January 14, 2005
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. 2 to Form SB-2, filed December 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 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 2. However, although
David
Koran is no longer offering any of his own shares for resale,
three
insiders have been added to the selling security holders table.
It
continues to appear to us that rule 415 does not apply to this
offering. Consequently we reissue comment 2.
General
2. Please revise to include an updated and signed accountants`
consent with your next amendment.
Cover Page
3. Revise the cover page to clarify that Greentree`s affiliates
also
would be deemed to be underwriters.
Risk Factors - page 8
4. Many of your risk factors state that you cannot assure or
cannot
be certain of a specific outcome when the real risk is not your
inability to give assurance but the underlying situation. Please
revise.
Risk Factors - page 8
There is a risk that our shares may not become... - page 12
5. We note your response to prior comment 20. Please revise to
state
clearly, if true, that no market maker has agreed to make a market
in
your shares, that no such agreement may ever be reached, and that
no
concrete steps have been taken toward having your shares quoted on
the OTCBB.
We do not have any plans to hire additional personnel... - page 13
6. You state on page 9, in the risk factor entitled "Our costs of
doing business..." that you anticipate hiring a marketing
assistant
during the year 2005. This appears to contradict your statement
here
that you have not plans to hire additional personnel for at least
the
next 12 months. Please revise as necessary.
Dilution - page 15
7. Please clarify the first sentence in the second paragraph. It
is
not clear that any of the 790,000 shares referred to in the second
sentence were ever sold. Also change, if appropriate, the word
"officer" to "chief executive officer."
Our Business Plan - page 26
8. Please revise your discussion of "referral transactions" to
clarify the nature of your relationship with the twenty commercial
bankers and five major banks. In particular, clarify the nature
of
what you describe as "our existing referral base." Disclose, if
true, that you have no formal agreements with any of these
persons.
9. It continues to be unclear how to reconcile your projected
expenses in the table at the bottom of page 26 with your
expectation
disclosed on page 31 of $30,000 per year for professional expenses
alone. Please revise or advise.
Competition - page 28
10. Please clarify what is meant by the statement that your
business
plan has been "tested." If you mean that the same general
business
model has been successful for other businesses in this industry,
delete or revise this sentence.
Management`s Discussion and Analysis
Liquidity and Capital Resources - page 31
11. We refer to prior comment 38. Your current disclosure does
not
clearly explain your net cash flows from operating activities.
Paragraph 21 of SFAS 95 states that, "cash flows from operating
activities are generally the cash effects of transactions and
other
events that enter into the determination of net income." Your
current disclosure focuses on the non-cash activities included in
your net loss, rather those activities that provide or use cash.
Please revise to clearly discuss the cash effects of your
operating
transactions.
Financial Statements for Period Ended May 31, 2004
Independent Auditor`s Report - page 38
12. Please have your independent public accountant revise their
auditor`s report to move the going concern explanatory paragraph
below their opinion as specified in Section AU 341.12-13 of the
AICPA
Professional Standards.
Note A - Summary of Significant Accounting Policies - page 43
13. We note your response to prior comment 45. Please revise to
disclose that you have elected May 31st as your fiscal year-end.
Note H - Going Concern - page 50
14. We note your response to prior comment 46, the revisions made
to
the auditor`s report and the disclosures provided on page 50.
Please
revise your disclosure to more clearly explain the conditions that
have caused you to have substantial doubt about your ability to
continue as a going concern and your plans for dealing with the
adverse effects of such conditions. Include the following
information in your revised disclosure:
a. Pertinent conditions and events giving rise to the assessment
of
substantial doubt about your ability to continue as a going
concern
for a period of time not to exceed one year beyond the balance-
sheet
date;
b. The possible effects of such conditions and events;
c. Your evaluation of the significance of those conditions and
events
and any mitigating factors;
d. Possible discontinuance of operations;
e. Your plans (including relevant prospective financial
information);
f. Information about the recoverability or classification of
recorded
asset amounts or the amounts or classification of liabilities.
Financial Statements for Period Ended September 30, 2004
General
15. Please revise all pages of your interim financial statements
and
footnotes to clearly label the information as "unaudited."
16. Please consider the updating requirements of Item 310(g) of
Regulation S-B when filing your next amendment. Please also note
that Item 310(b) provides guidance on interim financial statements
and specifically states that "interim financial statements shall
include a balance sheet as of the end of the issuer`s most recent
fiscal quarter..."
17. We note that you have elected May 31st as your fiscal year-
end.
We also note that you have presented your interim financial
information on a cumulative from inception basis, which is
customary
for development stage companies. Supplementally tell us whether
you
consider yourself to be a "development stage company." If you
determine that you are a development stage company, Instruction
2(2)(vi) to Item 310(b) of Regulation S-B requires you to provide
cumulative from inception financial information. Accordingly,
please
revise your financial statements to provide the following:
a. Statements identified as those of a development stage company.
The
first year after exiting the development stage, the company should
disclose that it is no longer a development stage company.
b. Balance sheet with cumulative net losses described as "deficit
accumulated during the development stage."
c. Income and cash flows statements for each period, plus a
cumulative income statement from inception.
d. Statement of stockholders` equity showing each issuance of
stock
since inception.
If you determine that you are not a development stage company,
please
revise your interim financial statements to present financial
information for your interim period only. We may have further
comments.
18. Please revise the reporting periods discussed in your MD&A
based
on your conclusion above. For example, if you conclude that you
are
a development stage company please discuss your results of
operations, liquidity and capital resources for the period from
inception through May 31, 2004; the period from June 1, 2004
through
September 30, 2004; and the cumulative period. If you conclude
that
you are not a development stage company, please omit a discussion
of
your cumulative results of operations, liquidity and capital
resources.
Balance Sheet - page 51
19. We continue to await your response to our prior comment 53
with
respect to how you accounted for your stock-split.
Statements of Operations - page 52
20. Please revise to classify your expenses by purpose, regardless
of
how such expenses were funded. For example, it is not necessary
or
appropriate to specify that common stock was issued for consulting
fees on the face of your Statement of Operations.
21. Please revise your "Split adjustment on common stock" line
item
based on the conclusion reached with respect to the appropriate
accounting for your stock split. It is unclear why you believe
that
the stock split would result in expense recognition. Revise or
advise us why you believe your accounting is appropriate under
GAAP.
22. Please revise to ensure that your Statement of Operations is
clerically accurate. The summation of your expense line items is
currently $60,000 greater than your total expenses reported.
Statement of Cash Flows - page 53
23. Please revise your Statement of Cash Flows to comply with SFAS
95. Refer to paragraphs 21-24 of SFAS 95 for guidance on
presenting
your cash flows from operating activities. Also refer to Appendix
C
of SFAS 95 for illustrative examples.
Note C - Common Stock To Be Distributed - page 58
24. In your response to prior comment 24 and in several sections
of
the filing, you indicate that the Greentree shares were issued.
On
page 58, however, you disclose that 490,000 shares are due to
Greentree and will be distributed in 2005. Please revise all
relevant sections of the filing to clearly state when the shares
were
or will be issued to Greentree.
25. Supplementally explain how you accounted for the issuance of
shares to Greentree in exchange for their services as of the
balance
sheet date. Illustrate the journal entry used to record this
transaction in your response. Please refer to the guidance in
EITF
96-18 and EITF 00-18.
Note D - Valuation of Common Stock Issued - page 58
26. Please revise to provide the disclosures required by SFAS 123
with respect to stock-based compensation issued to employees.
27. Please revise to provide the additional disclosures
recommended
by the AICPA Technical Practice Aid on Valuation of Privately-
Held-
Company Equity Securities (issued in April 2004). Specifically
disclose the following:
a. For each grant date (including those shares issued subsequent
to
September 30, 2004), the number of options or shares granted, the
exercise price, the fair value of common stock, and the intrinsic
value, if any, per option;
b. Whether the valuation used to determine the fair value of the
equity instruments was contemporaneous or retrospective;
c. If the valuation specialist was a related party, a statement
indicating that fact
28. If you did not obtain a contemporaneous valuation performed by
an
unrelated valuation specialist to determine the fair value of your
common stock, please provide the following in your MD&A:
a. A discussion of the significant factors, assumptions and
methodologies used in determining fair value;
b. The valuation alternative selected and the reason management
chose
not to obtain a contemporaneous valuation by an unrelated
valuation
specialist.
29. Supplementally provide us with the following information with
respect to those shares of your common stock issued to other than
employees:
a. Provide a detailed explanation of how you determined the fair
value of services received from Greentree to be $122,500.
Describe
the objective evidence used to support your determination of fair
value. Refer to the definition of fair value set forth in
paragraph
9 of SFAS 123.
b. Clarify what you mean when you say that the fair value of $0.25
per share "reasonably approximates" the fair value of services
provided to such parties. Explain how you made this determination
and how it complies with SFAS 123.
Note E - Subsequent Event - page 58
30. Supplementally clarify when the 300,000 shares to officers
were
issued. In addition, clearly explain the impact, if any, that the
issuance of these shares had on your financial statements as of
September 30, 2004. If the shares were issued after September 30,
2004, disclose the amount of compensation expense you expect to
record in the next quarter related to their issuance.
31. Please clarify what is meant by an "arm`s length" exchange in
this context, since the transaction was between the company and
three
of its officers.
* * *
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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