CAPITAL RESOURCE FUNDING, INC.
2212 Lantern Way Circle
Cornelius, North Carolina 28031
(704) 564-1676
October 25, 2004
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549-0404
Attn: Chris Windsor, Esq.
Senior Attorney
Office of Emerging Growth Companies
Re: Capital Resource Funding, Inc.
Form SB-2 filed August 16, 2004; Amended October 25, 2004
File Number: 333-118259
Gentlemen:
Thank you for your comment letter dated September 15, 2004 (the "Comment
Letter"), with respect to the above-captioned Registration Statement on Form
SB-2. We have filed our revised Amendment No. 1 to Form SB-2/A (the "Form
SB-2/A") of Capital Resource Funding, Inc. (the "Company"), which incorporates
our responses to your comments, and this letter sets forth each of our responses
in outline form below. Numbered paragraphs refer to the corresponding numbers
contained in the Comment Letter.
For your information, we have filed our revised Form SB-2/A on the EDGAR
system, and have also provided a clean and marked copy by overnight courier to
the staff of the Commission for its review.
1. We have revised our disclosure throughout the document to clarify that
HairMax and the HairMax Selling Security Holders are statutory underwriters
under section 2(a)(11) of the Securities Act. You suggest in several
comments in your Comment Letter that the Selling Security Holders are also
statutory underwriters under section 2(a)(11) of the Securities Act. We
disagree with that characterization and have not denominated the Selling
Security Holders as statutory underwriters in, for example, the Plan of
Distribution section of the prospectus.
2 There is no relationship between between Mr. Koran and the principals of
Greentree Financial Corp. There is no relationship between Mr. Koran and
HairMax other than the strategic alliance agreement and related stock
issuance of 200,000 shares between the Company
Chris Windsor, Esq.
October 25, 2004
Page 2.
and HairMax. There is no relationship between the principals of Greentree
and HairMax, other than the fact that Michael J. Bongiovanni has been Chief
Financial Officer for three years and is currently a Director of Hairmax,
and is also a shareholder of Hairmax, all of which is disclosed in
HairMax's public filings pursuant to the Securities Exchange Act of 1934,
as amended. Mr. Bongiovanni also has a consulting agreement with Hairmax
dated May 1, 2004. There is no relationship between the principals of
Greentree and the Company, other than a Consulting Agreement dated June 23,
2004, which was filed as Exhibit No. 10.1 to the Registration Statement,
and a Promissory Note, which was filed as Exhibit No. 10.2 to the
Registration Statement.
3. The term "underwriter", as defined in section 2(a)(11) of the Securities
Act, means, among other things, any person who has purchased from an issuer
with a view to, or offers or sells for an issuer in connection with, the
distribution of any security, or participates or has a direct or indirect
participation in any such undertaking, or participates or has a
participation in the direct or indirect underwriting of any such
undertaking. As you know, Greentree Financial Group, Inc. ("Greentree") has
a Consulting Agreement, dated June 23, 2004, with the Company, pursuant to
which it has agreed to provide the following services: (i) Assist with the
preparation of SEC Registration Statement Form SB-2, (ii) Assist with the
preparation of Board Resolutions authorizing the transactions, (iii) Assist
the Company with preparing corporate housekeeping matters, (iv) Assist with
the preparation of a share exchange agreement with a publicly traded
company, (v) Edgarization of the Form SB-2 with the Commission, and (vi)
Assist with the preparation of a newly created class of preferred stock.
These are specialized activities within the expertise of Greentree, as a
consultant, and they are valuable services to us. In exchange for providing
these services, Greentree was paid a fee of $38,835 (plus interest of
$1,165) payable on December 24, 2004, and it was issued 490,000 shares of
free trading stock. In order for the stock to be free trading it must be
registered on the subject Registration Statement on Form SB-2.
Greentree is not purchasing the shares of common stock of the Company with
a view to distribution thereof. Of course, this is a legal conclusion.
However, the substance of the transaction should prevail over its form. For
example, Greentree is accepting the shares of common stock as compensation
for services rendered in connection with the offering. The role of
Greentree is nothing close to that of a traditional Wall Street underwriter
which purchases stock with a view to distribution, and is what Section
2(a)(11) was originally enacted to address. This is a self underwritten
offering and Greentree has no part in that underwriting.
We concede that the statutory language is precise and may cover the
position of Greentree in this offering. You could argue that Greentree is
purchasing shares with a view to distribution, and it would then be covered
by the statutory language. However, that same language could cover almost
any selling shareholder in a secondary distribution. In the case at hand,
Greetree is merely trying to sell stock in order to get paid for its
services. In a very real sense, Greentree is
Chris Windsor, Esq.
October 25, 2004
Page 3.
purchasing the shares by rendering services to the Company, and later
reselling its 4.5% position in the marketplace. It is our understanding
that there may be a "presumptive underwriter" doctrine, pursuant to which a
purchaser of less than a 10% block of shares for resale in an offering
would not be deemed to be a statutory underwriter. If such legal doctrine
is embraced by the Commission currently, then Greentree appeals to the
Commission for relief from denomination as an underwriter on that basis. We
contend that it should be available, because if Greentree is a statutory
underwriter, then almost every secondary seller of shares in an offering
such as ours could be denominated as a statutory underwriter.
As a last resort to avoid denomination as a statutory underwriter,
Greentree is amenable to agreeing to sell shares of common stock only
pursuant to limited quantities, such as in accordance with the volume
limitations of Rule 144. This should have the effect of removing Greentree
from the category of persons who are participating in a "distribution", or
"purchasing from an issuer with a view to distribution". The best secondary
legal authority that that we are able to find for this proposition is
Ahrenholz and Van Valkenberg, The Presumptive Underwriter Doctrine:
Statutory Underwriter Status for Investors Purchasing a Specified Portion
of a Registered Offering, 1973 Utah L.Rev 773, 775-776
4. This offering by our shareholders is not a primary offering of securities.
HairMax and its shareholders are not offering our shares "by or on behalf"
of the issuer, which would disqualify us from using an at the market
offering. In this offering, 990,000 shares of our common stock are being
offered by shareholders pursuant to a secondary offering, and the fact that
HairMax has chosen to register and spin-off 200,000 shares of our common
stock which it received in a bargained-for exchange, does not convert this
into a primary offering. We are not receiving any proceeds from the
offering which would be typical in a primary offering, and there is little
benefit accruing to us as a result of the offering. About the only benefit
from the spin-off is that it may make our shares more widely held than
would otherwise be the case in an ordinary secondary offering without a
spin-off component to it. If the staff of the Commission were to take the
position that the smallest of benefits to us converts a secondary offering
into a primary offering, the same would be true of an equity line of
credit, a secondary offering following a private placement of securities,
or just about any type of secondary offering that causes some benefit to
the issuer. All secondary offerings are of some benefit to the issuer, but
this does not convert such offerings into a primary offering. We understand
that the Commission might have a stronger position in the event that
HairMax were affiliated with our company, so that it could be said that
they were in reality offering the shares "by or on behalf" of us. But this
is not the case in our offering. We are not affiliated with HairMax and
they have chosen this course of action based on an arms' length
profit-motivated transaction, the benefit of which was passed directly on
to the shareholders of HairMax.
Chris Windsor, Esq.
October 25, 2004
Page 4.
We disagree with the position of Commission and we are unwilling to revise
our 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. We disagree with the
Staff's conclusion that our offering must be prompt and continuous for the
duration of the offering. We respectfully refer the staff of the Commission
to a Registration Statement on Form SB-2 of ABC Realty Co., filed with the
Commission on November 13, 2002, designated as SEC File No. 333-101167, and
declared effective on January 15, 2004, pursuant to which ABC Realty Co.
issued 1,000,000 shares of its common stock to Xenicent, Inc., a North
Carolina corporation and affiliate, who in turn declared a dividend
distribution of those 1,000,000 shares to the shareholders of Xenicent, all
in connection with a secondary offering of 1,815,000 shares of common stock
of ABC Realty. The Commission accepted the position of ABC Realty Co., an
affiliate of Xenicent, Inc., that it was making a secondary offering and
not a primary offering of securities.
5. We will renumber the pages of our next amendment.
6. We have revised the disclosure in this document so that it reports the
factual situation as of a more recent date.
7. With this amendment, we have included an updated accountant's consent, as
well as two material contracts that the Registrant has entered into and
that were previously disclosed
8. We have updated the financial statements for the period ended September 30,
2004.
9. We have revised the text to clarify that HairMax is unrelated to our
company.
10. We have better identified the two selling shareholders as requested.
11. We have amended the disclosure on the cover page to reflect the percentage
holdings of the selling shareholders and stated the reasons why they are
registering their shares at this time.
12. The second paragraph of the cover page has been deleted.
13. We have stated clearly that none of the offering proceeds will go to the
company.
14. We have revised the verb tenses as requested by the staff.
15. We have disclosed that the dividend distribution will take place on October
31, 2004.
Chris Windsor, Esq.
October 25, 2004
Page 5.
16. We have discussed on the Cover Page the timing of when and how the company
expects its shares to trade on the OTC Bulletin Board, including the steps
associated therewith.
17. We have deleted the risk factors from the Table of Contents, as requested.
18. We have discussed briefly the types of financing that we broker.
19. We have provided a summary discussion of our current financial status, and
Mr. Koran's record of paying for our expenses.
20. We have provided a paragraph of information about the degree of control
exercised by Mr. Koran.
21. We have complied with this comment, including noting the number of
transactions closed, the average revenues and the number of clients.
22. We have added disclosure about the hours committed by Mr. Koran to our
company, and updated the disclosure to reflect the other employees.
23. We have made the disclosure about our limited assets and our dependence on
financing in the near future in order to be able to continue operations.
24. Our business plan is not unique and particularly different from other
financial brokerage units. We have made this clear in our risk factors.
25. We recalculated the taxable dividend value using the post-split number of
shares outstanding, as you suggested.
26. We have added a risk factor that discusses out potential for increasing
costs when and if our business volume increases.
27. We have deleted reference to the word "unique".
28. We have revised the text of this risk factor.
29. We have deleted this risk factor inasmuch as the risk was cast in purely
generic terms and we found it difficult to delimit it to our business.
Chris Windsor, Esq.
October 25, 2004
Page 6.
30. We have referred to the prospectus in this risk factor and in footnote 1 to
the selling shareholder table.
31. We have discussed the risk, since it is material, that our company's shares
may not be quoted on the OTC Bulletin Board in the near future.
32. We have added several sentences on the applicability of Rule 144's trading
limitations.
33. This risk factor has been revised, but it also takes into account the fact
that there are now four officers.
34. We have revised this risk factor to discuss direct competition.
35. We have moved this risk factor to the front of the section, as requested.
36. We have included a risk factor that addresses the penny stock rules.
37. We have clarified that Hairmax has completed the distribution of our shares
as of October 31, 2004.
38. We have revised this table, as requested, to properly reflect Mr. Koran's
ownership.
39. We have substantially revised the notes to the Hairmax Selling Security
Holders Table in order to fully disclose all material relationships.
40. We have disclosed that the HairMax Selling Security Holders are statutory
underwriters. However, we disagree with your assertion that the Selling
Security Holders are statutory underwriters for the reasons set forth in
our response No. 3 above.
41. There are now four directors of our company, and we are in compliance with
our By-Laws.
42. The Significant Employees section has been changed to reflect our current
roster of four employees.
43. We have clarified the commercial and non-commercial nature of HairMax's
customers set forth in this section.
Chris Windsor, Esq.
October 25, 2004
Page 7.
44. We have completely revised the marketing and other sections of our
description of business. We are deleting any reference to Private Business,
Inc., and only mentioned it initially because it was a much larger public
company example of an entity that had a commercial brokerage operation.
45. We have provided more details regarding our business plan, as you
suggested, including milestones and time frames.
46. We have provided additional clarification concerning our brokerage
business, with an emphasis on the transactions that we have actually
completed.
47. We have deleted the requested sentence.
48. We have revised the marketing section of our description of business. We
have also deleted all "empowering" language.
49. We have deleted the term "strategic" in our section that describes our
business where we deem the use of such term to be misleading or
inappropriate.
50. We have provided more detail regarding our existing referral sources. They
include over twenty bankers who work at over five money center banks
located in Charlotte, NC.
51. We have included in a section entitled Plan of Operations information on
our plan of operation for the next twelve months in accordance with Item
303(a) of Regulation S-B.
52. We are not a party to any off-balance sheet arrangements so we have not
included a separately captioned section of MD&A to address these matters.
53. The discussion of tax deferred assets was inadvertently included in this
section in error. We have deleted this discussion.
54. The cash in the bank discussion has been revised, as requested.
55. We have made the disclosure regarding how long we expect that it will take
for the company to become profitable on a self sustaining basis.
56. We have detailed the use of funds drawn-down on our line of credit, as
requested.
Chris Windsor, Esq.
October 25, 2004
Page 8.
57. We have disclosed and we also hereby confirm that neither Mr. Koran, nor
any other person or entity is liable, surety or otherwise providing a
guarantee for our line of credit with First Citizens Bank.
58. We have deleted the repetitious "Impact of Inflation" section contained in
the MD&A section.
59. We have made the revisions requested by the Staff to the Liquidity and
Capital Resources section, including disclosures about our needs to
continue as a going concern during the next twelve months, etc.
60. We have revised this sentence to clarify our sources of operating cash
flows during the period, as requested.
61. We have revised the two contradictory statements regarding marketing of our
services, as requested.
62. In a recent secondary offering by a company that entered into a spin-off
agreement with an affiliated OTC Bulletin Board issuer involving shares of
common stock that were delivered to the second company and were spun-off in
an arrangement similar to ours, and such shares were registered under the
first company's registration statement, the staff of the Commission
required extensive disclosures about the second party to the transaction.
This was good policy from our point of view. In our case, the name HairMax
is prominently displayed throughout our prospectus, and our shareholders
and prospective shareholders would naturally be curious about this company
and want to know something about the company that management has entered
into a strategic alliance agreement with, especially its ability to perform
its obligations under that agreement. In addition, our shareholders and
prospective shareholders would want to know something about the company
that has delivered a shareholding body to our company in this offering. The
names of those HairMax shareholders appear prominently in the prospectus in
the HairMax Selling Security Holder Table, and information about their
corporation would be very material to a shareholder and potential
shareholder of our company. Disclosure of material information is good
policy. Finally, HairMax is a statutory underwriter of our shares of common
stock, and has obligations and liabilities under the Securities Act for its
role in the spin-off distribution, and we believe prospective purchasers of
our stock have a right to know what kind of company they are dealing with
and what its capsule income statement and balance sheet information looks
like, in the event that those Securities Act liabilities and obligations
ever mature.
Chris Windsor, Esq.
October 25, 2004
Page 9.
In short, disclosures about HairMax enhance the decision usefulness to the
reader of the prospectus in accordance with the FASB's conceptual
framework.
63. We have added several paragraph's about HairMax's decision to become a BDC,
as well as the impact of that decision on our strategic alliance agreement.
64. We have corrected the references to "we" contained in the Hairmax section
of the prospectus.
65. We have clarified the tax discussion as requested.
66. We have revised the text to clarify that the Greentree shares have been
issued.
67. We intend to seek quotation on the OTC Bulletin Board, and have made
revisions to the text to make that clear.
68. We defer to the expertise of the staff of the Commission, and we have
changed references throughout the document to the OTC Bulletin Board to
make it clear that the Bulletin Board is a quotation medium for subscribing
members, not an issuer listing service.
69. We have made disclosures regarding our compensation expectations for Mr.
Koran during the next twelve months.
70. The report of our independent public accountant has been revised as
requested.
71. Our auditor has evaluated your ability to continue as a going concern, and
decided not to issue a "going concern" qualification for the following
reasons: (1) We had positive working capital at May 31, 2004; (2) we had a
positive stockholders' equity at May 31, 2004; (3) we had a positive net
income for the period ended May 31, 2004; (4) we had positive cash flow
from operations for the period ended May 31, 2004; (5) we had no adverse
key financial ratios; (6) we have never defaulted on any agreements, have
never been denied trade credit and have no need to dispose of assets; and
(7) we have no negative internal matters such as uneconomic long-term
commitments that will not be covered by a future equity raise.
72. (a) We kept the par value of our common stock at $.001 after the stock
split because our counsel advised us to do so. We understand that a
stock split only affects the outstanding shares of our common stock,
and not the par value per share. There may be commentators in North
Carolina who disagree with this position, but the law is unclear and
we have taken the position that we believe is the most conservative.
This view is consistent with generally accepted
Chris Windsor, Esq.
October 25, 2004
Page 10.
practices for other publicly traded registrants. We do not believe
that this share transaction is a "split-up effected in the form of a
dividend".
(b) We do not believe that the transaction should be reported as a
"split-up effected in the form of a dividend", and, accordingly, the
financial statements do not need revision.
(c) The par value of our common stock was paid in the form of a promissory
note of an officer of our company. The Board of Directors valued the
note at its face value and the stock at $.001 per share. The paid in
par value equaled $9,900. There would have been sufficient
consideration as a matter of state law for the issuance of the shares
by forward stock split. According to NCGS Section 55-6-21, a
promissory note is legal and valid consideration for the issuance of
stock of a North Carolina corporation.
(d) The capital transaction did not involve a stock dividend, so we did
not consider the guidance of the Minutes of the AICPA SEC Regulations
Committee (March 2001). The transaction involved a forward stock split
in which a receivable of $9,900 was created in the stockholders'
equity section of the balance sheet as consideration therefor.
(e) We considered the Guidance of FRR.214 and took the position,
consistent with the SEC's staff, of recording the stock split at par
value with a charge to capital surplus, offset by a debit to
Subscription Receivable Due From Officer.
(f) The obligation is reflected in the stockholders' equity section as a
receivable.
73. We have revised the Revenue Recognition footnote to more clearly explain
how we recognize the "on-going monthly commissions paid for the life of the
financing".
Please let us know if you have further questions.
Sincerely,
/s/ David R. Koran, President
cc: Harold H. Martin, Esq.