Preheat oven to 350 degrees.
Grease 12 muffin pan cups.
In small saucepan combine 1/4 c melted butter, brown sugar, and 1 T water.
Simmer 1 minute.
Place 4 walnut halves in each of the prepared muffin cups.
Spoon cooked mixture over walnuts.
Sift flour, cocoa, soda, and salt together; set aside.
Cream 1/4 c butter.
Graduallly add sugar and continue creaming until light and fluffy.
Beat in egg and vanilla.
Blend in dry ingredients alternately with 1/2 c water, beginning and ending with dry ingredients.
Fill muffin pan cups 1/2 full with batter.
Bake for 20 - 25 minutes until surface springs back when gently touched.
Remove from muffin pan.
Let cool inverted on wire racks.
In small saucepan combine milk and chocolate.
Cook over very low flame stirring constantly until smooth and thickened, about 10 minutes.
Stir in 1 T butter; keep warm.
Spread on sides of cupcakes.