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17111
Kenton Drive, Suite 100B, Cornelius, North
Carolina
28031
(Address
of Principal Executive Office)
(Zip
Code)
(704)
564-1676
(Issuer’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $.00000005 per share
(Title
of
Class)
Check
whether the issuer: (1) filed all reports required to be filed by Sections
13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [
]
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer’s
revenues for its most recent fiscal year were $20,673.
The
aggregate market value of the issuer’s Common Stock held by non-affiliates
(1,090,000 shares) was approximately $272,500, based on the price stated in
our
Post-Effective Amendment No. 1 to Form SB-2/A Registration Statement for the
Common Stock on July 14, 2006.
As
of
July 14, 2006, there were outstanding 11,790,000 shares of the issuer’s Common
Stock, par value $.00000005.
Transitional
Small Business Disclosure Format (check one): Yes
[ ] No [X]
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The
discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
as amended, (the “Exchange Act”) contains forward-looking statements that
involve risks and uncertainties. The issuer’s actual results could differ
significantly from those discussed herein. These include statements about our
expectations, beliefs, intentions or strategies for the future, which we
indicate by words or phrases such as “anticipate,”“expect,”“intend,”“plan,”“will,”“we believe,”“the Company believes,”“management believes” and similar
language, including those set forth in the discussion under “Description of
Business,” including the “Risk Factors” described in that section, and
“Management’s Discussion and Analysis or Plan of Operation” as well as those
discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
on information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-KSB that are not historical facts
are
forward-looking statements that are subject to the “safe harbor” created by the
Private Securities Litigation Reform Act of 1995.
We
were
incorporated in North Carolina on February 2, 2004 to engage in the business
of
commercial finance brokerage and consulting. We are currently engaged and plan
to continue in the commercial finance brokerage and consulting
business.
Description
of Business
We
have
acted and intend to continue to act as a broker for commercial finance
transactions. The different types of commercial financing that we intend to
broker are: Commercial Mortgages, Asset-Based Lines of Credit, Commercial
Leasing, Accounts Receivable Financing (also known as “Factoring”) and Purchase
Order Financing. To date, we have successfully brokered several financing
transactions, consisting of various mortgage transactions, monthly broker fees
and broker fees in connection with a commercial lease transaction.
Set
forth
below is a brief description of several types of commercial financing that
we
intend to broker. We have had success in brokering a commercial mortgage, a
commercial lease and an accounts receivable financing package.
In
brokering a commercial mortgage, we would typically act as an agent to secure
a
loan for a client to purchase a building in which to operate a business such
as
an import/export company. We would help the client arrange the loan with a
bank,
for example, and at closing we would be paid a broker’s commission from the
funding source that typically amounts to 1% of the loan amount.
In
brokering asset-based lines of credit, we would typically act as an agent to
secure a loan from a bank, for example, for a manufacturing company that would
be secured with inventory and/or accounts receivable. After the closing, we
would be paid a commission by the funding source that typically amounts to
.5%
to 1% of the loan amount.
In
brokering commercial leases, we would typically act as an agent to acquire
a
commercial lease of certain business equipment, such as several dump trucks
for
a construction company. Once each commercial lease transaction is closed, we
would typically be paid a brokering commission from the funding source that
averages .5% to1% of the loan amount.
In
brokering accounts receivable/factoring financing, we would typically act as
an
agent to acquire loans that speed up the collection of cash flow for our
clients. The typical fee for this type of financing is generally between 1
to 8%
of each invoice financed. The typical funding contract for a hypothetical
accounts receivable financing or factoring transaction will have a minimum
one
year term. Thus, we anticipate each transaction of this type to pay monthly
commissions for at least one year, if and when we have secured the brokerage
assignment.
In
brokering purchase order financing, we would typically act as an agent to
acquire financing on a purchase order-by-purchase order basis in order to
provide a client with funding to fill each order. Once each purchase order
financing transaction is closed and funded, we would be paid a brokering
commission from the funding source which would be .5% to 1% of each purchase
order funded.
In
performing all of these brokering services, we have and propose to represent
our
clients in all aspects of assisting with the assessment of funding needs and
qualifications, and identifying and making presentations to the most suitable
funding sources.
We
will
continue to aggressively market our services in the United States. We are
accomplishing this goal on numerous fronts and utilize an advertising agency
in
Charlotte, North Carolina to assist us.
Going
Concern Issues
As
shown
in our financial statements, we suffered recurring losses from operations to
date. We experienced a loss of ($26,968) during fiscal 2006, had a net deficit
of ($30,089) and a net working capital deficit of $(33,856) as of May 31, 2006.
Although these measurements show improvement, these factors raise substantial
doubt about our ability to continue as a going concern. Our independent auditor
has observed that we are in the
development stage, have suffered losses, have a net capital deficiency and
have
yet to generate an internal cash flow, which lead it to conclude that there
is
substantial doubt about the our ability to continue as a going concern.
Our
ability to continue as a going concern will depend on many factors. There can
be
no assurance that we will raise additional equity capital in order to improve
liquidity and sustain operations.
Competition
We
face
and will face intense competition from companies engaged in similar businesses.
We compete and anticipating competing with numerous companies that broker
commercial finance products both over the Internet and via traditional forms
of
business. Direct competition to us can be any individual or group of individuals
or company that brokers commercial finance products, and there are
thousands of entities that could be considered competitors in the United States.
Hence, there is no way to accurately quantify or detail our market competition
with greater specificity. However, many of our competitors have
significantly greater customer bases, operating histories, financial, technical,
personnel and other resources than we do, and may have established reputations
for success in the commercial finance industry. There can be no assurance that
we will be able to compete effectively in the highly competitive commercial
finance industry, which may adversely affect our business prospects.
There
are
few barriers to entry in the commercial finance brokering business. There are
brokers, finders, agents, lawyers, consultants and a variety of other
professionals all trying to put funding sources together with prospective
clients in order to make a commission. With the advent of modern computers
and
internet communication, this business has become national in scope, and it
is
not unusual to find a broker from Miami, Florida putting together a financing
package for a manufacturer in Pittsburgh, PA with a finance company located
in
Los Angeles, CA. We intend to participate in all of these markets, and seek
commission based income wherever it can be derived.
There
are
examples of successful commercial finance brokerage firms within our industry,
and we hope to achieve success with a business plan that shares many
similarities, but is tailored to our size and resources. We meet from time
to
time with our competition and share ideas and opportunities. For example, there
are large professional associations of commercial finance brokers and funding
companies that meet on a regular basis in the major metropolitan areas. For
example, the Commercial Finance Association, which is a nationwide organization
with chapters in all of the major metropolitan areas, meets quarterly to discuss
topics of interest and exchange leads. We are a member of this organization’s
Charlotte, NC chapter. In addition, we are a member of the National Funding
Association, based in Charlotte, NC, with other chapters in Atlanta, GA and
Chicago, IL. Our Chairman, Mr. Koran, serves on the advisory board of the
Charlotte, NC chapter of the NFA. Further, we are a member of the Turnaround
Management Association, with chapters in all major metropolitan
areas.
Government
Regulation
No
government approvals are required to conduct our principal operations, and
we
are not aware of any probable governmental regulation of our business sectors
in
the near future.
Employees
We
have
one (1) employee who is our Chief Executive Officer and President. We will
retain additional employees, on an as needed basis. We do not currently
anticipate experiencing any difficulty in recruiting and retaining employees.
[In addition, we have entered into consulting arrangements with independent
contractors who provide services to our company when needed].
Item
4.Submission
of Matters to a Vote of Security Holders
No
matter
was submitted during the fourth quarter of the fiscal year covered by this
report to a vote of security holders, through the solicitation of proxies or
otherwise.
Market
for Common Equity and Related and Stockholder.
Market
For Common Stock
Our
Common Stock is not yet quoted on the OTC Electronic Bulletin Board, a service
maintained by The NASDAQ Stock Market, Inc. as we are awaiting our ticker symbol
from such organization. Accordingly, presentation herein of the range high
and
low bid information for our Common Stock for each quarter of the years ended
May31, 2005 and 2006 is not applicable.
As
of
July 14, 2006, there were approximately 40 stockholders of record of our Common
Stock. Our registrar and transfer agent is Island Capital Management, LLC d/b/a
Island Stock Transfer, Inc., located at 100 Second Avenue South, Suite 300N,
St.Petersburg, Florida33701. Their telephone number is (727) 289-0010, and their
facsimile number is (727) 289-0069.
Limited
Market for Common Stock
There
is
currently no established trading market for our shares of Common Stock, and
there can be no assurance that a substantial trading market will ever develop
or
be maintained. Any market price for our shares of Common Stock is likely to
be
very volatile, and numerous factors beyond our control may have a significant
adverse effect. In addition, the stock markets generally have experienced,
and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These broad
market fluctuations, as well as general economic and political conditions,
may
also adversely affect the market price of our Common Stock. Further, there
is no
correlation between the present limited offering price of our Common Stock
and
our revenues, book value, assets or other established criteria of value. The
present offering price of our Common Stock per our Registration Statement should
not be considered indicative of our actual value or our Common
Stock.
Shares
of
our common stock may currently trade in a private trading market inasmuch as
certain of our shares of common stock are registered under the Securities Act
of
1933, as amended, pursuant to an effective registration statement. However,
management is not aware of the existence of any such trades, or the price or
terms thereof.
Dividends
We
have
not paid any cash dividends to date and does not anticipate or contemplate
paying cash dividends in the foreseeable future until earnings would generate
funds in excess of those required to provide for our growth needs.
We
currently intend to retain any future earnings to fund the development and
growth of our business.
Recent
Sales of Unregistered Securities
During
the fourth quarter of fiscal 2006, we issued no securities.
Item
6.Management’s
Discussion and Analysis or Plan of Operation
Introduction
and Plan of Operation
We
have
acted and intend to continue to act as a broker for commercial finance
transactions. The different types of commercial financing that we intend to
broker are: Commercial Mortgages, Asset-Based Lines of Credit, Commercial
Leasing, Accounts Receivable Financing (also known as “Factoring”) and Purchase
Order Financing. To date, we have successfully brokered several financing
transactions, consisting of various mortgage transactions, monthly broker fees
and broker fees in connection with a commercial lease transaction.
Liquidity
To
date
Capital Resource Funding, Inc. is a going concern. Capital
raises through the sale of shares supported our existence thus far. However,
our
current working capital has improved from ($57,978) at May 31, 2005 to $(33,856)
at May 31, 2006 and stockholder’s deficit from $(57,978) to $(30,089) for the
same periods. The primary reason for improvement in fiscal 2006 was due to
a
raise of cash through the sale of our common shares during fiscal
2006.
Balance
sheet improvements have been achieved through common stock offerings.
Financial
Results of Operations, Condition of Company and Significant
Factors
Capital
Resource Funding, Inc. continues to pursue marketing relations for our services.
Revenue increased for fiscal 2006 and net loss decreased for fiscal 2006.
Overall
results of operations were a net loss of $26,968 in fiscal 2006 as compared
to a
net loss in fiscal 2005 of $260,511. The decrease in net loss of $233,543 is
attributed to the following categories:
Decrease
in consulting fees paid with common stock $
236,335
Increase
in
S,G&A
$
(14,868)
Increase
in interest expense and increase in
sales $
12,076
$
233,543
In
fiscal
2005 there were more expenses incurred on consulting for Capital Resource
Funding, Inc.’s growth. As a result, in fiscal 2005, consulting expenses were up
substantially. The majority of the other expenses were stable from year to
year.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and
Stockholders
of Capital Resource Funding, Inc. (FKA Capital Business Funding,
Inc.)
We
have
audited the accompanying balance sheets of Capital Resource Funding, Inc.
(FKA
Capital Business Funding, Inc.) (A Development Stage Company) as of May 31,2006, and the related statements of income, stockholders’ equity and
comprehensive income, and cash flows for the years ended May 31, 2006 and
2005.
These financial statements are the responsibility of the company’s management.
Our responsibility is to express an opinion on these financial statements
based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Capital Resource Funding, Inc.
(FKA
Capital Business Funding, Inc.) (A Development Stage Company) as of May 31,2006, and the results of its operations and its cash flows for the years
ended
May 31, 2006 and 2005 in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern. As discussed in Note F to the financial statements,
the Company is in the development stage, has suffered losses, has a net capital
deficiency and has yet to generate an internal cash flow. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note E. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Background
- The
Company was organized under the laws of the State of North Carolina on
February2, 2004 as a corporation. The Company operates as a commercial finance
brokerage
and consulting firm.
Basis
of Presentation
- The
financial statements included herein include the accounts of Capital Resource
Funding, Inc. prepared under the accrual basis of accounting.
Management’s
Use of Estimates—The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of
financial statements and the reported amounts of revenues and expenses
during
the reporting period. Actual results could differ from those estimates.
The
financial statements above reflect all of the costs of doing
business.
Revenue
Recognition—The
Company’s revenue is derived primarily from brokering income which range from
one time origination fees to on-going monthly commissions paid for the
life of
the financing. Revenue is recognized as earned when each loan deal is finalized.
For purposes of on-going monthly commissions paid for the life of the financing,
revenue is recognized as earned based on the total of the gross monthly
financing fees generated.
Comprehensive
Income (Loss)—The
Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards (SFAS) No. 130, “Reporting
Comprehensive Income”,
which
establishes standards for the reporting and display of comprehensive income
and
its components in the financial statements. There were no items of comprehensive
income (loss) applicable to the Company during the period covered in the
financial statements.
Net
Income per Common Share—Statement
of Financial Accounting Standard (SFAS) No. 128 requires dual presentation
of
basic and diluted earnings per share (EPS) with a reconciliation of the
numerator and denominator of the EPS computations. Basic earnings per share
amounts are based on the weighted average shares of common stock outstanding.
If
applicable, diluted earnings per share would assume the conversion, exercise
or
issuance of all potential common stock instruments such as options, warrants
and
convertible securities, unless the effect is to reduce a loss or increase
earnings per share. Accordingly, this presentation has been adopted for
the
period presented. There were no adjustments required to net income for
the
period presented in the computation of diluted earnings per share.
Income
Taxes
- Income
taxes are provided for the tax effects of transactions reported in the
financial
statements and consist of deferred taxes related primarily to differences
between the basis of certain assets and liabilities for financial and tax
reporting and net operating loss carry forwards. Deferred taxes represent
the
future tax return consequences of those differences, which will either
be
taxable or deductible when the assets and liabilities are recovered or
settled.
The
income tax benefit consists of taxes currently refundable due to net operating
loss carry back provisions for federal and state governments. Deferred
tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or the entire deferred tax
asset
will not be realized. Deferred tax assets and liabilities are adjusted
for the
effect of changes in tax laws and rates on the date of enactment.
Fair
Value of Financial Instruments—The
carrying amounts reported in the balance sheet for cash, fixed assets,
accounts
payable and notes payable approximate fair value based on the short-term
maturity of these instruments.
NOTE
A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Impairment
of Long-Lived Assets—The
Company evaluates the recoverability of its fixed assets and other assets
in
accordance with Statement of Financial Accounting Standards No. 144,
“Accounting
for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144’).
SFAS 144
requires recognition of impairment of long-lived assets in the event the
net
book value of such assets exceeds its expected cash flows, it is considered
to
be impaired and is written down to fair value, which is determined based
on
either discounted future cash flows or appraised values. The Company adopted
the
statement on inception. No impairments of these types of assets were recognized
during the years ended May 31, 2006 and 2005 based upon a management review
of
such assets.
Stock-Based
Compensation—The
Company accounts for stock-based compensation using the fair value method
of
Financial Accounting Standard No. 123. Common shares issued for services
rendered by a third party (both employees and non-employees) are recorded
at the
fair value of the shares issued or services rendered, whichever is more
readily
determinable.
Recent
Accounting Pronouncements—
In
December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based
Compensation". SFAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. This Statement focuses primarily on accounting for transactions
in
which an entity obtains employee services in share-based payment transactions.
SGAS 123(R) requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services
are
performed. Prior to SFAS 123(R), only certain pro-forma disclosures of
fair
value were required. SFAS 123(R) shall be effective for the Company as
of the
beginning of the first interim or annual reporting period that begins after
December 15, 2005. The adoption of this new accounting pronouncement is
expected
to have a material impact on the financial statements of the Company commencing
with the third quarter of the year ending September 30, 2006. Small business
issuers need not comply with the new standard until fiscal periods beginning
after December 15, 2005. We already disclose expense of employee stock
options
for annual and quarterly periods on fair value calculation according to
SFAS
No.123.
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (SFAS 151). This
Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 requires that
those
items be recognized as current-period charges. In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
The
provisions of SFAS 151 are effective for inventory costs incurred in fiscal
years beginning after June 15, 2005.
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets -
an amendment of APB Opinion No.29" ("SFAS 153"). SFAS 153 replaces the
exception
from fair value measurement in APB Opinion No. 29 for non-monetary exchanges
of
similar productive assets with a general exception from fair value measurement
for exchanges of non-monetary assets that do not have commercial substance.
A
non-monetary exchange has commercial substance if the future cash flows
of the
entity are expected to change significantly as a result of the exchange.
SFAS
153 is effective for all interim periods beginning after June 15, 2005.
The
adoption of SFAS 153 did not have a material impact on the Company's financial
statements or results of operations.
NOTE
A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Recent
Accounting Pronouncements (cont)
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
-
a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154").
SFAS
154 changes the requirements for the accounting for and reporting of a
change in
accounting principle. These requirements apply to all voluntary changes
and
changes required by an accounting pronouncement in the unusual instance
that the
pronouncement does not include specific transition provisions. SFAS 154
is
effective for fiscal years beginning after December 15, 2005. The Company
does
not expect the adoption of SFAS 154 to have a material effect on the Company’s
financial statements.
In
February 2006, the FASB issued SFAS Statement No. 155, “Accounting for Certain
Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”
("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for
Derivative Instruments and Hedging Activities, and No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation
Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement
133,
establishes a requirement to evaluate interests in securitized financial
assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination
are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September15,2006. The adoption of this standard is not expected to have a material
effect on
the Company’s results of operations or financial position.
NOTE
B—NOTES PAYABLE
Notes
payable at May 31, 2006 consists of the following:
The
Company has a $15,000 unsecured line of credit from The First Citizens
Bank
& Trust Company (“The Bank”). The annual percentage rate (“APR”) is based on
the Bank’s prime rate plus 1% with a maximum APR of 8%. As of the date of the
note, the APR was 9%. The maturity date of the note was originally May4, 2005
but was extended to May 4, 2007. As of May 31, 2006, the Company drew against
this line of credit and owes $14,943 against this line of credit.
The
Company has a $10,000 unsecured line of credit from Bank of America (“BofA”).
The annual percentage rate (“APR”) is based on BofA’s prime rate plus 2%. As of
the date of the note, the APR was 9%. The line of credit is due on demand
with
interest only payments and has no maturity date. As of May 31, 2006, the
Company
drew against this line of credit and owes $9,000 against this line of credit.
In
connection with financial advisory agreement with Greentree Financial Group,
Inc., the Company owes $38,835 in principal. The six-month, non-assumable
promissory note between the Company and Greentree Financial Group, Inc.
was
drafted and signed on June 24, 2004. The note matured on December 24, 2004
and
carries interest of 6% per annum. This loan is presently due on
demand.
Included
in the accompanying audited financial statements at May 31, 2006 are common
shares issued to consulting service providers which have been delivered
for
services rendered and incurred as of May 31, 2005. Specifically, 490,000
common
shares were paid to Greentree Financial Group, Inc. as of May 31, 2005.
The
common shares, valued at $.25 per share, were issued to Greentree on October31,2004 (see note D).
NOTE
D
- VALUATION OF COMMON STOCK
The
Company valued the common shares to be issued to each of its employees
and
non-employees during the period presented using the fair amount valuation
of 25
cents per share. This amount reasonably approximated the fair value of
services
rendered by such parties. For instance, the 490,000 and 300,000 shares
issued to
Greentree Financial Group, Inc. and the Company’s three officers, respectively,
for their services rendered to us were valued at 25 cents per share, or
$122,500
and $75,000, and recorded as a non-cash expense to our books covering the
period
of time the services related to. The Company feels these valuations are
based
upon the most objective, verifiable evidence available for these non-monetary
exchanges and arms-length transactions. For example, we researched what
firms
providing services comparable to those offered by Greentree charged, and
the
Company found that Greentree’s services were less expensive. Hence, the Company
believes that the objective evidence supports a fair value of $122,500
for the
stock portion of Greentree’s services and the number of shares that were issued
to them. The Company’s valuations used to determine the fair value of the common
stock were retrospective in nature, and the valuation specialists who made
these
determinations were related parties, including David Koran, its president,
and
Greentree, both of whom own substantial positions in our common stock.
Specifically,
the 300,000 shares issued to the Company’s three officers were recorded as
compensation expense in the second quarter of its fiscal year ending May31,2005 in the amount of $75,000.
NOTE
E
GOING CONCERN
As
shown
in the accompanying audited financial statements, the Company has suffered
recurring losses from operations to date. It experienced losses of $287,278
since inceptions and has a negative working capital. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.
Management’s
plans in regard to this matter are to raise equity capital and seek strategic
relationships and alliances in order to increase sales in an effort to
generate
positive cash flow. Additionally, the Company must continue to rely upon
equity
infusions from investors in order to improve liquidity and sustain operations.
The financial statements do not include any adjustments that might result
from
the outcome of this uncertainty.
NOTE
F
- DEVELOPMENT STAGE COMPANY
The
Company is in the development stage as of May 31, 2006 and to date has
had no
significant operations. Recovery of the Company’s assets is dependent on future
events, the outcome of which is indeterminable. In addition, successful
completion of the Company’s development program and its transition, ultimately,
to attaining profitable operations is dependent upon obtaining adequate
financing to fulfill its development activities and achieving a level of
sales
adequate to support the Company’s cost structure.
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
None
Item
8A.Controls
and Procedures
Quarterly
Evaluation of Controls
As
of the
end of the period covered by this annual report on Form 10-KSB, we evaluated
the
effectiveness of the design and operation of (i) our disclosure controls and
procedures (“Disclosure Controls”), and (ii) our internal control over financial
reporting (“Internal Controls”). This evaluation (“Evaluation”) was performed by
our President and Chief Executive Officer, David R. Koran (“CEO”) and by Laura
Koran, our Chief Financial Officer (“CFO”). In this section, we present the
conclusions of our CEO and CFO based on and as of the date of the Evaluation
(i)
with respect to the effectiveness of our Disclosure Controls and (ii) with
respect to any change in our Internal Controls that occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely
to
materially affect our Internal Controls.
CEO
and CFO Certifications
Attached
to this annual report, as Exhibits 31.1 and 31.2, are certain certifications
of
the CEO and CFO, which are required in accordance with the Exchange Act and
the
Commission’s rules implementing such section (the “Rule 13a-14(a)/15d-14(a)
Certifications”). This section of the annual report contains the information
concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a)
Certifications. This information should be read in conjunction with the Rule
13a-14(a)/15d-14(a) Certifications for a more complete understanding of the
topic presented.
Disclosure
Controls and Internal Controls
Disclosure
Controls are procedures designed with the objective of ensuring that information
required to be disclosed in our reports filed with the Securities and Exchange
Commission under the Securities Exchange Act, such as this annual report, is
recorded, processed, summarized and reported within the time period specified
in
the Commission’s rules and forms. Disclosure Controls are also designed with the
objective of ensuring that material information relating to us is made known
to
the CEO and the CFO by others, particularly during the period in which the
applicable report is being prepared. Internal Controls, on the other hand,
are
procedures which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) our assets
are
safeguarded against unauthorized or improper use, and (iii) our transactions
are
properly recorded and reported, all to permit the preparation of complete and
accurate financial statements in conformity with accounting principals generally
accepted in the United States.
Limitations
on the Effectiveness of Controls
Our
management does not expect that our Disclosure Controls or our Internal Controls
will prevent all error and all fraud. A control system, no matter how well
developed and operated, can provide only reasonable, but not absolute assurance
that the objectives of the control system are met. Further, the design of the
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because
of
the inherent limitations in all control systems, no evaluation of controls
can
provide absolute assurance that all control issues and instances of fraud,
if
any, within us have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more
people, or by management override of the control. The design of a system of
controls also is based in part upon certain assumptions about the likelihood
of
future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
The
CEO
and CFO’s evaluation of our Disclosure Controls and Internal Controls included a
review of the controls’ (i) objectives, (ii) design, (iii) implementation, and
(iv) the effect of the controls on the information generated for use in this
annual report. In the course of the Evaluation, the CEO and CFO sought to
identify data errors, control problems, acts of fraud, and they sought to
confirm that appropriate corrective action, including process improvements,
was
being undertaken. This type of evaluation is done on a quarterly basis so that
the conclusions concerning the effectiveness of our controls can be reported
in
our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The
overall goals of these various evaluation activities are to monitor our
Disclosure Controls and our Internal Controls, and to make modifications if
and
as necessary. Our external auditors also review Internal Controls in connection
with their audit and review activities. Our intent in this regard is that the
Disclosure Controls and the Internal Controls will be maintained as dynamic
systems that change (including improvements and corrections) as conditions
warrant.
Among
other matters, we sought in our Evaluation to determine whether there were
any
significant deficiencies or material weaknesses in our Internal Controls, which
are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, or whether we had identified any
acts of fraud, whether or not material, involving management or other employees
who have a significant role in our Internal Controls. This information was
important for both the Evaluation, generally, and because the Rule
13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, “significant deficiencies” are referred
to as “reportable conditions”. These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A “material weakness” is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified; we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.
Conclusions
Based
upon the Evaluation, our CEO and CFO have concluded that, subject to the
limitations noted above, our Disclosure Controls are effective to ensure that
material information relating to us is made known to management, including
the
CEO and CFO, particularly during the period when our periodic reports are being
prepared, and that our Internal Controls are effective to provide reasonable
assurance that our financial statements are fairly presented inconformity with
accounting principals generally accepted in the United States. Additionally,
there has been no change in our Internal Controls that occurred during our
most
recent fiscal quarter that has materially affected, or is reasonably likely
to
affect, our Internal Controls.
Item
9.Directors,
Executive Officers , Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act.
Identification
of Directors and Executive Officers
The
following table sets forth the names and ages of our directors and executive
officers and of the positions and offices held with us, and the period during
which each served in such positions and offices. Each director and executive
officer serves for a term of one (1) year and until his successor is duly
elected and qualified.
DIRECTORS
AND OFFICERS
Name
Age
Position
Period
In Office
Richard
Koran
67
Director
February
2004 - Present
David
R. Koran
38
Director
February
2004 - Present
Chief
Executive Officer,
and
President
Laura
Koran
36
Chief
Financial Officer,
February
2004 - Present
Secretary
and Director
Steve
Moore
36
Vice
President
February
2004 - Present
And
Director
The
following is a summary of the business experience and other biographical
information with respect to each of our officers and directors listed in the
above-referenced table.
David
R.
Koran has been our Chief Executive Officer, President and Director since
inception in February 2004.
Mr.
Koran’s experience in the commercial finance and otherwise over the last five
years has consisted of the following:
From
2004
to Present, Mr. Koran has been the president of Capital Resource Funding, a
commercial finance brokerage company, which provides commercial finance
brokerage services within the entire United States. We were incorporated in
North Carolina on February 2, 2004. We have no employees, other than Mr. Koran,
since
our
inception. Currently Mr. Koran is working 25 hours per week in the employ of
Capital Resource Funding.
From
January 2004 to Present, Mr. Koran has been operating as an employee with
Benefactor Funding Corp. as a Director of Marketing. Benefactor Funding Corp.
is
a commercial factor offering funding programs to small to mid-sized businesses
ranging from 500,000 to 3 million. Mr. Koran will remain in this employment
until it is financially feasible to draw a comparable salary from
us.
From
January 2002 to December 31, 2003, Mr. Koran worked as a Business Development
Officer for J D Factors, LLC. Mr. Koran was successful in developing a new
3
state territory into a profitable region in the first 4 months of operation.
J D
Factors specializes in factoring services for micro and small businesses.
From
July
2001 to January 2002, Mr. Koran worked as a Commercial Loan Officer responsible
for managing a 5 million dollar micro business loan portfolio and producing
new
loan volume monthly. Mr. Koran gained valuable experience in commercial
underwriting, loan work outs, and risk management.
From
December 1999 to July 2001, Mr. Koran worked as a Business Relationship Manager
for First Union Corp. In this role, Mr. Koran managed a small business portfolio
of over 500 banking relationships.
Mr.
Koran’s experience in the commercial banking industry helped develop his
business plan for CRF. Mr. Koran identified a service need within the banking
industry to help facilitate small business lending needs that was unmet by
the
conventional loan products. This industry experience helped to mold the business
plan of CRF.
Mr.
Koran
is a member of the following business organizations: Commercial Finance
Association, www.cfa.org;
Turnaround Management Association, www.turnaround.org;
National Funding Association, www.nationalfunding.org,
and he
is an Advisory Board member of the Charlotte, NC Chapter.
David
Koran lives in Cornelius, North Carolina.
Steven
Moore has been our Chief Operating Officer and Director since October 1, 2004.
Mr. Moore’s experience over the last five years has consisted of the
following:
From
June
1992 to January 2000, Mr. Moore was a Planning Manager with the Sara Lee Branded
Apparel Division of the Sara Lee Corporation.
From
February 2000 to February 2002, Mr. Moore as a Buyer for Kmart Corporation,
having the responsibility for buying merchandise to be sold in 2100 retail
stores. He supervised five employees.
From
March 2002 to September 2004, Mr. Moore was a Director of Sales Planning for
the
Sara Lee Branded Apparel Division of the Sara Lee Corporation. He managed a
team
of 24 people in the area of sales forecasting. His team was responsible for
providing retail information to their manufacturing planning teams.
Richard
Koran has been our Vice President and Director since October 1, 2004. Mr.
Koran’s experience over the last five years has consisted of the
following:
From
1997
to September 2004, Mr. Koran was Production Administrator at Standard Register
Corp. in Valley View, Ohio. At Standard Register, he oversaw the production
operation of demand print, prepress and press production. He was responsible
for
all of the quality control functions. He managed 20 associates and supervisors,
scheduled jobs for internal and all outsourcing of the three shift
operations.
Richard
Koran is the father of David Koran and lives in Avon, Ohio.
Laura
Koran has been our Chief Financial Officer, Secretary and Director since October1, 2004. Ms. Koran’s experience over the last five years has consisted of the
following:
From
January 1993 to May 2000, Ms. Koran was an MRO Buyer, Buyer, Senior MRO Buyer,
Purchasing Agent and Purchasing Manager at the Sara Lee
Corporation.
From
May
2000 to March 2003, Ms. Koran was a Purchasing Manager and VMI Program Manager
at Solectron, Inc.
From
May
2002 to August 2004, Ms. Koran was a Loan Officer and Independent Contractor
with her own mortgage loan origination company.
Ms.
Koran
is married to David Koran.
Audit
Committee Financial Expert
We
do not
have a separately designated standing audit committee. Pursuant to Section
3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit
committee for the purpose of overseeing the accounting and financial reporting
processes, and audits of our financial statements. The Commission recently
adopted new regulations relating to audit committee composition and functions,
including disclosure requirements relating to the presence of an “audit
committee financial expert” serving on its audit committee. In connection with
these new requirements, our Board of Directors examined the Commission’s
definition of “audit committee financial expert” and concluded that we do not
currently have a person that qualifies as such an
expert. Presently, there are only four (4) directors serving on our Board,
and
we are not in a position at this time to attract, retain and compensate
additional directors in order to acquire a director who qualifies as an “audit
committee financial expert”, but we intend to retain an additional director who
will qualify as such an expert, as soon as reasonably practicable. While neither
of our current directors meets the qualifications of an “audit committee
financial expert”, each of our directors, by virtue of his past employment
experience, has considerable knowledge of financial statements, finance, and
accounting, and has significant employment experience involving financial
oversight responsibilities. Accordingly, we believe that our current directors
capably fulfill the duties and responsibilities of an audit committee in the
absence of such an expert.
Code
of Ethics
We
have
adopted a code of ethics that applies to our principal chief executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions (the “Code of Ethics”). The Code of Ethics
is designed to deter wrongdoing, and to promote the following:
·
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships.
·
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that a small business issuer files with, or submits to,
the
Commission and in other public communications made by the small business
issuer.
·
Compliance
with applicable governmental laws, rules and
regulations.
·
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the
code.
Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of
a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and we are required to report, in this Form 10-KSB, any
failure to comply therewith during the fiscal year ended May 31, 2006. We
believe that all of these filing requirements were satisfied by its executive
officers, directors and by the beneficial owners of more than 10% of our Common
Stock.
Item
10.Executive
Compensation
The
following table sets forth all compensation awarded to, earned by, or paid
to
our Chief Executive Officer, Mr. David R. Koran, since fiscal 2005.
SUMMARY
COMPENSATION TABLE
Annual
Compensation
Long-Term
Compensation Awards
Name
and Principal Position
Year
Salary
Other
Restricted
Stock
Award
Securities
Underlying
Options
(#)
David
R. Koran (1)
2006
$
-0-
$
-0-
$
0
0
2005
$
-0-
$
-0-
$
0
0
____________
Stock
Option Awards
There
were no options granted to anyone during fiscal 2006.
Aggregated
Option Exercises and Fiscal Year End Option Values
There
were no options exercised by anyone during fiscal 2006.
Item
11.
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides certain information regarding our equity compensation
plans and other equity compensation arrangements as of May 31,2006.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
Number
of Securities To Be Issue Upon Exercise of
Outstanding Options
Weighted-Average
Exercise Price of Outstanding
Options
Number
of Securities Remaining Available for
Future Issuance
EQUITY
COMPENSATION PLANS APPROVED BY STOCKHOLDERS:
None
0
$
0
0
EQUITY
COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS:
None
0
$
0
0
There
was
no equity compensation authorized and issued without prior stockholder approval
to our employees and non-employees in exchange for consideration in the form
of
goods or services during the fiscal year ended May 31, 2006.
The
following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of
July14, 2006 (i) each person known to us to be the beneficial owner of more than
5%
of our Common Stock, (ii) each of our directors and executive officers, and
(iii) all directors and executive officers as a group. As of July 14, 2006,
there were 11,090,000 shares of Common Stock issued and
outstanding.
(1) Unless
otherwise indicated, the address of the persons named in the table is 17111
Kenton Drive, Suite 100B, Cornelius, N.C.28031.
(2) As
used
herein, a person is deemed to be the “beneficial owner” of a security if he or
she has or shares voting or investment power with respect to such security,
or
has the right to acquire such ownership within sixty (60) days. As used herein,
“voting power” includes the power to vote or to direct the voting of shares, and
“investment power” includes the power to dispose or to direct the disposition of
shares, irrespective of any economic interest therein.
(3) Except
as
otherwise indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all Common Stock beneficially owned by
them.
(4) Percentage
ownership for a given individual or group is calculated on the basis of (i)
the
amount of outstanding shares owned as of July 14, 2006plus,
(ii)
the number of shares that such individual or group has the right to acquire
within sixty (60) days pursuant to options, warrants, conversion privileges
or
other rights, if applicable.
(a) Exhibits.
The
exhibit list required by Item 13 of Form 10-KSB is provided in the “Index
to Exhibits”
located
herein, immediately following Item 15.
(b)
Reports
on Form 8-K Filed in Last Quarter of Fiscal Year 2006.
NONE
Item
14.Principal
Accountant Fees and Services
Fees
Billed For Audit and Non-Audit Services
The
following
table represents the aggregate fees billed for professional audit services
rendered to us, Traci J. Anderson, CPA, our current independent auditor,
(“Anderson”) for the audit of our annual financial statements for the years
ended May 31, 2006 and 2005, and all fees billed for other services rendered
by
Anderson during those periods.
(1)Audit
Fees.
These
are fees for professional services for the audit of our annual financial
statements, and for the review of the financial statements included in our
filings on Form 10-QSB, and for services that are normally provided in
connection with statutory and regulatory filings or engagements.
(2) The
amounts shown for Anderson in fiscal 2006 relate to (i) the audit of our annual
financial statements for the fiscal year ended May 31, 2006, and (ii) the review
of the financial statements included in our filings on Form 10-QSB for the
first, second and third quarters of fiscal 2006.
(3) The
amounts shown for Anderson in fiscal 2005 relate to (i) the audit of our annual
financial statements for the fiscal year ended May 31, 2005, and (ii) the review
of the financial statements included in our filings on Form 10-QSB for the
first, second and third quarters of 2005.
(4)Audit-Related
Fees.
These
are fees for the assurance and related services reasonably related to the
performance of the audit or the review of our financial statements.
(5)Tax
Fees.
These
are fees for professional services with respect to tax compliance, tax advice,
and tax planning.
(6)All
Other Fees.
These
are fees for permissible work that does not fall within any of the other fee
categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.
Pre-Approval
Policy For Audit and Non-Audit Services
We
do
not
have a standing audit committee, and the full Board performs all functions
of an
audit committee, including the pre-approval of all audit and non-audit services
before us engages an accountant. All of the services rendered to us by
Anderson
during
fiscal 2006 were pre-approved by our Board of Directors.
In
accordance with the Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
In
accordance
with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
