Morse
& Morse, PLLC
1400
Old Country Road, Suite 302
Westbury,
NY 11590
Tel:
516-487-1446
Fax:
516-487-1452
Email:
morgold@aol.com
Paul
Fischer, Staff Attorney Division of Corporation
Finance August
3, 2007
Telephone
Number: 202-551-3415
Facsimile
Number. 202-7729205
Mail
Stop 3720
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Re:
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Anchor
Funding Services, Inc.
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Registration
Statement on Form 10-SB
Filed
on
April 30, 2007
File
No.
0-52589
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|
Dear
Mr. Fischer:
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As
counsel to the above captioned
corporation, the following letter is in response to the Staff’s comment letter
with respect to Anchor Funding Services, Inc.’s Form 10-SB Registration
Statement. We have both electronically filed this response letter and have
provided you with hard copy to your mail stop via overnight
courier.
1.
Comment
We
note
your response to prior comment 11 of our letter dated May 25, 2007. Please
revise to indicate what government body could "deem" your factoring transactions
to be loans or financing transactions as opposed to a true purchase of accounts
receivable.
Response
Comment
complied with
therein
2.
Comment
In
your
response to prior comment 18 of our letter dated May 25, 2007, you state that
you complied with our comment, We are unable to locate the disclosure requested
in the first part of the comment in the two sections of the document that you
reference. We also note that you did not tell us whether any other clients
represented 10% or more of your accounts receivable portfolio. Please
advise.
Response-See
separate edgar submission
3.
Comment
Please
refer to prior comment 21. Move your discussion of increased operating expenses
for 2007 on page 25 to this section that discusses 2007.
Response-Comment
complied with therein.
4.
Comment
We
note
your response to prior comment 26 of our letter dated May 25, 2007, and the
revised disclosure on page 28. Please revise to include additional columnar
disclosure regarding the total voting power held by each person.
Response-comment
complied with therein.
5.
Comment
Please
refer to prior comment 39. Please discuss in detail the nature of your fees,
the
amounts and how you have determined that the transaction fee is revenue at
the
time of purchase. Please refer to SAB Topic 13.A.3 f. in detailed discussion
of
your financial reporting for your non-refundable transaction and time-based
fees. We believe that the SAB may be relevant and need your careful and complete
analysis to understand your financial reporting for these fees.
Response
Facts
Anchor
Funding Services (“AFS”) is a factor for small to medium size companies located
throughout the United States. Each factoring customer must execute
AFS’s Factoring and Security Agreement (“Agreement”) before AFS will perform any
services for the customer.
The
Agreement does not require the customer to send their invoices to AFS for
factoring. It is the customer’s choice/option to select the invoices
they send to AFS. Once AFS receives invoices the customer requests
them to factor, the Agreement does not require AFS to factor those
invoices. The Agreement gives AFS the choice/option to select which
invoices presented to them they will factor.
If
AFS
does choose to factor invoices requested by a customer, the Agreement specifies
all terms, conditions, rights and responsibilities of AFS and the
customer. AFS makes this determination once they are satisfied the
invoice is creditworthy. The term of the Agreement varies but is
usually for one year. AFS’s customer can opt out of the Agreement,
with written notice of at least ninety days prior to the Agreement’s expiration
date. If not terminated, the Agreement automatically renews on its
anniversary date.
If
AFS
decides to factor a customer’s invoices, AFS will fund that invoice usually
within 1 to 2 days. AFS will typically fund 75% to 85% of the face
value of each invoice factored. The difference between the funded
amount and invoice amount (less the transaction fee or commonly known as a
“factor commission”) is maintained in a reserve account. This reserve
protects AFS against potential uncollectible invoices. Once AFS
collects on the factored invoice, AFS will usually remit any balances due to
the
customer within 1-2 days.
The
Agreement specifies two primary types of fees – transaction (factor commission)
and time-based.
The
factor commission is computed as a percentage of the invoice balance being
factored. The percentage is specified in the Agreement and it will
vary between customers. The factor commission is non-refundable and
is collected when the factored invoice is funded by AFS.
Time
based fees are computed as a percentage of the invoice from the date of the
funding until AFS collects the factored invoice. The percentage is
specified in the Agreement and it will vary between customers. This
fee is collected when AFS remits balances due on factored invoices to the
customer.
Question
How
should revenue be recognized on AFS’s transaction and time-based
fees?
Research
SAB
104
Revenue Recognition and SAB 13.A.3.f Non-Refundable Up-Front Fees are the
authorative literature on these issues.
SAB
104
states that revenue is realized or realizable and earned when all of the
following criteria are met:
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·
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Persuasive
evidence of an arrangement exists
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·
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Delivery
has occurred or services have been
rendered
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·
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The
seller’s price to the buyer is fixed or determinable,
and
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·
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Collectibility
is reasonably assured
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SAB
13.A.3.f discusses accounting issues for non-refundable up-front fees received
when entering into contracts. This SAB provides several examples
where a fee is charged by a registrant upon entering a contract with a
customer. These contracts require the registrant to provide some type
of on-going product or service.
Analysis
Factor
Commission:
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1)
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Persuasive
evidence of an arrangement exists – the Factoring and Security Agreement
entered into between AFS and the customer satisfies this
criteria.
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2)
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Delivery
has occurred or services have been rendered – Once AFS has funded the
acquired invoice this criteria has been met; at this point AFS does
not
need to perform any other function in order to earn this
commission.
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3)
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The
seller’s price to the buyer is fixed or determinable – The price is
determinable because the Agreement specifies the percentage of each
invoice to be charged on each invoice factored. This amount can
be computed on each transaction. The commission is not subject
to any type of refund or adjustment. The facts satisfy this
criteria.
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4)
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Collectibility
is reasonably assured – AFS collects this commission within 1-2 days after
agreeing to factor a customer’s invoice. This fact satisfies
this criteria.
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SAB
13.A.3.f discusses the accounting treatment for registrants who charge
non-refundable up front fees upon entering into arrangements or on certain
specified dates. AFS does not charge non-refundable up front fees
when customers enter into their Agreement. The factor commission is
only charged once AFS agrees to purchase and funds customer’s invoice – it is
purely a fee for service arrangement.
Time
based fees:
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1)Persuasive
evidence of an arrangement exists – the Factoring and Security Agreement
entered into between AFS and the customer satisfies this
criteria.
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|
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2)Delivery has
occurred or services have been rendered – Once AFS has funded the acquired
invoice they begin to earn a percentage of the amount
funded. At this point AFS does not need to perform any other
function in order to earn this fee.
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3)The
seller’s price to the buyer is fixed or determinable – The price is
determinable because the Agreement specifies the percentage of the
funded
amount to be charged on each invoice factored. This fee is
charged from the date the invoice is funded until it is
collected. This amount can be computed on each factored
invoice. The fee is not subject to any type of refund or
adjustment. The facts satisfy this
criteria.
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4) Collectibility
is reasonably assured – AFS maintains a reserve account to cover potential
uncollectible invoices. This reserve can be used to pay AFS any
fees due them under the Agreement. AFS also analyzes the
creditworthiness of invoices before funding. The facts satisfy
this criteria.
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SAB
13.A.3.f discusses the accounting treatment for registrants who charge
non-refundable up front fees upon entering into arrangements or on certain
specified dates. This topic does not apply to AFS’s time based
fees.
Conclusion
AFS
is
providing a service. The service is funding customer invoices,
checking their creditworthiness and collecting them. AFS charges a
factor commission to fund an invoice and a fee (time based fee) until that
invoice is collected.
AFS
should record their factor commission as revenue once an invoice is
funded. AFS has no on-going obligation in this transaction in order
to earn this fee. No matter what transpires after an invoice is
funded nothing is going to cause this fee to be refunded or
adjusted.
AFS
should record their time based fees based on the passage of
time. From the time an invoice is funded until it is collected, AFS
can charge a fee. AFS has no responsibilities to any party in order
to earn this fee.
6.
Comment
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Please
expand your disclosure on page F-13 to include the missing
information
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Response
Comment
complied with. Note 9 to the December 31, 2006 and 2005 financial
statements, under the Sale of Preferred Stock heading, has been revised
appropriately to include the missing information.
7.
Comment
Article
11 of Regulation S-X requires a balance sheet as of the last balance sheet
date.
Since the transaction is already reflected in your March 31, 2007 balance sheet,
a pro forma balance sheet is no longer required. However, disclosures to balance
sheet accounts are still required.
Response
Comment
complied with. The December 31, 2006 pro-forma balance sheet has been
removed.
8.
Comment
You
should provide a pro forma statement of operations for the three months ended
March 31, 2007 as well as the year ended December 31, 2006. Both pro forums
should be presented giving effect to the acquisition as if it occurred on
January 1, 2006.
Response
Comment
complied with. See pro-forma statement of operations for the year
ended December 31, 2006 and the three months ended March 31, 2007.
9. Comment
Expand
your notes here to show in detail how each amount appearing as a pro-forma
adjustment was calculated as well as assumptions made.
Response
Comments
complied with. See pro-forma statement of operations for the year
ended December 31, 2006 and the three months ended March 31, 2007.
10.
Comment
In
(3)
you state that there are no significant permanent or temporary differences.
Please tell us how you arrived at the two offsetting entries to deferred taxes
of 18,500 and (18,500).
Response
Comment
complied with. See the revised disclosures of the income tax
pro-forma adjustments in the pro-forma statement of operations for the year
ended December 31, 2006 and the three months ended March 31, 2007.
11.
Comment
Tell
us
how you determined that the common stock was $8,000 if 8 million shares with
a
par value of $0.01 were issued. Please reflect all changes to the components
of
stockholders' equity.
Response
Comment
complied with. This was a typographical error. The par
value of our common stock is $.001; this amount is stated correctly in all
other
sections of our Form 10-SB/A.
12.
Comment
Tell
us
why the components of stockholders' equity related to your preferred stock
issuance does not agree with your unaudited financial statements for the quarter
ended March 31, 2007. Please revise your presentation so that items related
to
the preferred stock are presented with the value of the preferred
stock.
Response
See
attached Exhibit I.
Consolidated
Financial Statements for the Quarter Ended March 31, 2007
General
13.
Comment
Please
mark these financial statements as “Unaudited.”
Response
Comment
complied with. See March 31, 2007 financial statements.
14. Comment
Please
revise your presentation for your Consolidated Statements of Operations for
the
three months ended March 31, 2006 to delete earnings per share information
since
you were an LLC and did not have shares outstanding.
Response
Comment
complied with. See Statement of Operations for the Three months ended
March 31, 2007.
Comment 15.
Revise,
as appropriate for comments issued regarding the audited financial statements
for the year ended December 31, 2006
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Response
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Comment
complied with.
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| Very truly yours, | |||
| MORSE & MORSE, PLLC | |||
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By:
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/s/ Steven Morse, | ||
| Managing Member | |||
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Exhibit
I
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|||||
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ANCHOR
FUNDING SERVICES, INC.
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|||||
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Analysis
of Preferred Stock and Related Issuance Costs
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|||||
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In
Response to Comment # 12
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|||||
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In
SEC Comment Letter Dated July 13, 2007
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|||||
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The
following schedule compares the Preferred stock, APIC - Equity
Issuance
Fees
and
APIC - Stock Warrants amounts between the December 31, 2006
Pro-Forma
Balance Sheet and the Unaudited March 31, 2007 Balance
Sheet:
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Additional
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Additional
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|||||||||||||||
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Paid
in Capital,
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Paid in Capital,
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|||||||||||||||
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Preferred
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equity
issuance
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stock
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||||||||||||||
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Stock
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fees
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warrants
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||||||||||||||
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Balance
per March 31, 2007 unaudited financial statements
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$ |
6,662,500
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$ | (1,317,436 | ) | $ |
62,228
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|||||||||
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Balance
per December 31, 2006, pro-forma balance sheet, as previously
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6,712,500
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(1,353,946 | ) |
62,695
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||||||||||||
| reported on Form 10SB filed on April 25, 2007 | ||||||||||||||||
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Difference
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(50,000 | ) |
36,510
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(467 | ) | |||||||||||
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Reconciling
Items
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||||||||||||||||
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April
5, 2007 transaction:
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||||||||||||||||
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To
record issuance of 10,000 shares of convertible preferred
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||||||||||||||||
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stock
and related costs of raising this capital.
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50,000
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(7,462 | ) |
462
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1
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|||||||||||
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Variance
between amounts accrued for registering shares of Anchor
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Funding
Services, Inc and amounts actually incurred
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(29,048 | ) |
2
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| $ |
0
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$ |
0
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$ | (5 | ) |
3
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|||||||||
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1
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On
April 5, 2007, 10,000 shares of Series 1 Convertible Preferred
Stock
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||||
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was
sold for $50,000. The placement agent received a commission
of
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$7,000
($50,000 x 14%) and 10,000 warrants to purchase common
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stock
(10,000 x .0462 = $462)
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2
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Management
has analyzed its APIC - Equity Issuance Costs incurred and
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has
concluded the proper amount is recorded as of March 31,
2007
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3
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Management
has concluded this amount is immaterial for additional
analysis
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