September 15, 2004
Mail Stop 0408
By U.S. Mail and Facsimile to (704) 894-9759
David R. Koran
President, Chief Executive Officer and Chief Financial Officer
Capital Resource Funding, Inc.
2212 Lantern Way Circle
Cornelius, North Carolina 28031
Re: Capital Resource Funding, Inc.
Form SB-2 filed August 16, 2004
File No. 333-118259
Dear Mr. Koran:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, 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
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. 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.
General
1. Revise your disclosure in the document, including on the Cover
Page, Summary, Selling Security Holders section and the plan of
distribution to clarify that HairMax is a statutory underwriters
under section 2(a)(11) of the Securities Act. Also, disclose that
HairMax shareholders are also statutory underwriters and will be
under the same obligations as HairMax.
2. Please provide the staff with disclosure regarding any
relationships, beside the consulting agreement and resulting stock
issuance, between HairMax and Capital Resource Funding, Mr. Koran
or
the principals of Greentree Financial Corp.
3. Provide a detailed legal analysis of why the Greentree
shareholders should not be named as statutory underwriters under
section 2(a)(11) of the Securities Act. Alternatively, revise the
cover page and plan of distribution section to state that these
persons are statutory underwriters.
4. Please provide your analysis as to how you determined that this
offering should not be considered a primary offering. We note
that
HairMax and its shareholders appear to be offering the shares "by
or
on behalf" of the issuer, that would require you to price the
offering for the duration, since you do not qualify for an "at the
market" offering. Please refer to Rule 415(a)(4) of Regulation C.
Please revise your registration statement to price all securities
offered in this prospectus for the duration of the offering, and
indicate this specific price where appropriate throughout the
prospectus. Lastly, since this is a primary offering, the
offering
must be prompt and continuous for the duration of the offering.
5. Please number the pages of your next amendment.
6. Revise the disclosure in this document so that it reports the
factual situation as of a more recent date. We note your use of
July
16, 2004 and May 31, 2004.
7. Please revise to include an updated and signed accountants`
consent with your next amendment.
8. Please consider the updating requirements of Item 310(g) of
Regulation S-B when you file your next amendment to the
registration
statement.
Cover Page
9. Revise to clarify who HairMax is, and whether it is a related
or
unrelated party.
10. Please name the two selling shareholders and identify Mr.
Koran
as the President and CEO.
11. Revise to disclose what percentage of their holdings the
selling
shareholders are offering and state the reason why they are
registering their shares at this time.
12. It`s not clear that the second paragraph adds anything to the
cover page disclosure. Please delete.
13. State clearly that none of the proceeds of this offering will
go
to the company.
14. Please revise the verb tenses used in the first paragraph to
accord with the date of the prospectus. For example, the HairMax
shareholders will not have received the distribution at the date
of
the prospectus, so in the last sentence revise the use of the past
tense "received."
15. Please disclose when the distribution will take place.
16. Disclose the timing of when and how the company expects its
shares to trade on the OTC Bulletin Board, including the steps
that
must take place before such trading can take place.
Table of Contents
17. Please delete the listing of individual risk factors in the
table
of contents.
Item 3. Summary Information and Risk Factors
18. Please discuss briefly the types of financing you broker.
19. Please provide a clear summary discussion of your current
financial status, disclosing, for example, the extent to which Mr.
Koran has directly paid certain expenses.
20.
21. Disclose the degree of control exercised by Mr. Koran.
22. We note your example of transactions, in which you indicate
the
"typical" fees. Revise this section to note the number of
transactions, the average revenues and the number of clients that
you
have actually provided financial brokerage services. Also,
disclose
if true, that the company has received only two individual
commissions to date.
23. Disclose that there is a single officer, who currently devotes
25
hours a week to the company, and there are no other employees.
24. Disclose that the company has limited assets and, if true,
that
it is dependent on financing in the near future in order to be
able
to continue its operations.
25. We note your reference to your business plan in the risk
factors.
Please disclose how your business is different from other
financial
brokerage units.
Tax Consequences of the Hairmax Distribution
26. When discussing the tax consequences of the Hairmax
distribution,
you state that the taxable dividend value of each of your shares
to
be distributed to Hairmax shareholders was $8.49, which was
calculated by dividing your shareholders` equity of $4,243 at May
31,
2004 by the number of shares outstanding of 500. Please revise
this
discussion in light of the recent stock split, or supplementally
explain to us why you did not calculate the taxable dividend value
per share using the post-split shares outstanding of 10,000,000.
Risk Factors
27. Please add a risk factor that discusses your potential for
increasing costs when and if your business volume increases.
We may not be able to compete effectively...
28. Revise to avoid the word "unique." Alternatively, provide a
full
basis for the use of this description. Refer to comment 34 below.
To grow our business, we plan to...
29. There appears to be a mismatch between the subheading and the
text of this risk factor. Please revise.
Our business depends on the Internet...
30. Please revise this risk factor to explain more specifically
how
the company depends on the technologies discussed. In Release 33-
7497, the Commission states "[w]e believe a discussion of risk in
purely generic terms does not tell investors how the risk may
affect
their investment in a specific company." As currently worded,
this
risk factor would seem to apply equally to a huge number of
companies. How does the risk apply specifically to Capital
Resource
Funding?
If our common stock becomes tradable...
31. Please revise to clarify the reference to "this registration
statement." Prospective investors will receive the prospectus,
not
the registration statement. Make a similar revision to footnote 1
to
the selling shareholder table.
32. Consider discussing the risk, if material, that the company`s
shares may not be quoted on the Bulletin Board in the near future.
33. Briefly discuss the Rule 144 trading limitations.
If we lose the services of our president...
34. Revise this risk factor so that it better fits the context of
a
company that has only one officer and no employees.
We face intense competition, which puts us...
35. Please revise to state more clearly the nature of the direct
competition faced by the company.
We have incurred losses...
36. Please move this risk factor to the front of the risk factor
section.
Penny-stocks
37. You state at the end of Item 22 that, because of the penny
stock
rules, "our shareholders will, in all likelihood, find it
difficult
to sell their securities." Please include a discussion of this
risk
in the risk factor section.
Item 7. Selling Security Holders and HairMax Selling Security
Holders
Selling Security Holders Table
38. Revise this section to clarify whether HairMax has completed
the
distribution of Capital Resource`s shares to its shareholders.
39. Please revise the table. For example, it appears from the
beneficial ownership table that Mr. Koran owns 10 million shares
and
93% of the company, not 300,000 shares and 3% of the company.
HairMax Selling Security Holders Table
40. Please revise the table to indicate that Greentree Financial
Group and its owners are beneficial shareholders of the company
and
consequently have a relationship with the issuer. Please also
indicate the number and percentage of HairMax`s shares held by
Greentree.
Item 8. Plan of Distribution
41. Please revise to state that the selling security holders and
the
HairMax selling shareholders are considered statutory underwriters
and are liable for compliance with the prospectus delivery
requirements.
Item 10. Directors, Executive Officers, Promoters and Control
Persons
42. We note your statement that, under the company`s bylaws, there
must be at least one director. However, article III section 2 of
the
bylaws indicates that there must be at least two directors when
there
are two shareholders. Please revise or advise with respect to
this
apparent inconsistency.
Significant Employees
43. Please delete the reference to "those persons," as there is a
sole officer/employee of the company.
Item 15. Transactions within the Last Five Years
44. In the discussion of the strategic alliance with HairMax, you
state that HairMax will offer your services to its commercial
customers. However, it appears from the description of HairMax`s
business that a large majority of its customers are non-
commercial,
i.e., homeowners and hair care customers. Please revise to
clarify.
Item 16. Description of Business
45. You state in the Marketing section that you have identified
only
one competitor with a business model similar to yours. Revise the
Business section throughout to include a clear, substantive
discussion of the industry you are in and how your business fits
into
it. Describe more fully your own business plan, and discuss how
your
plans are both similar to and different from your competitors`.
Are
you and Private Business, Inc. the only two businesses in the
industry that seek strategic commercial banking partnerships? If
this is the case, discuss the risks involved with such an untested
business plan. You may also want to consider adding a risk
factor.
46. Revise to provide a concrete business plan, in the form of
milestones, indicating the specific steps needed to make the
company
profitable and successful, the timing of those steps in weeks,
months, or quarters, and the costs involved and the expected
sources
of funds. Be as specific as possible.
47. Revise your discussion of the brokerage business to clarify
that
you have only limited experience acting as a financing broker.
Also,
clarify whether any of the transactions that you describe actually
occurred, or whether the discussed transactions are only examples.
Also, please clarify, if the discussed transactions actually
occurred, whether you acted as the broker in any of those
instances.
Marketing
48. You state that a proposed "strategic partnership" is currently
"under consideration" at "a large bank." Please delete this
sentence, or provide a full discussion of the status of the
strategic
partnership, along with the risks of the deal not being completed.
49. Revise this section to note how your business plan would
"empower
each partnering bank" to fund transactions without risking bank
funds. How would you fund these transactions? The investor must
be
able to understand the business plan that you operate under, how
you
intend to implement the plan and the resources that you need to
bring
to bear to implement the plan. Furthermore, the investor must be
able to understand how readily available the necessary resources
will
be as the business plan is implemented.
50. Revise this section to explain why you believe the partnership
was "strategic." Make similar changes wherever you use the term
"strategic."
51.
52. Revise this section to discuss your "existing referral
sources"
in much greater depth.
Item 17. Management`s Discussion and Analysis or Plan of Operation
General
53. Given the fact that you have not had revenues from operations
for
at least a full fiscal year, please revise to provide a discussion
of
your plan of operation for the next twelve months in accordance
with
Item 303(a) of Regulation S-B. For example, describe your
expectations regarding the level of revenues that you expect to
earn
during the next twelve months of operations.
54. Please revise to provide, in a separately captioned section of
MD&A, a discussion of any off-balance sheet arrangements to which
you
are a party in accordance with Item 303(c) of Regulation S-B.
Income Taxes
55. Please revise to delete your discussion of deferred tax assets
or
explain why you believe it is relevant given your S Corporation
tax
status. As long as you are an S Corporation, your tax
responsibilities are passed through to your shareholders, and thus
you cannot generate a deferred tax asset.
56. You state in your fourth paragraph under this section that you
believe your "current amount of cash in the bank is sufficient to
fund (y)our operations for the next twelve months because the
officer
is not drawing a salary." Please revise this sentence to reflect
the
details cited later in that paragraph which indicate that your
cash
in the bank as of May 31, 2004 has not been sufficient to date,
nor
was it sufficient to cover amounts you incurred subsequent to the
balance sheet. This insufficiency is evidenced by the various
credit
facilities you entered into subsequent to year-end.
57. Disclose how long you expect it will take for the company to
become profitable on a self-sustaining basis.
58. We note that you drew down $12,500 from your account with
First
Citizens Bank & Trust. Please revise this section to note how you
used these funds.
59. Please confirm that neither Mr. Koran, nor any other person or
entity is liable, surety or otherwise providing a guarantee for
Capital Resource`s line of credit with First Citizens Bank.
Impact of Inflation
60. You include this subsection twice. Please delete one instance
to
avoid unnecessary repetition.
Liquidity and Capital Resources
61. You state in the risk factor subtitled "We have substantial
near-
term capital needs..." that the company will require approximately
$50,000 over the next twelve months in order to develop the
business
plan. You also state that "we will seek outside sources of capital
such as conventional bank financing." In contrast, you state here
that if the company is unable "to receive additional cash from our
officer, we may need to rely on financing from outside
sources...."
Please revise this section to state clearly the expected financial
needs of the company to continue as a going concern during the
next
twelve months, and where the company will seek to obtain that
funding. Also revise the statement that you believe that $4,243
"will be sufficient to fund our operations..." to reconcile it
with
the risk factor disclosure discussed above.
62. Please revise your second sentence under this paragraph where
you
state the "Cash flows were primarily attributable to net income
plus
the fair value of rent provided by (y)our President and business
expenses paid by him on (y)our behalf." This sentence is
confusing
in that it implies that non-cash transactions were your only
sources
of operating cash flows during the period.
63. There appears to be a conflict between the statements that "we
are considering launching a local advertising campaign" and the
statement several paragraphs later that "we plan to expand our
operations through aggressively marketing our services." Please
revise to reconcile these statements, in light of your business
plan.
Item 19. Information concerning HairMax
64. Please tell us supplementally why this detailed information
about
HairMax has been included. Alternatively, delete this discussion
and
instead include a brief discussion of HairMax in connection with
the
discussion of the spin-off transaction.
65. Revise this section, or another portion of the document, to
discuss HairMax`s decision in June 2004 to become a Business
Development Company and any impact upon your "consulting"
arrangement
from the change by HairMax.
66. We note several passages in which it appears that HairMax is a
subsidiary of the company. For example, at one point you say,
"...we
discontinued its operations and went inactive until early 1998."
Later you go on to say, "...On September 12, 2002, one of our
subsidiaries legally changed its name to Hairmax of Florida,
Inc...."
Please revise or advise.
Item 20. Federal Income Tax Consequences of the HairMax
Distribution
67. The tax discussion appears to suggest that the distribution is
likely not to be a taxable event. It states in the first place
that
it "may" be a taxable event. It also suggests that it will not be
taxable as an ordinary dividend if HairMax has no earnings or
profits
for the year. Revise to clarify how it will be treated under
those
circumstances, and under what circumstances the transaction will
not
be a taxable event.
Item 21. Certain Relationships and Related Transactions
68. You state here that under the agreement with Greentree
Financial
Group, you will issue Greentree 490,000 shares of stock within six
months. Are these the same shares that Greentree is listed as
holding elsewhere in the document? Please revise to clarify
whether
the shares have been issued or not, as appropriate.
69. Item 22. Market for Common Equity and Related Stockholder
Matters
70. Also revise to clarify the statement under Item 22 that you
plan
to "eventually" seek listing on the Bulletin Board.
71. Clarify what is meant by filing with the NASD to have your
shares
listed for trading on the OTC Bulletin Board. The OTC Bulletin
Board
is a quotation medium for subscribing members, not an issuer
listing
service. Only market makers can apply to quote securities on the
OTCBB. Please revise your disclosure throughout accordingly.
Also,
please revise the disclosure to note whether you have any
agreements,
understandings or other arrangements with market makers to begin
making a market for your shares.
Item 23. Executive Compensation
72. Please disclose the company`s expectations regarding
compensation
of Mr. Koran during the next twelve months.
Item 24. Financial Statements
Independent Auditor`s Report
73. Please have your independent public accountants revise their
report to comply with PCAOB Auditing Standard No. 1 by referencing
the "Standards of PCAOB" rather than "auditing standards generally
accepted in the United States of America" as well as revising the
title of their report as appropriate. Refer to the illustrative
reports in the Appendix of AS No. 1.
74. Supplementally explain to us whether your auditor has
evaluated
your ability to continue as a going concern. To the extent that
your
auditor concludes that substantial doubt about your ability to
continue as a going concern for a reasonable period of time
exists,
please have your auditor revise their auditor`s report to include
an
appropriate explanatory paragraph. In addition, please revise the
footnotes to your financial statements as well as your MD&A to
disclose the conditions that gave rise to the assessment of
substantial doubt about your ability to continue as a going
concern
for a reasonable period of time and the specific steps you are
taking
to address these concerns. Refer to Section AU 341 of the AICPA
Professional Standards.
Balance Sheet
75. Please revise your financial statements and footnotes, as well
as
your discussion in Item 21 Certain Relationships and Related
Transactions to address the following regarding your equity
transactions and your reported stock split:
a) When discussing the stock split, you state that the par value
of
your common shares outstanding post-split remained at $0.001.
Please
tell us how you considered the guidance of paragraphs 10-16 of
Chapter 7, Section B of ARB 43 in reporting this as a stock split
rather than a "split-up effected in the form of a dividend" if
your
par value stayed the same. Specifically, see paragraph 11. Tell
us
why you kept the par value at $0.001 after the equity
transactions.
b) If the transaction should be reported as a "split-up effected
in
the form of a dividend" under ARB 43, revise your financial
statements to report the offset to the increase in the Common
stock
line item as a decrease to Retained earnings to the extent you
have
Retained Earnings.
c) Tell us how your legal counsel has advised you as to whether,
under appropriate state law, a lack of sufficient retained
earnings
would preclude the issuance of a common stock dividend or whether
capital surplus was unavailable. Tell us the extent to which
state
law requires capitalization of the full par value, and how you
considered that in these matters.
d) Tell us how you considered the guidance of the Minutes of the
AICPA SEC Regulations Committee (March 2001) - Accounting for
Stock
Dividend When There Is a Retained Deficit in your reporting of
these
matters.
e) Tell us how you considered the guidance of FRR .214 in your
execution and reporting of these matters.
f) When discussing the 500 pre-split common shares issued to your
president, you state that the excess of the par value ($.001)
times
the number of common shares issued over the $100 received
represents
a receivable from him at May 31, 2004. Tell us the nature and
terms
of this receivable. If no bona fide obligation for the
shareholder
to pay exists, revise to delete this receivable. However, if an
actual obligation exists, please revise your Statement of
Stockholders` Equity to reflect the receivable and the
transactions
that gave rise to it.
Notes to Financial Statements
Note A - Summary of Significant Accounting Policies
Revenue Recognition
76. Please revise your footnote to more clearly explain how you
recognize the "on-going monthly commissions paid for the life of
the
financing." Your disclosures seem to imply that you recognize
those
amounts upfront when the loan closes. If so, please tell us the
GAAP
literature you relied on in determining that treatment. Tell us
how
you considered SAB Topic 13. If you are unable to support your
recognition of such amounts, revise your financial statements
accordingly.
* * *
Closing Comments
77. As appropriate, please amend your registration statement
in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish 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 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.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* Should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* The action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* The company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a 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 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.
You may contact Angela Jackson, Staff Accountant, at (202)
824-
5398 or Kevin Vaughn, Branch Chief, (202) 942-1816 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Gregory Dundas at (202) 942-2932 or me at
(202) 942-1974 with any other questions.
Sincerely,
Chris Windsor
Senior Attorney
cc: Harold Martin, Esq. (by fax)
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Capital Resource Funding, Inc.
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