2005. By letter dated March 11, 2005, the staff of the
Securities and Exchange Commission (the "Staff") issued comments on the
Registration Statement and the Form 10-QSB for the three months ended September
30, 2004 (the "Form 10-QSB") and the Form 10-KSB for the year ended December 31,
2004 (the "Form 10-KSB") (Commission File No. 0-13215). In response to the
Staff's comments, on July 1, 2005, the Company filed Amendment No.1. On July 29,
2005, the Staff issued comments on Amendment No. 1. Following are the Company's
responses to the Staff's comments. For ease of reference, each response is
preceded by the Staff's comment.
In its letter, the Staff requested that the Company make certain revisions to
its Form 10-QSB. As noted in our response letter of June 30, 2005, the Company
intends to file amendments to the Form 10-QSB and, to the extent required, to
the Form 10-KSB upon clearing the Staff's comments on the Registration
Statement.
General
1. Please provide a reasonably detailed table of contents, as required by
Item 502(a) of Regulation S-B.
The Company has made a revision to the Registration Statement in
accordance with the Staff's comment.
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.
The Company has made revisions to the Registration Statement to more
clearly set forth its current operations.
3. You state that "we sell, as agent, life insurance policies." Clarify what
you mean by selling as an agent.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
All financial information in the Registration Statement has been updated
to include the results for the three and six-month periods ended June 30,
2005. The Company has made revisions in accordance with the Staff's
comment.
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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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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
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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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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?
The Company has made revisions to the Registration Statement by offering a
basic summary of how the methods, assumptions, and estimates underlying
its calculation of stock-based compensation impact the presentation in the
Company's financial statements. .
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.
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The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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?
The Company advises the Staff that the guidance provided in SFAS No. 146
was used in connection with the discontinuing of its Kelly Color
operations. As disclosed on February 4, 2004, the Company sold certain
assets of Kelly Color and discontinued operating in the film processing
segment. Since February 4, 2004, all operations of Kelly Color ceased. The
Company did not incur any new assets or liabilities. At June 30, 2005, the
only items remaining in discontinued operations are certain liabilities.
There are there no 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 the Company's
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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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?
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment. The Company advises the Staff supplementally
that the failure to file the Form 8-K disclosing the termination of the
agreement was an oversight on the Company's part.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment. The Company has also added exhibits 10.7 and
10.8.
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.
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The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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 Hub 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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment. Since the Advisory Board is not part of the
Board of Directors and none of the members of that board are members of
the Company's management, no additional compensation-related disclosures
are required.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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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.
The Company advises the Staff that these two entities are consultants and
not finders. As set forth explicitly in Section 6.7 of the Investment Banking
Consulting Agreement with Vantage Group LLC, and Section 7 of the Consulting
Agreement with Phoenix Holdings LLC, neither of these entities will be
compensated for any capital raising or market making related activities.
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.
The Company advises the Staff that to the best of its knowledge, Moschetta
Poiyvion, Allan Levine and Michael Schumacher are affiliated of
broker-dealers.
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.
The Company advises the Staff supplementally that the fair value of $2.69
used in the footnote disclosure relating to the merger transactions does
not reflect the 10 for 1 stock dividend that occurred in December of 2002.
By contrast, the market price ranges of $0.28 - $0.30 under Item 5 of the
Company's Form 10-KSB reflects the 10 for 1 stock dividend. If the 10 for
1 stock dividend was reflected in the footnote the fair value of the
common stock would have been $0.269. Any difference is due to rounding.
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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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment to correct a typographical error.
Recent Sales of Unregistered Securities, page 11-3
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.
The Company has made revisions to the Registration Statement in accordance
with the Staff's comment.
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 3 1, 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.
The Company advises the Staff that, as set forth in footnote 9 of the
financial statements, the consulting agreement with Vantage Group LLC was
terminated in January 2005. Therefore, no additional shares of common
stock are issuable under the agreement with that entity.
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.
The Company will amend these documents in accordance with the Staff's
comment.
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38. While you removed your reference to Section 27A of the Securities Act and
Section 2 1E 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.
The Company will make these revisions in accordance with the Staff's
Comment.
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.
The Company will make these revisions in accordance with the Staff's
Comment.
Please contact the undersigned at 212-981-6766 with any questions or comments
you may have with respect to the foregoing.
Very truly yours,
Louis A. Brilleman
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