November 16, 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.
Amendment No. 1 to Form SB-2, filed October 27, 2004
File No. 333-118259
Dear Mr. Koran:
We have reviewed your amendment 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. We note your response to prior comment 4. We are not able to
agree with your analysis that this offering should not be
considered
a primary offering. Hairmax and its shareholders have been
identified as underwriters. Consequently, you are not able to
classify this offering as a resale and therefore should price the
securities and establish the finite duration of the offering.
2. In addition, we note that of the 990,000 shares that you are
registering, Mr. Koran will be selling approximately 300,000, or
more
than 25%. We consider such transactions, sales by principal
shareholders, to be offers and sales by or on behalf of the
registrant, as contemplated by Rule 415(a)(1)(x). It appears that
this provision is not available for the offering. Advise us why
this
transaction would not be by or on behalf of the company. If we
determine that the offering is by or on behalf of the company, you
will need to revise the terms of your offering to comply with
another
provision of Rule 415, which would require pricing the offering,
and
revise the registration statement accordingly.
Prospectus Cover Page
3. Confirm that your cover page does not, or will not, exceed the
one
page limit imposed by Item 501(a) of Regulation S-B. We note that
currently it is two pages.
4. Cover page disclosure should be limited to what is required
under
Item 501 of Regulation S-B or what is necessary for an investment
decision. Please revise to delete all unnecessary details, for
example unnecessary details about HairMax. Similarly, please keep
your discussion of important details as concise as possible while
still providing accurate disclosure. For example, the paragraph
regarding the steps you must take to list your stock should be
revised to simplify the discussion.
5. We note the statement in the first paragraph that HairMax
shareholders "will receive" a dividend distribution. Please
update
this language if the distribution has already taken place.
6. We note your response to prior comment 32. Please revise here
and
elsewhere to avoid referring to "this registration statement," as
investors will receive and read the prospectus, not the
registration
statement. If it is necessary to refer to the registration
statement, indicate that the current prospectus is part of the
registration statement filed with the Commission.
Prospectus Summary - page 7
7. Please explain to the staff what you mean by a "registered
dividend." Also, please provide the staff with details regarding
when and how Hairmax intends to register the dividend.
Alternatively, please provide Hairmax`s analysis of how they
intend
to meet the standards expressed in Staff Legal Bulletin 4,
regarding
the registration of spin-offs.
8. Please estimate the number of beneficial holders represented by
Cede & Co.
9. Either here, or elsewhere in the Summary, provide a brief
description of Hairmax`s current business operations and its
customers, to whom you will be offering your brokerage services.
The
discussion should cross reference to a more extensive discussion
of
Hairmax and the services that Hairmax will provide in return for
the
shares that Capital Resources has provided to Hairmax.
10. The Summary should present a balanced discussion of the
business
and prospects of the company whose shares investors are
purchasing.
We are unable to find a discussion of the fact that you have
generated significant losses and that your president has been
working
without remuneration. The investor must have a complete picture
of
the likely situation that your company would find itself in,
including a discussion of when Mr. Koran and the other officers
would
expect to begin drawing a salary or receiving repayment for the
expenses that Mr. Koran has incurred for the company.
Our Business - page 8
11. Please revise to streamline and simplify the summary of your
business activities. While some detail is helpful in the summary
section, the most detailed discussion of your business should be
reserved for the Business section. We note that the "summary"
discussion of these activities is nearly twice as long as the
"Business" discussion beginning on page 32. Please expand the
Business section discussion and simplify the discussion in this
section.
12. Move the discussion of the fees you have generated to date so
that it appears at the beginning of your revised summary
discussion
of your business.
13. Please provide a full basis for your statement in the last
paragraph of this subsection, that you believe that "additional
equity or debt financing...may be available in the future." It is
not clear how your past experience with obtaining a line of credit
provides support for this statement.
14. We note your response to prior comment 19. However, it is not
clear where you discuss the extent to which Mr. Koran has directly
paid certain expenses and is currently working without any
remuneration. Please advise or revise.
Risk Factors - page 11
15. Add a risk factor that discusses the fact that Mr. Koran, your
sole employee and President is registering the sale of his
shareholdings.
16. Add a risk factor regarding the significant control that Mr.
Koran and his family will exert over the corporate governance of
Capital Resources. We note that Mr. Koran`s wife and father are
board members.
17. Studies have shown that text in all capitals is less readable
than text in bold or italic lettering. Please revise to avoid the
use of all caps in your heading and subheadings.
We Have Had Limited Revenue Growth... - page 12
18. Please revise the statement that "we cannot guarantee that we
will continue to be profitable," in light of the $225,000 loss
reflected in your most recent statement of operations.
19. Our Costs of Doing Business... - page 13
20. Please revise, as appropriate, to indicate more fully the
nature
of expenses that are expected to increase, such as the number of
support staff, office space, equipment and supplies. Also
disclose
your expectation discussed on page 51 to pay Mr. Koran a full
salary
of $40,000 per year during the second 12 months of operations.
There is a Risk That Our Shares May Not... - page 15
21. We note your statements that you "anticipate" reaching an
agreement with a market maker, and that you "would hope to
successfully complete" the application process. Please revise to
avoid the use of vague language, and to describe the risk in more
concrete language. Alternatively, explain on what basis you
"anticipate" an agreement being reached.
Dilution - page 18
22. We are not able to agree with your analysis that you do not
need
to include dilution information. We note that the sales price of
$.25 appears to be substantially greater than the price that
Hairmax
or Mr. Koran paid for their shares. Please add the information
required by Item 506 of Regulation SB.
Selling Security Holders and Hairmax Selling Security Holders
23. Please tell us supplementally why there are numerous persons
listed on the Hairmax Selling Security Holders table that appear
as
owning "0" shares.
24. We note your response to prior comment 3. We are not able to
agree with your analysis that Greentree and its owners are not
underwriters. We note that they received their shares as part of
the
same financing in which Hairmax acquired the shares that it is
selling as a statutory underwriter. Consequently, please revise
the
disclosure to identify Greentree as a selling security holder.
Item 15. Transactions within the Last Five Years - page 30
25. Please revise the first full paragraph on page 31 to clearly
explain what you mean here. Disclose whether you have issued the
490,000 shares to Greentree or whether you have agreed to issue
the
shares to Greentree at a later date.
Description of Business - page 32
26. Please break up the first paragraph in this section into
several
smaller paragraphs, in order to make it more readable.
27. We note that the second and third paragraphs of this section
discuss the company`s competition. Please consider moving this
discussion to the subsection entitled "Competition."
28. We note the above comment regarding your description of your
business in the Summary section. To the extent that you expand
this
section to include a more robust discussion of your business,
services that you provide or plan to provide and the fees that you
hope to generate, please balance your discussion by indicating the
basis for Management`s belief regarding the matters discussed.
For
example, to the extent you discuss the fees you expect to generate
from various services, please indicate the reason that management
believes that those fees would be representative of the fees that
you
would actually generate.
Our Business Plan - page 33
29. Please revise the discussion concerning how referrals work,
specifically the role of the commercial bankers you refer to. We
also note that you have deleted the discussion of "strategic
commercial banking partnerships." Are these banking relationships
related?
30. Please explain what a "money center bank" is.
31. Your table on page 33 showing $3200 in expenses for each of
the
next four quarters does not appear to take into account the
$30,000
for professional fees discussed on page 37. Nor does it appear to
take into account the "increases in expenses" that you expect
through
the year 2004, mentioned on page 40. Please revise or advise.
32. We note that you have excluded salaries and advertising
expense
from your expense projections for the next four quarters. Please
revise your projections to include all expenses that you expect to
incur during these periods or advise us as to why these expenses
should be excluded from your projections.
Management`s Discussion and Analysis - page 35
Plan of Operation - page 36
33. Please provide a fuller discussion of the "competitor" you
mention, including how long that entity has been in business and
how
much experience its officers have in the industry, or delete the
discussion from your disclosure.
34. Expand your discussion to indicate the revenue levels that you
expect to reach in order to begin paying your chief executive,
seeking additional staff and begin looking for office space.
Plan of Operation - page 36
35. Please revise your disclosures here and on page 34 regarding
Mr.
Koran`s willingness to make a capital contribution, which is
apparently dependent on his ability to sell his shares. Clearly
disclose the extent to which he has indicated that his capital
contribution will be equal to the full amount of the sales
proceeds
of his shares. Revise to clearly disclose why Capital Resources
believes that it is better to wait for Mr. Koran to sell his
shares
rather than the company selling its own shares to third parties
for
cash.
Results of Operations - page 37
36. Please revise to remove your discussion of your results of
operations for the period from inception through May 31, 2004 as
this
period is covered by your discussion beginning on page 40 of your
results of operations through September 30, 2004. Similarly,
please
revise your Liquidity sections to cover the period through
September
30, 2004.
Cost of Sales - page 40
37. Consider removing your reference to cost of sales as this is
not
a component of your operations.
Expenses - page 40
38. We note that a portion of your expenses incurred related to
rent
contributed by your President and business expenses paid by him on
your behalf. Please revise to quantify these amounts.
Liquidity and Capital Resources - page 41
39. As previously requested in comment 60, please revise the
second
sentence in the third paragraph on page 41 to clearly disclose the
actual operating cash transactions reflected therein. Your
current
disclosures continue to inaccurately imply that your cash flows
from
operations were from non-cash transactions.
40. As previously requested in comment 59, clearly disclose
whether
you believe (as of the latest balance sheet date) you have
sufficient
cash on hand and expectations of cash inflows to meet all your
cash
requirements for the next twelve months. To the extent you do
not,
disclose how you will address the short-falls.
Information Concerning HairMax - page 43
41. We note your statement that HairMax`s "goal is provide high
quality, affordable hair care services and products to a wide
range
of customers...." Please revise your disclosure regarding
Hairmax`s
decision to become a BDC in light of its overall business plan.
42. Please advise the staff regarding the steps that Hairmax has
taken to begin registering its activities under the Investment
Company Act of 1940, given its transition to acting as a Business
Development Company.
Federal Income Tax Consequences of the HairMax Distribution - page
46
43. In the first sentence of the fourth paragraph, please revise
to
clarify, if true, that if the distribution is not treated as a
dividend, it will not be taxable.
44. Please revise to state that the conclusions disclosed in this
section represent the opinion of counsel, and file an Exhibit 8
tax
opinion from counsel.
Executive Compensation - page 50
45. Please confirm that none of the other officers of the company
are
projected to receive a salary of over $100,000.
Financial Statements for Period Ended May 31, 2004 - page 52
46. We note your response to prior comment 8 and that you have
provided financial statements through September 30, 2004.
However,
it does not appear that these financial statements have been
audited.
Item 310(a) of Regulation S-B requires small business issuers to
file
an audited balance sheet as of the end of the most recent fiscal
year, or as of a date within 135 days if the issuers existed for a
period less than one fiscal year, and audited statements of
income,
cash flows and changes in stockholders` equity for each of the two
fiscal years preceding the date of such audited balance sheet (or
such shorter period as the registrant has been in business).
Accordingly, please revise to provide audited financial statements
that comply with the updating requirements of Item 310(g) of
Regulation S-B. We may have further comments.
Independent Auditor`s Report - page 52
47. We note your response to comment 71 with respect to your
auditor`s evaluation of your ability to continue as a going
concern,
however, we still do not understand how your auditor was able to
determine that such an emphasis paragraph was not required in
light
of the factors present. Please have your independent auditor
provide
us with their complete analysis of the factors they considered in
making this determination as of the updated balance sheet date.
Refer to Section AU 341 of the AICPA Professional Standards. We
may
have further comment based on your response.
Financial Statements for Period Ended September 30, 2004
Balance Sheet - page 65
48. We note your line item on page 65 for Common Stock to be
Distributed. Please revise to clearly disclose what the amounts
reflected in this line item represent. Disclose the nature of the
underlying transactions that led to these amounts. Disclose when
such amount will be distributed and outstanding.
Statements of Operations - page 66
49. Please revise to segregate your selling, general and
administrative expenses by purpose.
Note A-Summary of Significant Accounting Policies - page 68
50. Revise to clearly disclose that the financial statements
provided
reflect all the costs of doing business. Refer to Staff
Accounting
Bulletin Topic 5:T.
51. We note your disclosures on page 13 where you disclose that
you
are not currently paying a salary to Mr. Koran or paying his
personal
expenses such as phone, travel, mileage or other business-related
expenses. You then state you "would anticipate reimbursing Mr.
Koran
for all these expenses in the event that (y)our business volume
increased significantly." Revise to clarify whether you intend to
retroactively reimburse him for all business-related expenses and
his
salary. If so, tell us how you considered the need to accrue for
such amounts. Clearly disclose how you have accounted for such
amounts and tell us how you considered the guidance of SAB Topic
5:T.
52. Please revise to clearly disclose how you valued the shares
issued to each your employees and nonemployees during the periods
presented. Quantify the values per share you used as well as the
gross amounts expensed.
53. Provide a subsequent events footnote to discuss the October
22,
2004 issuances as disclosed on page 48. Quantify the amounts
expensed for these issuances.
54. We continue to evaluate your supplemental response to comment
72
regarding your stock split, however, we still do not believe you
have
adequately supported your treatment of this event. Therefore,
please
address the following:
a) Provide us with documentation supporting your understanding
that,
in North Carolina law, a stock split does not affect the par
value.
b) Supplementally tell us what authoritative literature you relied
on
in determining that the appropriate accounting treatment of your
stock split was to require your stockholder(s) to contribute more
capital. Please provide us with your complete analysis of that
guidance as it applies to your transaction.
c) We note your response to comment 72(c) regarding the promissory
note from Mr. Koran. Please revise to disclose the terms of the
note. How will amounts be paid off? Tell us in detail how you
determined that the obligation was substantive? Why have no
amounts
been received on the note to date?
* * *
Closing Comments
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 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)
942-
2865 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,
Christian Windsor
Senior Attorney
cc: Harold Martin, Esq. (by fax)
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Capital Resource Funding, Inc.
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