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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 2000
REGISTRATION NO. 33-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOME FINANCING CENTERS, INC.
(Name of small business issuer)
<TABLE>
<S> <C> <C>
NEVADA 6162 93-1249831
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
112-114 BURRILL STREET
SWAMPSCOTT, MA 01907-1808
(781) 596-1992
GARY J. KOVNER
PRESIDENT
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF NUMBER OF SHARES TOTAL AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C>
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Common Stock par value $.01 per share........ 5,165,000 $2,582,500 $681.78
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</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, based upon the
last reported sale of the Company's common stock on the Over the
Counter-Pink Sheets as of August 8, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SHALL SPECIFICALLY STATE THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2000
PROSPECTUS
5,165,000 SHARES
[HOMEFINANCINGCENTERS.COM LOGO]
COMMON STOCK
PAR VALUE $.01 PER SHARE
This prospectus relates to the offer and sale of up to an aggregate of
5,165,000 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock") of Home Financing Centers, Inc., a Nevada corporation (the
"Company" or "HFCI") by certain Security Holders (the "Selling Security
Holders"). The Selling Security Holders acquired the Shares pursuant to certain
private placements and other exempt transactions of the Company. See "Selling
Security Holders."
The consideration for the sale of the Shares to Selling Shareholders, in
each case, was arbitrarily determined by the Company after considering certain
factors such as the limited market for the shares, lack of immediate liquidity
of the Shares and prevailing market conditions at the time of the issuance.
The Company will not receive any of the proceeds from the sale of any of
the Shares. The Company, however, has agreed to bear the expenses in connection
with the registration of the Shares being offered and sold by the Selling
Security Holders.
The Company's stock is quoted on the Over the Counter-Pink Sheets ("Pink
Sheets") and is traded under the symbol "HFCI." On August 8, 2000, the last
reported sale price of the Common Stock was $0.50 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENCE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
Investors should carefully review the risk factors set forth in the prospectus
before investing in the securities offered hereby.
The date of this Prospectus is , 2000.
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549. In addition, the Commission maintains a web site that
contains such reports, proxy and information statements and other information
filed electronically by the Company which can be accessed at http://www.sec.gov.
This prospectus constitutes a part of a Registration Statement on Form SB-2
(together with all amendments thereto, the "Registration Statement") filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus omits certain of the information
contained in the Registration Statement and reference is made hereby to the
Registration Statement and the exhibits thereto for further information with
respect to the Company and the shares of Common Stock offered hereby. Any
statements contained herein are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the commission. Each such
statement is qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference and hereby made a part hereof.
Current Report on Form 8-K12G3, dated May 16, 2000
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the Shares shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The Company will provide, without charge, to each person to whom a copy of
this prospectus is delivered, upon the written or oral request of any such
person, a copy of any of the information that is incorporated by reference in
this prospectus (not including exhibits to the information that is incorporated
by reference unless the exhibits are themselves specifically incorporated by
reference herein). Requests for such copies should be directed to the Company 's
principal executive offices located at 112-114 Burrill Street, Swampscott MA,
01907-1808, to the attention of Mr. Seth H. Hochman, Chief Financial Officer at
the Company (telephone no. 781-596-1992).
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SUMMARY INFORMATION AND RISK FACTORS
THE COMPANY
This summary is not complete and does not contain all of the information
that you should consider before investing in our common stock. You should read
the entire prospectus carefully, including the more detailed information
regarding our Company, the risks of purchasing our common stock discussed under
"Risk Factors," and our financial statements and the accompanying notes.
We currently operate an Internet site (www.hfci.com) which provides on line
access to a wide selection of mortgages and information geared toward the
homeowner and home buyer. We provide a wide range of services to consumers
through direct and third party channels in an effort to attract the largest
number of consumers in connection with buying, selling or refinancing of
residential property. Specifically, we reach our customer base through our web
site, and our relationships with Realtors, mortgage brokers, financial
institutions, home builders, employers and relocation specialists. We believe
that by providing a wide variety of services through a multi-channel, business
to consumer strategy, we have positioned the Company to reach the broadest
audience and to distinguish ourselves in the residential home buying market.
The primary objective of the Company is to become the leading provider of
online content and e-commerce services for homeowners and prospective
homeowners. We intend to achieve this objective by growing our customer base and
capitalizing on the full range of market opportunities through the following
strategic initiatives:
- Developing a leading brand as a provider of online content and
e-commerce services for homeowners and home buyers through advertising,
co-branding partnerships and promotions using both the Internet and
traditional off line media;
- Expanding third party channels to increase revenues and purchase (as
opposed to refinance) mortgage originations by extending our technology
infrastructure to all parties who traditionally participate in home
purchases, including real estate agents, home builders, relocation
companies and mortgage brokers,
- Enhancing our core mortgage services and expanding mortgage offerings by
more efficiently accessing and interfacing with the capital markets and
adding product lines such as sub prime mortgages, home equity credit
lines and construction loans.
- Maintaining a commitment to customer service by offering value-added
self service tools such as online loan status updates that empower
customers to make informed decisions and by continually improving our
customer service both online and offline through state of the art
management center.
- Delivering a more integrated home ownership experience by extending and
monetizing customer relationships by providing related products and
services, such as title insurance, appraisal, home insurance, moving and
home improvement services.
We provide our customers with a fundamentally better way to finance the
purchase of their most significant asset, their home. We create empowered
homeowners by providing them with convenient, direct access to a wide selection
of mortgages from leading lenders and informative tools and content.
Additionally, we provide the consumer with telephone support from our staff to
further assist the consumer in navigating the mortgage process.
Our revenues are derived from the brokering of loans and the origination
and sale of loans. Brokered loans are funded directly through lending partners
of the Company. In these cases, we do not acquire title to the loans at any time
during the mortgage lending process. Brokerage revenues are comprised of a mark
up to the lending partner's loan price and processing and credit reporting fees
which are paid upon the closing of the mortgage loan. Originated and sold loans
are loans that are funded through the Company's warehouse lines of credit and
sold to mortgage loan purchasers. Loan origination and sale revenues consist of
proceeds in excess
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of the carrying value of the loan, origination fees less direct origination
costs and processing fees. We earn additional revenues from our loan origination
and sale operations as compared to brokered loan operations because the sale of
loans includes a service release premium.
This offering is being made on behalf of certain Selling Security holders
of the Company. Therefore, the Company will not receive any of the proceeds from
the sale of the Shares.
The corporate offices of the Company are located at 112-114 Burrill
Street., Swampscott, MA 01907-1808, telephone number 781-596-1992.
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RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock. If any of the following risks actually occur, our
business, financial condition, or results of operations would likely suffer. In
any such case, the market price of our common stock could decline, and you could
lose all or part of the money you paid to buy our common stock.
RISKS RELATED TO OUR FINANCIAL CONDITION
OUR LIMITED OPERATING HISTORY MAKES OUR BUSINESS AND PROSPECTS DIFFICULT TO
EVALUATE.
We have a limited operating history on which to base your evaluation of our
business and prospects. We began our mortgage broker operations in 1993 and
launched our website in 1996. There is no significant historical basis to assess
how we will respond to competitive, economic or technological challenges. Our
business and prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in the early stages of
development, particularly companies like us who operate in new and rapidly
developing online marketplaces. Our failure to address these risks and
uncertainties could cause our operating results to suffer and result in the loss
of all or part of your investment.
All of our operations have occurred during a period in which the overall
home mortgage market has grown and the online mortgage market has emerged. We
depend upon the continued growth of the overall home mortgage market and,
particularly, on the continued growth of the online mortgage market. The online
mortgage market is still in an emerging stage and competition is accelerating.
Before investing, you should evaluate the risks, expenses and problems
frequently encountered by early-stage companies that are entering new and
rapidly changing markets, including the risks described throughout this section.
WE HAVE A LIMITED HISTORY OF MODEST PROFITABILITY BUT MAY INCUR LOSSES IN THE
FUTURE.
While the Company has been modestly profitable in the past, the Company has
experienced losses in the first quarter of 2000 due to declines in closed loan
volume and lower margins on loans which we believe were caused by a higher
interest rate market and increased competition in the mortgage industry. In
addition, we continue to commit funds to update and improve our website and
Internet based business. We expect to incur losses in the foreseeable future.
The size of our future losses will depend, in part, on the rate of growth in our
revenues. It is critical to our success that we continue to devote financial
resources to developing brand awareness for our website. As a result, we expect
that our operating expenses will increase significantly during the next several
years, especially in marketing. As we increase spending, our losses may continue
to increase for the foreseeable future. As a result, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND THESE
RESULTS MAY NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our revenues primarily consist of fees relating to brokering loans and the
origination and sale of loans. We also expect to incur significant marketing
expenses to promote our brand, products and services. Therefore, our quarterly
revenues and operating results are likely to be particularly affected by the
number of purchase and refinancing loans that we close, as well as marketing
expenses. If revenues fall below our expectations, we generally will not be able
to reduce our fixed or other expenses in sufficient time to respond to the
shortfall. Additionally, we may choose to keep our marketing expenditures at a
consistently high level to build our brand name. Our quarterly operating results
could be affected by a variety of other factors, including:
- interest rate fluctuations;
- the volume of mortgage loan originations;
- the number of loans closed through our mortgage brokerage operations;
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- the mix of refinancing and purchase mortgage loans;
- seasonality and cyclicality of home buying;
- the level of traffic on our website;
- the possibility that loan closings will be delayed;
- the amount and timing of our operating expenses and capital
expenditures;
- our ability to upgrade and develop our systems and infrastructure in a
timely and effective manner;
- our ability to attract new qualified personnel in a timely and effective
manner;
- changes in our business strategy;
- growth of our software sales to the mortgage brokerage community; and
- general economic conditions, including economic conditions specific to
the real estate industry.
WE MAY NOT BE ABLE TO MANAGE OUR EXPANDING OPERATIONS EFFECTIVELY.
In order to execute our business plan, we must continue to expand
significantly. Our inability to expand our operations in an efficient manner
could cause our expenses to grow disproportionately to our revenue, our revenue
to decline or grow more slowly than expected, or could otherwise have a material
adverse effect on our business and the value of your investment. We expect that
the number of our employees will continue to increase for the foreseeable
future. Our anticipated future growth, combined with the requirements we face as
a public company, will continue to place a significant strain on our management,
systems, and resources. We cannot guarantee that we will succeed in these
efforts.
OUR BUSINESS MODEL IS UNPROVEN AND COULD FAIL.
Our revenue model and profit potential are unproven and we cannot assure
you that we will be able to sustain profitability. Our revenue model depends
heavily on revenue generated from brokering loans and the origination and sale
of loans. To generate revenue we must rapidly achieve broad market acceptance of
our service by both lenders and consumers who have traditionally used other
means to lend and borrow money. In addition, we must attract a sufficient number
of consumers with credit profiles targeted by our lenders. It is possible that
our online loan marketplace model will not gain the widespread acceptance
necessary to support our business, in which case we may find it necessary to
alter our business model. We cannot accurately predict what, if any, changes we
would make to our business model in response to the uncertainties in the online
lending market. These changes might include shifting all or a portion of our
fees to customers or reducing fees currently charged to lenders to expand volume
more quickly. Shifting fees to consumers may not be feasible, as other companies
may be able to offer comparable services with no fees. If we are not able to
anticipate and adapt to changes in the industry or if our business model is not
successful, we may be unable to expand our business and the value of your
investment could be significantly reduced.
OUR FAILURE TO OBTAIN SUFFICIENT FUNDS FROM SUBSEQUENT FINANCING MAY
SIGNIFICANTLY IMPEDE OUR GROWTH.
We must achieve and sustain rapid growth for our business model to succeed.
To accomplish this, we will most likely need to raise additional funds in the
future, from equity or debt sources. If additional financing is not available
when required or is not available on acceptable terms, we may be unable to
successfully promote our brand name, develop or enhance our service, take
advantage of business opportunities or respond to competitive pressures, any of
which could have a material adverse effect on our business and significantly
reduce the value of your investment.
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RISKS RELATED TO OUR INDUSTRY, MARKETS AND STRATEGY
OUR FUTURE SUCCESS IS DEPENDENT UPON INCREASED ACCEPTANCE OF THE INTERNET BY
CONSUMERS AND LENDERS AS A MEDIUM FOR LENDING.
If consumer and lender acceptance of our online marketplace does not
increase, our business will not succeed and the value of your investment may be
adversely affected. The online lending market is new and rapidly developing. The
adoption of online lending in general, and our marketplace in particular,
requires the acceptance of a new way of conducting business, exchanging
information, and applying for credit by consumers as well as acceptance by
lenders that have historically relied upon traditional lending methods.
Therefore, there is significant uncertainty with respect to the viability and
growth potential of this market. Our success will depend in large part on
widespread use of the Internet as a commerce medium and as a marketplace for
financial transactions. Our success will also depend on a number of other
factors, including our ability to market our services to a sufficiently large
number of customers cost-effectively and our ability to overcome the perception
among many real estate market participants that obtaining mortgages online is
risky for consumers.
A number of factors may inhibit Internet usage by consumers, including
inadequate network infrastructure, security concerns, inconsistent quality of
service and the unavailability of cost-effective, high-speed service. We do not
know whether consumers will significantly increase their use of the Internet for
obtaining mortgage loans or whether our services will be accepted by consumers.
If the online market for mortgage loans fails to develop, or develops more
slowly than expected, or if our services do not achieve widespread market
acceptance, our business will suffer.
IF WE ARE UNABLE TO EXPAND OUR BRAND RECOGNITION, CONSUMER AND LENDER DEMAND FOR
OUR SERVICE WILL BE LIMITED.
There are a growing number of websites that offer services that are similar
to and competitive with our services. We believe that continuing to build brand
awareness of the HFCI marketplace is critical to achieving increased demand for
our service. Brand recognition is a key differentiating factor among providers
of online lending services, and we believe it will be increasingly important as
competition intensifies. In order to increase our brand awareness, we must
succeed in our marketing efforts, provide high-quality service, and increase the
number of consumers using our marketplace. The value of our brand could be
diluted if visitors to our website do not perceive our existing services to be
of high quality or if we alter or modify our brand image, introduce new services
or enter into new business ventures that are not favorably received.
We cannot assure you that our brand will be viewed positively and be
accepted by the market, or that we will have a strong and positive reputation.
Additionally, expenses incurred toward building brand awareness do not have an
immediate payback, and it may be a long time before the general public
recognizes and makes positive connections with our brand. In order to attract
and retain customers and to promote and maintain our brand in response to
competitive pressures, we intend to increase our financial commitment to
creating and maintaining prominent brand awareness.
If we fail to promote and maintain our brand successfully in local and
national markets or incur significant expenses in promoting our brand and fail
to generate a corresponding increase in revenue as a result of our branding
efforts, our business and the value of your investment could be materially
adversely affected. Moreover, promoting and enhancing our brand will also
depend, in part, on our ability to provide a high-quality customer experience.
We cannot assure you that we will be successful in achieving this goal.
WE NEED TO CONTINUALLY DEVELOP OUR CONTENT, PRODUCTS AND SERVICES OFFERINGS TO
REMAIN COMPETITIVE AND INCREASE OUR BRAND AWARENESS.
Our business strategy requires us to enhance and improve the ease of use,
responsiveness, functionality and content of our website, and to develop new
product and service offerings. These efforts may require us to develop
internally or to license increasingly complex technologies. Additionally, we
will continue to develop our website by deepening our content offerings to
provide more breadth and depth of information on home buying and home financing.
Developing and integrating new products and services into our website could be
expensive and time consuming. We can make no assurances that any new features,
functions or services will
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achieve market acceptance or enhance our brand loyalty. If we fail to add
additional content or to develop and introduce or acquire new functions or
services effectively and on a timely basis, we may not be able to attract new
users or retain our existing users and our business will suffer.
IF WE ARE UNABLE TO MAINTAIN ADEQUATE FINANCING SOURCES, OUR ABILITY TO
ORIGINATE AND FUND MORTGAGE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL SUFFER.
The lenders to whom we deliver loans, either as a mortgage broker or as a
mortgage banker, are under no obligation to continue their relationships with
us. Although we maintain relationships with 37 lenders, most of the loans we
originate are funded by a much smaller subset of these lenders. This small group
of lenders tends to provide more favorable rates and terms to our customers. We
believe that if and when other lenders offer comparable terms, the sources of
loans will shift accordingly. If lenders with the most competitive terms do not
continue to accept the loans we originate, our business could suffer.
Our ability to fund mortgage loans internally depends to a large extent
upon our ability to secure financing on acceptable terms. We currently fund a
portion of the loans we originate through a line of credit known as a warehouse
line of credit. Currently we have one source of warehouse funding. Our current
$1 million warehouse line of credit expires on July 29, 2001. If we are unable
to negotiate such facilities, we may have to curtail the growth of our
origination and funding activities.
Our warehouse line of credit subjects us, and future financing arrangements
will likely subject us, to financial covenants and other restrictions. Because
we are an early stage company that is actively investing in growth, in the
future we may be in default under those covenants and restrictions. In those
cases, we must rely on waivers from the lender. If we are unable to operate
within the covenants or obtain waivers, all amounts that we owe under our
financing arrangements could become immediately payable. The termination of a
financing arrangement by a lender, or the acceleration of our debt, would have a
significant negative effect on our business.
WE MAY INCUR SIGNIFICANT LOSSES AS A RESULT OF LOAN DEFAULTS THAT OCCUR PRIOR TO
THE SALE OF THE LOAN TO INVESTORS OR AS A RESULT OF REPURCHASES REQUIRED IF WE
BREACH CERTAIN REPRESENTATIONS AND WARRANTIES.
As a mortgage banker, we face risks associated with loan defaults, which
typically increase during economic downturns. From the time that we fund a loan
to the time we sell the loans we will be generally at risk for any loan
defaults. Once we sell the loans we originate, the risk of loss from loan
defaults and foreclosure generally passes to the purchaser of the loans. During
the loan sale process, however, we would typically be required to make certain
representations and warranties to the purchasers of loans relating to the
conformance of those loans with state and federal laws and applicable investor
guidelines. If a loan defaults and there has been a breach of these
representations and warranties, we may be required to repurchase the loan and
bear any subsequent loss or indemnify the purchaser for any damages caused by
the breach. If we must repurchase a loan, we would have to hold it until it is
paid off or foreclosed or we may have to sell the loan at less than the
outstanding principal balance. Any of the above events would seriously harm our
business and operating results. Our ability to operate our mortgage banking
operations depends on the continued existence of federal programs,
mortgage-related programs and our continued qualification for those programs.
Our ability to sell mortgage loans to institutional investors in the
secondary market is largely dependent upon the continuation of programs
administered by Fannie Mae, Freddie Mac, Ginnie Mae and private mortgage
investors. These entities facilitate the sale of mortgage loans and
mortgage-backed securities through the secondary market. Any discontinuation of
or reduction in the operation of those programs or any significant impairment of
our eligibility to participate in those programs would hurt our financial
performance. Also, any significant adverse change in the secondary market level
of activity or the underwriting criteria of Fannie Mae, Freddie Mac, Ginnie Mae
or other private mortgage investors would reduce our revenues.
OUR FAILURE TO MANAGE THE TIMELY DELIVERY OF SERVICES PROVIDED BY THIRD PARTIES
IN THE LOAN PROCESS COULD HARM OUR BUSINESS.
We rely on other companies to provide services which assist us in
performing the loan underwriting process, including property appraisals, credit
reports, flood certifications and title searches. Any interruptions,
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delays or mistakes in providing these ancillary services may cause delays in our
processing and closing of loans for our customers. The value of the service we
offer and the ultimate success of our business depends on our ability to manage
the timely delivery of these ancillary services by the third parties with whom
we have business relationships. If we are unsuccessful in managing the timely
delivery of these ancillary services, we will likely experience decreased
customer satisfaction and our business will likely suffer.
LOAN CLOSINGS MAY BE DELAYED WHICH CAN LEAD TO UNPREDICTABLE QUARTERLY
FLUCTUATIONS IN REVENUES AND PROFITABILITY
The time between the date when an application is received from a customer
and the date on which the loan closes has typically been lengthy and
unpredictable. The loan application and approval process is often subject to
delays over which we have little or no control, including the timing of the
customer's decision to commit to an available interest rate, the timeliness of
completed appraisals and the adequacy of the customer's own disclosure
documentation. This uncertain timetable can have a direct impact on our revenue
and profitability for any given period and may cause us to expend substantial
funds and management resources supporting the loan completion process without
ever generating revenue from closed loans. Furthermore, in situations where we
have committed to extend the closing of loans beyond the associated interest
rate commitment periods, we may incur additional costs.
COMPETITION MAY REDUCE OUR MARKET SHARE AND HARM OUR PERFORMANCE.
The market for web-based services is highly competitive and there are no
substantial barriers to entry, making it possible for new competitors to
proliferate rapidly. In addition, many of our existing and potential competitors
have longer operating histories in the traditional mortgage and Internet
markets, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. We believe
competition takes place on many levels, including pricing, convenience in
obtaining mortgage loans, breadth of product offerings and lending sources,
customer service, marketing and brand awareness.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases, and significantly greater financial, technical, and marketing
resources than we do. These competitors may engage in more extensive product
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies than our participating lenders, and make more
attractive offers to existing and potential employees and companies with which
we have relationships. Accordingly, our competitors may experience greater
growth than we do and we may not be able to compete successfully against our
current or future competitors.
To compete successfully, we must respond promptly and effectively to
technological changes, evolving industry standards and our competitors'
innovations and competitive marketing efforts. Our response must include, among
other things, continuing to enhance and expand our products and services and our
marketing channels. Increased competition, particularly online competition,
could result in price reductions, reduced margins and loss of market share, any
or all of which could harm our business. In addition, changes in the methods by
which loans are made through traditional channels of distribution may make
electronic commerce a less attractive means for obtaining loans and could reduce
our ability to generate revenue.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF GARY J. KOVNER.
If we lose the services of Gary J. Kovner, our founder, Chief Executive
Officer, and sole director and officer, our ability to expand our business would
be seriously compromised and the value of your investment may be adversely
affected. Mr. Kovner has been instrumental in determining our strategic
direction and focus and in promoting the concept of an Internet-based loan
marketplace for consumers and lenders. We do not maintain key person insurance
on Mr. Kovner.
We may also be unable to retain other highly qualified employees in the
future. We may experience, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Attracting and retaining qualified
personnel with experience in the real estate industry, a complex industry that
requires a unique knowledge base, is an additional challenge for us. In
addition, there is significant competition for
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<PAGE> 11
qualified employees in the Internet industry and if we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will suffer.
THE REAL ESTATE INDUSTRY IS BOTH SEASONAL AND CYCLICAL, WHICH COULD AFFECT OUR
QUARTERLY RESULTS.
Our business is seasonal. We anticipate that as the online mortgage
brokerage and origination industry matures, our business will be increasingly
susceptible to the same seasonal factors that affect the mortgage industry as a
whole. The real estate industry experiences a decrease in activity during the
winter. However, because of our limited operating history, we do not know if or
when any seasonal pattern will develop or the size or nature of any seasonal
pattern in our business.
In addition, the residential real estate and mortgage business in which we
operate is cyclical. Shifts in the economy and interest rates, as well as in
residential real estate values, generally affect the number of home sales and
refinancing activities. Since we began our business, sales of residential homes
in the United States have been at historically high levels. The economic swings
in the real estate industry may be caused by various factors. When interest
rates are high or national and global economic conditions are perceived to be or
are weak, there is typically less sales activity in real estate. A decrease in
the current level of sales of real estate and those products and services
related to the real estate industry could adversely affect demand for our
mortgage products and services.
WE MAY BE PARTICULARLY AFFECTED BY GENERAL ECONOMIC CONDITIONS.
Purchases of real property and related products and services are
particularly affected by negative trends in the general economy. Our success
depends to a significant extent upon a number of factors relating to
discretionary consumer spending and the overall economy, as well as regional and
local economic conditions in markets in which we operate, such as, interest
rates, employment levels, wage and salary levels, availability of credit, and
taxation policies.
AN INCREASE IN INTEREST RATES MAY REDUCE MORTGAGE TRANSACTIONS.
A high percentage of mortgage loan transactions involve the refinancing of
existing mortgages. Homeowners are motivated to refinance primarily when
interest rates fall below the rates of their existing mortgages. In the event
interest rates increase significantly, homeowners' incentive to refinance will
be greatly reduced and the number of loans that the industry originates could
decline significantly. Similarly, if there were a sustained increase in interest
rates, there would eventually be some impact on the market for purchase
mortgages as higher monthly payments would make housing less affordable.
Our ability to profitably resell loans that we fund may be impaired by
volatility in interest rates. We typically establish the interest rates on the
mortgage loans that we originate at the same time we obtain best-efforts
commitments from the anticipated purchasers of such loans. The mortgage loan
purchase commitments we obtain are contingent upon our delivery of the closed
loans to the purchasers within specified periods. To the extent that we are
unable to deliver closed loans within the specified periods and interest rates
increase, we may experience no gain or even a loss on the sale of these loans.
In addition, any increase in interest rates will increase the cost of
maintaining our warehouse line of credit, which we will depend on to fund a
preponderance of the loans we originate in the future.
In addition, a sharp decrease in interest rates over a short period may
cause customers who have interest rates on mortgages committed through HFCI to
either delay closing their loans or refinance with another lender. If this
occurs in significant numbers, it may have an adverse effect on our business or
quarterly results of operations. In addition, if the percentage of committed
loans that convert into closed loans declines substantially, the purchasers of
these loans may raise the rates they charge us or decide not to buy loans from
us.
Our business is cyclical. During future periods of rising interest rates we
may experience a decline in consumer traffic to our website and during periods
of robust credit demand, typically associated with falling interest rates,
lenders may have less incentive to use our marketplace. Either of these events
could reduce our
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<PAGE> 12
revenue and we cannot assess the effects of interest rates on our business over
a broad range of interest rate environments.
WE MAY NOT BE ABLE TO COMPLY EFFECTIVELY WITH APPLICABLE LAWS EFFECTING OUR
INDUSTRY.
The mortgage banking and lending businesses are heavily regulated under
federal and state laws. These laws and related regulations impose numerous
obligations and restrictions on our activities. In particular, these rules limit
the broker fees, interest rates, finance charges and other fees we may assess,
require extensive disclosure to our customers, regulate advertising practices,
prohibit discrimination and impose on us multiple qualification and licensing
obligations. We may not always have been and may not always be in compliance
with these requirements.
Our failure to comply with these standards could lead to revocation of
required licenses or registrations, loss of approved status, voiding of loan
contracts, demands for loan repurchases from mortgage loan purchasers, class
action lawsuits and administrative enforcement actions. These regulatory
requirements are subject to change and may in the future become more
restrictive, making compliance more difficult or expensive or otherwise
restricting our ability to conduct our business.
At the state level, we are subject to licensing and regulation in New York
and Massachusetts where we act as a mortgage broker or lender. In addition, we
plan to expand our services into additional markets which would require us to
obtain additional licenses and become subject to increased regulation by the
states in which these markets are located. Some states also require prior
approval before a change of control occurs. In addition, any person who acquires
control of 10% or more of our voting stock may be subject to certain state
licensing regulations, which require the periodic filing of certain financial
information and other personal and business information. If any person
controlling 10% or more of stock refuses or fails to comply with such filing
requirements, licensing arrangements in these jurisdictions could be
jeopardized. We also must comply with state usury laws. If we fail to comply
with these laws, the states can impose civil and criminal liability and restrict
our ability to operate in those states.
At the federal level, our mortgage brokering and funding activities are
regulated under a variety of laws, including the Truth in Lending Act and
Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Fair
Housing Act, the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act and Regulation X, and the Home Mortgage Disclosure Act of 1975
and Regulation C. As the mortgage lending and brokerage businesses evolve in the
online environment, legislators, regulators and industry participants may
advocate additional legislative or regulatory initiatives. Should existing laws
or regulations be amended or new laws or regulations be adopted, we may need to
comply with additional legal requirements and incur additional expenses, be
subject to regulation of the listings we provide and be precluded from certain
activities.
The Real Estate Settlement Procedures Act and related regulations generally
prohibit the payment or receipt of fees or any other item of value for the
referral of a real estate-secured loan to a loan broker or lender. The act and
the related regulations also prohibit fee shares or splits or unearned fees in
connection with the provision of residential real estate settlement services,
including mortgage brokerage or lending services. Notwithstanding these
prohibitions, RESPA permits payments for goods or facilities furnished or for
services actually performed, so long as those payments bear a reasonable
relationship to the market value of the goods, facilities, or services provided.
Failure to comply with RESPA may result in, among other things, administrative
enforcement actions, class action lawsuits, cease and desist orders and civil
and criminal liability.
The mortgage and home equity products offered through our marketplace are
residential real estate secured loans subject to these provisions of RESPA.
Consequently, our online relationships with lenders and other Internet companies
and websites that offer these products are subject to RESPA's prohibitions on
payment or receipt of fees for referrals and for unearned fees. We believe that
we have structured these relationships to comply with these regulations. The
applicability of RESPA's compensation provisions to these types of
Internet-based relationships, however, is unclear and the appropriate regulatory
agency has provided limited guidance to date on the subject.
Many federal laws and regulations that limit brokers' fees are unclear. In
the last three years there has been significant litigation concerning limits on
mortgage broker fees. The lack of clarity in this area of law is
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<PAGE> 13
compounded when applied to mortgage brokers and lenders operating in an Internet
environment and it is possible that plaintiffs' attorneys may attempt to assert
similar allegations against Internet lenders.
CHANGES IN THE LAW GOVERNING TAX TREATMENT OF HOME MORTGAGE INTEREST MAY HARM
OUR BUSINESS.
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of our loans are made to
borrowers for the purpose of purchasing a home, the competitive advantage of tax
deductible interest, when compared with alternative sources of financing, could
be eliminated or seriously impaired by this type of governmental action.
Accordingly, the reduction or elimination of these tax benefits could have a
material adverse effect on the demand for the kind of mortgage loans we offer.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
WE MAY EXPERIENCE REDUCED VISITOR TRAFFIC, REDUCED REVENUE, AND HARM TO OUR
REPUTATION IN THE EVENT OF UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM
FAILURES.
Any significant failure to maintain the satisfactory performance,
reliability, security, and availability of our website, filtering systems, or
network infrastructure may cause significant harm to our reputation, our ability
to attract and maintain a high volume of visitors to our website, and to attract
and retain participating consumers and lenders.
We host and maintain our own website and services and maintain our own
network infrastructure. Our revenues depend in part on the number of consumers
who visit our website and the volume of transactions processed through the
website. Accordingly, the satisfactory performance, reliability and availability
of our website, transaction-processing systems and network infrastructure are
critical to our ability to attract and retain customers and maintain adequate
customer service levels. Any system or network failure that results in the
unavailability of our website or that causes interruption or slower response
time of our services could result in less traffic to our website and, if
sustained or repeated, could reduce the attractiveness of our services to
consumers. In addition, any significant increase in the volume of our website
traffic could strain the capacity of our existing technical infrastructure,
which could lead to slower response times or system failures. This would cause
the number of loan applications to decline which could hurt our revenue growth,
reputation and our brand equity. We will need to incur additional costs to
upgrade our infrastructure if our server and networking systems cannot
adequately service increased volumes of traffic. There can be no assurance that
we will be able to accurately expand and upgrade our systems to accommodate
these increases in a timely manner.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. Our ability to increase the speed
with which we provide services to consumers and to increase the scope of these
services is limited by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our services
is dependent on the performance of and future improvements to the Internet.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF THE INTERNET, DECREASE VISITORS TO OUR WEBSITE, AND OTHERWISE
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
New laws or regulations relating to the Internet, or new application or
interpretation of existing laws, could inhibit the growth of the Internet as a
medium for commerce or credit procurement which could, in turn, decrease the
demand for our service or otherwise materially adversely affect our business,
results of operations, and financial condition. Laws and regulations directly
applicable to electronic commerce or relating to online content, user privacy,
access charges, liability for third-party activities, jurisdiction and taxation
may become more prevalent in the future. It is uncertain as to how existing laws
will be applied toward the Internet. Such legislation could dampen the growth in
Internet usage generally and decrease the acceptance of the Internet as a
commercial medium.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by various foreign governments to impose taxes on the
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<PAGE> 14
sale of goods and services and other Internet activities. In the future, laws
may impose taxes or other regulations on Internet commerce, which could
substantially impair the growth of electronic commerce.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
telecommunications, privacy and taxation apply to the Internet. In addition, the
growth and development of the market for electronic commerce may prompt calls
for more stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on companies conducting business over
the Internet. In the event the Federal Trade Commission, Federal Communications
Commission, local authorities or other governmental authorities adopt or modify
laws or regulations relating to the Internet, our business could suffer.
RISKS RELATED TO THIS OFFERING, OUR STOCK PRICE, AND CORPORATE CONTROL
OUR COMMON STOCK MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND
INVESTORS IN OUR STOCK MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE
OFFERING PRICE.
We cannot predict the extent to which investors' interest in us will lead
to the development of a trading market in our common stock or how liquid the
market might become. If you purchase shares of our common stock in this
offering, you will pay a price dictated by the market. The stock market in
general and the market prices of shares in newly public technology companies,
particularly those such as ours that offer Internet-based services, have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of our common stock could be highly volatile and subject to
wide fluctuations in response to many factors, some of which are largely beyond
our control. These factors include:
- quarterly variations in our results of operations;
- adverse business developments;
- changes in financial estimates by securities analysts;
- investor perception of us and online lending services in general;
- announcements by our competitors of new products and services; and
- general economic conditions, including interest rate fluctuations.
GARY J. KOVNER, OUR CHIEF EXECUTIVE OFFICERS AND SOLE DIRECTOR WILL HAVE THE
ABILITY TO EXERCISE SIGNIFICANT CONTROL OVER US.
Mr. Gary J. Kovner, our chief executive officer and sole director
beneficially owns approximately 73% of our common stock and will control a
majority of our stock after the completion of the offering. As a result, Mr.
Kovner will be able to exercise significant influence over all matters requiring
approval by our stockholders, including the election of directors and the
approval of significant corporate transactions, including a change of control of
our company. The interests such person may differ from the interests of our
other stockholders.
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere are
forward-looking statements that are not based on historical facts. The words
"expects," "anticipates," "estimates," "intends," "believes," and similar
expressions are intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. The forward-looking
statements made in this prospectus are based on events through the date on which
the statements are made.
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<PAGE> 15
SELLING SECURITY HOLDERS
The following tables set forth certain information with respect to Shares
held by each Selling Security Holder. The Shares may be offered from time to
time by any of the Selling Security Holders. See "Plan of Distribution."
<TABLE>
<CAPTION>
NO. OF SHARES PERCENTAGE OF
NAME OF SELLING ENTITY OWNED NO. OF SHARES NO. SHARES HELD SHARES HELD
SECURITY HOLDER PRIOR TO OFFERING BEING OFFERED AFTER THE OFFERING AFTER THE OFFERING
---------------------- ------------------ ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Gary J. Kovner(1).................... 13,000,000 500,000 12,500,000 70%
Richard A. Brutti(2)................. 200,000 200,000 -- --
Seth H. Hochman (3).................. 200,000 200,000 -- --
Nicholas Kontos(5)................... 300,000 300,000 -- --
Mary G. Kontos Trust(5).............. 175,000 175,000 -- --
Anthony Cincotta(5).................. 650,000 650,000 -- --
Edward DeFeudis(7)................... 290,000 290,000 -- --
Matthew Markin(6 )................... 220,000 220,000 -- --
Lion Equity(5)....................... 492,000 492,000 -- --
The Presidio Companies(5)............ 493,000 493,000 -- --
Michele Heavens(5)................... 650,000 650,000 -- --
Gary J. Mohr(4)...................... 50,000 50,000 -- --
Thomas E. Stump and Shirley O. Stump
JTWRO(4)........................... 10,000 10,000 -- --
Stan Pyscznski(4).................... 20,000 20,000 -- --
Scott Daspin(4)...................... 60,000 60,000 -- --
R.E. Donnelly(4)..................... 40,000 40,000 -- --
SAJ Group Associates, Inc.(4)........ 200,000 200,000 -- --
Jerry R. Hill(4)..................... 125,000 125,000 -- --
Nikos Couvoutsakis(4)................ 20,000 20,000 -- --
Jay Levine(4)........................ 50,000 50,000 -- --
Steve Stark(7)(8).................... 135,000 135,000 -- --
Equity Partners(7)................... 135,000 135,000 -- --
Principle MCD, Inc. (9).............. 50,000 50,000 -- --
Joseph A. Lee (10)................... 50,000 50,000 -- --
Nasser Alvarado (10)................. 50,000 50,000 -- --
</TABLE>
---------------
(1) Mr. Kovner is the sole director, officer and majority stockholder of the
Company. Mr. Kovner received his shares in connection with the merger of
Home Financing Centers, Inc., a Massachusetts company, with our company,
then known as Kentex Energy, Inc.
(2) Mr. Brutti was issued his shares in April 2000 as compensation for
consulting services which he provided to the company.
(3) Mr. Hochman was issued his shares in February 2000 as an inducement to act
as the Chief Financial Officer for the Company.
(4) Shares purchased in a private placement on the Company's common stock in
April 2000.
(5) Shares purchased in a private placement of the Company's common stock in
February 2000.
(6) Shares received by Mr. Markin as a former officer and director of Kentex
Energy Inc.
(7) Shares distributed in accordance with consulting fees owed in connection
with a consulting agreement between the company and Steven Stark.
(8) Mr. Stark was a consultant to the company in 1998.
(9) Principle MCD, Inc. were issued shares in August 2000 for services rendered
in connection with the production of the company website.
(10) Mr. Lee and Mr. Alvarado were issued shares in August 2000 as part of a
compensation package to act as branch managers for the company.
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<PAGE> 16
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by the Selling
Security Holders acting as principals for their own accounts. We will receive
none of the proceeds from the offering of the Shares. We are filing this
Registration Statement at our expense and will take certain other actions to
permit the Selling Security Holders to sell the Shares under the Securities act
of 1933 and applicable state securities laws. The Selling Security Holders will
pay or assume brokerage commissions, discounts or other charges and expenses
incurred in the sale of the Securities.
The distribution of the Shares by the Selling Security Holders is not
subject to any underwriting agreement. The Securities covered by this prospectus
may be sold by the Selling Security Holders or by pledgees, donees,
distributees, transferees or other successors in interest. The Shares offered by
the Selling Security Holders may be sold from time to time at fixed prices that
may be changed, at market prices prevailing at the time of sale, if any, at
prices relating to such prevailing market prices or at negotiated prices. In
addition, the Selling Security Holders may sell their Shares covered by this
prospectus through broker-dealers acting as agents or brokers who may then
resell the Shares, or a private sale or otherwise, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Security Holders may effect such transactions by
selling Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of commissions or fees from the Selling Security
Holders and/or purchasers of the Shares for whom such broker-dealers may act as
agent or to whom they sell as principal, or both (which compensation to a
particular broker-dealer might be in excess of customary commissions). Any
broker-dealers that participate with the Selling Security Holders in the
distribution of Shares may be deemed to be underwriters and any commissions
received by them and any profit on the resale of Shares positioned by them might
be deemed to be underwriting discounts and commissions within the meaning of the
Securities Act of 1933, in connection with such sales.
If and when any shares covered by this prospectus qualify for sale pursuant
to Rule 144 under the Securities Act of 1933, they may be sold under Rule 144
rather than pursuant to this prospectus.
The Selling Security Holders are not restricted as to the price or prices
at which they may sell Shares. Sales of such Shares at less than the market
prices may depress the market price of the Company securities. Moreover, if a
market exists for the Shares, the Selling Security Holders are not restricted as
to the number of Shares which may be sold at any one time, and it is possible
that a significant number of Shares could be sold at the same time which may
also have a depressive effect on the market price on the Company's securities.
It is anticipated that the sale of the Shares will be made over a two year
period commencing with the date of this prospectus. Each Selling Security Holder
will be subject to applicable provisions of the Securities Exchange act of 1934,
as amended, and the rules and regulations thereunder.
We may suspend the use of this Prospectus in connection with sale of the
Shares by holders during certain periods of time under certain circumstances
relating to pending corporate developments and public filings with the
Commission and similar events.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings at this time.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table lists the directors, officers and significant employees
of the Company, including their name, age and position with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
President and Chief Executive
Gary J. Kovner............................... 42 Officer and Director
</TABLE>
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<PAGE> 17
Gary J. Kovner. Mr. Kovner is the founder of Home Financing Centers, Inc.
which has been in business since 1993. Prior to founding the Company, Mr. Kovner
represented several of the top mortgage lending institutions in the Country. Mr.
Kovner is a member of the National Association of Mortgage Brokers,
Massachusetts Mortgage Association, New York Association of Mortgage Brokers and
the Massachusetts Mortgage Bankers Association. Mr. Kovner received the 1997
"Leaders Making a Difference" award given by Banker & Tradesman, the Real
Estate, Banking and Commercial Weekly for Massachusetts. Mr. Kovner earned a
B.A. degree from the University of Massachusetts in 1980 and has been featured
in many news articles and publications concerning the Mortgage Industry.
To the Company's knowledge and based solely on a review of such materials
as are required by the Securities and Exchange Commission, Mr. Kovner has not
timely filed all forms and reports required to be filed pursuant to Section
16(a) of the Securities and Exchange Act of 1934, as amended.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Certain Beneficial Owners of Common Stock
None
(b) Security Ownership of Management of Common Stock
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER OF CLASS
------------------------------------ ---------- ----------
<S> <C> <C>
Gary J. Kovner.............................................. 13,000,000 73%
Directors and Executive Officers as a Group................. 13,000,000 73%
</TABLE>
DESCRIPTION OF SECURITIES
The following statements with respect to the Company's Common Stock
describe the material terms but are subject to the detailed provisions of the
Company's Certificate of Incorporation, and by-laws, as amended. These
statements do not purport to be complete and are qualified in their entirety by
reference to the terms of the Certificate of Incorporation and by-laws, which
are incorporated by reference in this Prospectus.
The Company is authorized to issue 50 million shares of Common stock, $0.01
par value per share, of which 17,802,124 shares of Common Stock were issued as
of July 31, 2000. The Company is also authorized to issue 2,000,000 shares of
Convertible Preferred Stock of which 1,615 is currently issued and outstanding.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of Common Stock
can elect all of the directors then standing for election. Holders of Common
stock are entitled to such dividends as may be declared from time to time by the
Board of Directors out of funds legally available therefore.
Holders of Common stock have no conversion, redemption or preemptive rights
to subscribe to any securities of the Company. All outstanding shares of Commons
Stock are fully paid and nonassessable. In the event of any liquidation,
dissolution or winding up of the affairs of the Company, holders of the Common
stock will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors.
The Certificate of Incorporation of the Company provides that directors of
the Company shall not be personally liable to the company or its stockholders
for monetary damages for breach of fiduciary duties as a director except to the
extent otherwise required by Delaware law. The By-laws of the Company provide
for indemnification of the officers and directors of the Company to the full
extent permitted by Nevada law.
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<PAGE> 18
The transfer agent and registrar for the Common Stock is The Nevada Agency
and Trust Company, 50 West Liberty Street, Bank of America Plaza, Suite 880,
Reno, Nevada 89501.
EXPERTS AND COUNSEL
LEGAL MATTERS
Certain legal matters with respect to the offering of the Shares will be
passed upon for the Company by Falcone & Curd LLP.
EXPERTS
The consolidated financial statements and financial statement scheduled of
the Company included or incorporated by reference in this Prospectus and
elsewhere in the Registration Statement for year ended 1999 and 1998 have been
included or incorporated herein in reliance on the report of Cerasi, Kraus &
Associates, Inc., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
INTEREST IN NAMED EXPERTS AND COUNSEL
No expert or counsel to the Company, hired on a contingent basis, will
receive a direct or indirect interest in the Company or is acting as a promoter,
underwriter, voting trustee, director, officer, or employee, of the Company.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
DESCRIPTION OF THE BUSINESS
OVERVIEW
Home Financing Centers, Inc. is emerging as a leading Internet destination
site for homeowners and home buyers. We provide our customers with a
fundamentally better way to purchase and finance their most significant asset,
their home. We create empowered homeowners by providing convenient online access
to a wide selection of mortgages from leading lenders, information, and
informative tools and content. We hope to provide a broad range of services
around the home ownership experience, as opposed to focusing solely on the
mortgage transaction. We deliver these services to consumers through a variety
of direct and third-party channels to enable the broadest possible group of
homeowners and prospective homeowners to transact their business online.
The Company currently operates a leading Internet site (www.hfci.com) which
provides on line access to a wide selection of mortgages and information geared
toward the homeowner and home buyer. The Company provides a wide range of
services to consumers through direct and third party channels in an effort to
attract the largest number of consumers in connection with buying, selling or
refinancing of residential property. Specifically, the Company reaches its
customer base through its web site, and its relationships with Realtors,
mortgage brokers, financial institutions, home builders, employers and
relocation specialists. The Company believes that by providing a wide variety of
services through its multi-channel, business to consumer strategy, it has
positioned itself to reach the broadest audience and has distinguished itself in
the residential home buying market.
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<PAGE> 19
Mr. Gary J. Kovner, the Chief Executive Officer of the Company, founded
Home Financing Centers, Inc., a Massachusetts company, in 1993 as a traditional
mortgage broker. In 1996, the Company launched its website and Internet based
business. Effective January 13, 2000, Home Financing Centers, Inc., merged with
our company, then operating under the name of Kentex Energy Inc. At the time of
the merger, we changed our name to Home Financing Centers, Inc. Thereafter, we
entered into a stock exchange agreement, dated April 26, 2000, with MAS
Acquisition X Corp., an Indiana corporation ("MAS") which is a reporting company
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act").
In accordance with Section 12g-3(a) of the Rules of the Exchange Act, the
Company became the successor issuer to MAS and has elected to report under the
Act effective May 16, 2000. For more information regarding this transactions,
see "Recent Transactions of the Company" in this section of the Prospectus.
INDUSTRY BACKGROUND
The Internet
The Internet has emerged as a significant global medium for communications
and commerce. We expect that the online mortgage market will benefit from the
growth in Internet users and commerce. According to Forrester Research, the
online mortgage market in the United States is expected to grow from $18.7
billion in 1999, or approximately 1.5% of the total U.S. mortgage originations
market, to over $91.2 billion in 2003, representing approximately 10% of the
total U.S. originations market. This trend is similar to the growing acceptance
of other online financial services such as stock brokerages, where 25% of retail
stock trades in 1998 were executed online, up from 10% the previous year.
THE REAL ESTATE INDUSTRY
The real estate industry accounts for approximately 15% of the gross
domestic product of the United States. Home ownership in the United States is at
record levels, with approximately 69.3% of households owning homes in 1998
according to Fannie Mae. Fannie Mae also forecasts that sales of new and
existing homes will reach 5.65 million in 2000. Home sales consist of two major
types of transactions: the construction and sale of new homes by homebuilders,
and the resale of existing residential properties by their owners.
Sales of new single-family homes reached a record high in 1998 of 885,000
homes according to Fannie Mae. The homebuilding industry is highly fragmented,
and while the market share of the nation's largest builders has been increasing,
the majority of homes are built by smaller regional builders. Many of the
largest builders provide a range of ancillary services, such as mortgage, title
insurance, and escrow services to their home buyers.
Sales of existing homes have averaged 4.5 million homes per year over the
last 3 years. Most buyers and sellers of existing homes use the services of a
licensed real estate professional, or Realtor. There are over 700,000 active
Realtors in the United States, most of whom work as independent contractors for
real estate brokerage firms. Many of these firms are independent firms and
brands, but there has been growing trend towards franchising, including national
brands such as RE/MAX and Century21. Many brokers have responded to increased
competitive pressures by providing ancillary services, such as mortgage, title
insurance and escrow services to improve their margins. Realtors also share home
listing information through approximately 800 regional multiple listing
services, which are increasingly available through the web. In addition, many
households relocate with the assistance of a corporate relocation program. These
programs are either managed in-house by the corporation or by an outside
specialist. Often these specialists select and manage the real estate
professionals and other service providers involved in the relocation.
Homeowners typically need a comprehensive set of after-market and ancillary
services, including products such as title insurance and appraisal services,
additional related services such as home warranty products and fire insurance,
and other products including home improvement and home equity loans. There is a
significant number of ancillary service providers in this highly-fragmented
market.
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THE MORTGAGE INDUSTRY
There was approximately $5 trillion in residential mortgage debt
outstanding in 1998. The overall market for new mortgage originations in the
United States averaged more than $960 billion annually from 1993 to 1998. This
market has two distinct segments that can be broadly categorized into (1) a
growing market for purchase originations that has grown at an average annual
rate of 15% from 1993 to 1998, according to the Mortgage Bankers Association
Purchase Mortgage Index, and (2) a more cyclical and interest-rate sensitive
market for refinance products. Because of favorable interest rates and an
economic environment favoring refinances in 1998, the overall market for
mortgage originations was approximately $1.5 trillion.
Freddie Mac economists have forecasted that total mortgage originations
will come in lower this year, at approximately $1.034 trillion, the third best
year on record despite a decrease of approximately 21.4% from 1999 when
originations totaled approximately $1.3 trillion. This strong trend is
attributable to strong economic growth, a continuation of the strong housing
market and favorable mortgage rates, despite recent increases in the rates by
the Federal Reserve.
Historically, most mortgages were originated by local banks. As the capital
markets have increasingly been willing to securitize mortgage assets and as
interstate banking has allowed the largest banks to grow nationally, the
traditional mortgage origination market has split into two types of originators:
large, national mortgage banks and smaller local mortgage originators. Many
large mortgage banks have continued to grow their direct origination
capabilities, but have also developed wholesale or correspondent channels to
aggregate loans originated by local mortgage originators. The increasing demand
for mortgage loans by large mortgage banks and secondary markets has enabled the
dramatic growth of mortgage brokers. These mortgage brokers accounted for an
estimated 70% market share of mortgage originations in 1998 according to the
Wholesale Access Report. We believe there is no traditional multi-lender
mortgage broker that operates nationally and enjoys a highly recognized consumer
brand. In addition, no mortgage originator had more than a 4% share of total
U.S. retail mortgage originations in 1998.
Some of these traditional mortgage originators have created Internet
offerings to promote and sell their loans directly online as an alternative to
the traditional process. These offerings tend to be limited in that they
generally do not provide a choice of lenders or comparison of products to the
consumer. Further, such offerings often fail to provide the consumer with a
range of self-service tools that allow them to conveniently shop for and apply
for a mortgage online, but tend to simply provide contact and other information
about the traditional mortgage originator. Additionally, launching an Internet
offering may involve significant channel conflict issues for traditional
mortgage industry participants, as they may be unable or unwilling to compete
with prices available online or to promote online loan processing services that
might undermine their existing business. Further, they may be unable or
unwilling to make the significant investments required to successfully build an
online offering.
A number of companies have created websites that offer a selection of
multiple lenders. However, many of these websites simply refer customers to
their chosen lender for processing. Accordingly, these companies have difficulty
ensuring consistent and superior service delivery. Since commissioned loan
agents are typically involved in these transactions, these companies are often
unable to substantially reduce the costs to the consumer of securing a mortgage.
Moreover, companies that do offer transaction fulfillment typically focus
narrowly on the mortgage transaction.
LIMITATIONS OF THE CONVENTIONAL HOME BUYING PROCESS
The information flow in the traditional home buying process is
decentralized, causing each buyer to make decisions and monitor the status of
the process by personally consolidating information from other sources. This
presents significant challenges for consumers and the industry as a whole.
Issues for Consumers. Buying a home has traditionally been a confusing and
time-intensive process, characterized by high transaction costs. Once a home
buyer finds a suitable home, he or she is faced with the complex process of
obtaining a mortgage and satisfying closing conditions. This process is
paper-intensive and frustrating, particularly for first-time home buyers. The
complexity of this process often compels prospective
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home buyers to seek assistance from real estate agents and mortgage brokers, who
may have inconsistent levels of expertise. We believe this process leaves many
consumers feeling:
- uncertain that they are receiving unbiased advice;
- skeptical that rates initially quoted will ultimately be available;
- intimidated by the number and variety of mortgage products available;
- frustrated with the amount and types of fees they are required to pay;
and
- overwhelmed by the substantial time and effort and the vast amount of
information that must be processed in order to get a mortgage loan.
Issues for Mortgage Brokers. A typical mortgage broker has relationships
with a limited number of lenders and transacts a substantial portion of his or
her business by phone and facsimile. The mortgage broker must compare rates from
multiple sources, collate the data, differentiate the various offerings and then
provide that information to consumers, and often lacks software productivity
tools that would enable them to do this more efficiently. Not surprisingly, most
mortgage brokers do not have a website that aggregates information and makes
that information available in a convenient and efficient manner to the consumer.
Issues for the Mortgage Industry. Traditional mortgage companies generally
rely on branch offices and legacy systems. Therefore, we believe they have not
experienced cost reductions to the same extent as companies in the banking and
stock brokerage industries. Prior to the introduction of Internet mortgage
offerings featuring reduced brokerage fees, there had been less pressure on the
industry to cut costs and operate more efficiently. Some industry participants
may not have the financial or other resources necessary to respond to these
challenges.
THE HFCI SOLUTION
The primary objective of the Company is to become the leading provider of
online content and e-commerce services for homeowners and prospective
homeowners. We intend to achieve this objective by growing our customer base and
capitalizing on the full range of market opportunities through the following
strategic initiatives:
- Developing a leading brand as a provider of online content and
e-commerce services for homeowners and home buyers through advertising,
co-branding partnerships and promotions using both the Internet and
traditional off line media;
- Expanding third party channels to increase revenues and purchase (as
opposed to refinance) mortgage originations by extending our technology
infrastructure to all parties who traditionally participate in home
purchases, including real estate agents, home builders, relocation
companies and mortgage brokers,
- Enhancing our core mortgage services and expanding mortgage offerings by
more efficiently accessing and interfacing with the capital markets and
adding product lines such as sub prime mortgages, home equity credit
lines and construction loans.
- Maintaining a commitment to customer service by offering value-added
self service tools such as online loan status updates that empower
customers to make informed decisions and by continually improving our
customer service both online and offline through state of the art
management center.
- Delivering a more integrated home ownership experience by extending and
monetizing customer relationships by providing related products and
services, such as title insurance, appraisal, home insurance, moving and
home improvement services.
We provide our customers with a fundamentally better way to finance the
purchase of their most significant asset, their home. We create empowered
homeowners by providing them with convenient, direct access to a wide selection
of mortgages from leading lenders and informative tools and content.
Additionally,
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we provide the consumer with telephone support from our staff to further assist
the consumer in navigating the mortgage process.
Benefits to Consumers. Relative to traditional service offerings, we offer
consumers a significantly better service offering that combines a cheaper,
faster and easier transaction experience with content, tools and personalization
features to create a comprehensive and compelling approach to home ownership.
Product Selection and Cost Savings. Consumers can apply for a mortgage from
a selection of competitively-priced national and regional lenders, 24 hours per
day, seven days a week. Each customer can enter individualized criteria and
receive a choice of mortgage options ranked by cost. We typically offer the
consumer cost savings that are 50% lower than the origination fees charged by
most mortgage brokers and lenders. We are streamlining the mortgage process by
leveraging the electronic communication capabilities of the Internet and by
automating our back-end mortgage processing and access to the capital markets.
We believe this will allow us to deliver mortgages at a significantly lower cost
to the customer than traditional services and, as a result, to maintain and
potentially increase the consumer's cost savings.
Compelling Content and Guidance. We empower the consumer with a range of
informative and compelling content that enables them to make informed decisions
regarding their home purchase and mortgage financing. For example, our Helpful
Resources page provides the consumer with helpful information regarding the
financing process.
Superior Customer Service. Our goal throughout the mortgage experience is
to effectively combine exceptional customer service with leading edge technology
to provide a superior customer experience. In contrast to many websites that
refer customers to third-party lenders, we believe that providing complete
transaction processing and controlling the entire customer service experience is
the best way to provide a consistently high level of service quality. Our
customer service experience involves:
- assigning dedicated personnel with specific regional expertise;
- providing a selection of methods by which customers may submit their
loan application;
- allowing customers to determine the level and means of communication,
including website, email, facsimile, telephone or overnight delivery;
and
- ensuring continuous service improvement by surveying each customer's
experience and by tying compensation of loan processing personnel
directly to consumer feedback.
Benefits to Financial Institutions. Most financial institutions need an
efficient vehicle for acquiring loan assets. We offer a new, low-cost
distribution channel that makes it easier for lenders to broaden their
geographic reach, disperse their risk and reduce transaction costs by
streamlining the loan closing process. Additionally, we provide lenders with
dynamic pricing flexibility and online brand exposure.
In addition, for those financial institutions that wish to provide their
customers with a full suite of consumer financial services, but who do not have,
or do not wish to invest in, the development of mortgage capabilities, we
provide an efficient way to provide a high-quality Internet-based service to
their customers.
STRATEGY
Our objective is to be the leading provider of online content and
electronic commerce services for homeowners and prospective homeowners. We
intend to offer a comprehensive and compelling approach to home ownership that
combines a cheaper, faster and easier transaction experience with content, tools
and personalized features. Our strategy to achieve this objective includes the
following initiatives:
Develop a Leading Online Brand. We intend to develop a leading online brand
targeting homeowners and home buyers through aggressive advertising, using both
the Internet and traditional off-line media. In the future, we hope to build the
HFCI brand around the complete home ownership experience, rather than around the
specific mortgage financing event. Over time, we believe this branding strategy
will enable us to reach the broadest range of consumers with the broadest set of
products and services. To develop our brand, we intend to
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use a mix of off-line media including print media, radio spots and television
advertisements, as well as aggressive public relations efforts.
Expand Third-Party Channels. We plan to continue to grow our customer base
and purchase (as opposed to refinance) mortgage originations by extending our
technology infrastructure to all parties who traditionally participate in the
home purchase process, including real estate agents, home builders, relocation
companies and mortgage brokers. These third-party channels enable us to reach
and, ultimately, Internet-enable the vast majority of the mortgage market which
is currently transacted through brokers and other business-to-business channels.
Increase Purchase Mortgage Originations. We believe that the combination of
compelling content for early-stage home buyers, lead-generating offline
relationships and quality services for real estate professionals will result in
ongoing increases in our purchase mortgage originations, and we intend to
continue to invest in these areas. Over the past five years, purchase mortgage
originations have shown positive growth each year, whereas refinancing
originations have experienced wide swings in volume due to interest rate
fluctuations and economic downturns.
Enhance Our Mortgage Services. We intend to enhance our access to the
capital markets to further improve our competitive advantage on price, selection
and service. We currently offer mortgage products from 37 lenders, and we intend
to selectively extend the geographic reach and the number of lenders we offer as
part of our service offering. We believe that proactively managing our lender
relationships ensures that we will be able to offer our customers not only the
highest possible levels of service but also the ability to achieve the best
possible pricing through volume discounts, internal economies of scale and
tighter technical integration with the lender. We do not believe that simply
adding more lenders achieves the same benefit. In addition, we are pursuing
opportunities to increase the range of customers with whom we do business by
expanding or adding product lines such as sub-prime mortgages, home equity
credit lines and construction loans.
Maintain Our Quality Customer Service. We believe that providing superior
customer service is crucial to our success in the home ownership market. We will
continue to invest in customer service by committing to consumer choice in the
service process, providing exceptional service delivery and continuously
improving our service through established channels of customer feedback. We use
our technology platform to offer online tools that empower our customers to make
informed decisions throughout the home buying and mortgage process.
Extend and Monetize Our Customer Relationships. We believe that we have the
ability to transform what have traditionally been isolated transactions into
long-term, mutually beneficial relationships. We intend to solidify our ongoing
relationships with our customers, by enhancing our content and tools to create
an increasingly integrated home ownership experience. We also believe that there
are large revenue opportunities in these relationships, and we anticipate
generating revenues from three types of services: (1) settlement services, such
as title insurance and appraisal, related to the closing of a transaction; (2)
home-related services, such as home warranty products and fire insurance, which
we can offer to our customers at the time of a mortgage transaction; and (3)
other products and services that extend well into the home ownership life cycle,
such as home improvement services and home equity loans. We intend to create
targeted advertising, sponsorship and e-commerce offerings to derive greater
revenues from our targeted user base.
THE HFCI.COM CUSTOMER EXPERIENCE
When a customer accesses our website, we have presented an easy and
efficient way for visitors to begin the mortgage application process. Our site
provides a main toolbar across the top of each page listing five options open to
a visitor:
- Apply for a
Mortgage: Allows potential borrowers to obtain loan
applications on line or obtain applications.
- Mortgage Advisor: A page which sets forth frequently asked questions
and answers concerning the mortgage process. There
is also a helpful resources link which takes
visitors to a page which provides news from
www.MortgageCommentary.com, an on-line information
source for rate
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and bond market trends and other services, access
to credit reports via Qscape and 17 mortgage
calculators.
- Loan Programs: Outlines the different loan programs which we
offer.
- Helpful Resources: Providing information and helpful links to assist a
potential borrower in answering frequently asked
questions and to obtain other information.
- Our Company: Provides information about our company and where a
visitor can obtain additional information about us.
We also post a rundown of the day's mortgage rates. We believe that all the
preliminary information needed by a potential borrower is accessible on our home
page.
If a visitor is unsure he or she wants to apply right away, our site
addresses these concerns by allowing a visitor to click on "How do you know what
loan is right for you?". The site then follows up with a series of common
questions on the mortgage process. We also provide a link to frequently asked
questions to further assist a potential borrower with his or her decision. We
also provide access to our loan specialists throughout the process to assist a
potential borrower throughout the entire borrowing process and ways in which a
prospective borrower can obtain status reports on any application which may be
pending.
MARKETING AND DISTRIBUTION
Our marketing strategy is to aggressively increase our customer base by
building the HFCI brand into a widely recognized and accepted consumer name. We
intend to build brand awareness and drive user traffic to our website by
expanding our marketing efforts through continued promotion on the Internet and
through offline media such as television, radio and printed publications
nationwide.
As part of our strategy to increase online purchase mortgages, we will
focus a large portion of our marketing budget on home buying consumers. We
intend to promote our website directly to real estate agents and brokers through
direct mail, print advertisements, trade shows and other real estate industry
events.
In addition, we have a strategic focus on marketing through third-party
channels to reach customers who might not otherwise use an online service. These
third-party channels tend to be traditional, brick-and- mortar players in the
real estate arena to whom we can provide a tailored online mortgage experience
in return for their direction of customer leads to HFCI. To further facilitate
this end, we intend to open satellite locations in strategic areas in the United
States to expand the Company's reach into various residential markets.
CUSTOMER SERVICE
Our goal throughout the mortgage process is to effectively combine
exceptional customer service with leading-edge technology to provide a superior
customer experience. Each customer is assigned to dedicated personnel, with
specific regional expertise, to support his or her transaction and ensure a
positive home buying experience. Our customers have access to their
representatives through the phone, email, fax or mail.
We operate a sales and processing center in Swampscott, Massachusetts. We
have staff available on extended hours, 6 days per week, and we intend to
increase our coverage until we have staff available 24 hours a day, 7 days a
week, in response to increasing customer demand.
As a result of our continued investment in our proprietary technology
platform and workflow planning, we believe that we will be able to deliver a
superior customer service experience. We maintain an efficient and scalable
customer service environment relative to both traditional mortgage originators
and other online mortgage companies.
MORTGAGE BANKING AND CAPITAL MARKETS
The Company's revenues are derived from the brokering of loans and the
origination and sale of loans. Brokered loans are funded directly through
lending partners of the Company. Therefore, the Company does not acquire title
to such loans at any time during the mortgage lending process. Brokerage
revenues are
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comprised of a mark up to the lending partner's loan price and processing and
credit reporting fees which are paid upon the closing of the mortgage loan.
Originated and sold loans are loans that are funded through the Company's
warehouse lines of credit and sold to mortgage loan purchasers. Loan origination
and sale revenues consist of proceeds in excess of the carrying value of the
loan, origination fees less direct origination costs and processing fees. The
Company earns additional revenues from its loan origination and sale operations
as compared to brokered loan operations because the sale of loans includes a
service release premium.
We intend to enhance our access to the capital markets to further improve
our competitive advantage on price, selection and service. We currently offer
mortgage products from 37 lenders nationwide, and we intend to selectively
extend the geographic reach and the number of lenders we offer as part of our
service offering. We believe that offering a greater quantity of lenders does
not necessarily lead to greater quality for our customers. By proactively
managing our lender relationships we believe that we will be able to offer our
customers not only the highest possible levels of service, but also the ability
to achieve the best possible pricing through volume discounts, internal scale
economies and tighter technical integration. In addition, we intend to pursue
opportunities to increase the range of customers with whom we do business by
expanding or adding product lines such as sub-prime mortgages, home equity
credit lines and construction loans.
MORTGAGE BANKING
The mortgage banking industry involves primarily two businesses:
origination and servicing. The origination business involves taking a loan
application, gathering and evaluating the relevant credit, down payment and
property information to make a loan decision, then providing funds to close, and
delivering the loan to the end investor in the secondary market. Servicing a
loan occurs after the loan has been made and involves collecting principal and
interest payments, assuring that adequate insurance is maintained on the
property, handling prepayment collections and handling foreclosures.
We are currently licensed or otherwise eligible to engage in mortgage
finance activities as a mortgage broker in 2 states, New York and Massachusetts.
We currently have licensing applications pending in 5 additional states: New
Hampshire, Connecticut, Rhode Island, Maine and Vermont. We hope, as our
business expands to eventually become licensed in all 50 states.
We fund loans from our warehouse credit line of $1,000,000.00 provided by
Warehouse Lending of America, Inc. This line may be used to fund loans for a
short period of time while we package the loans for sale to our customers'
chosen lenders.
SALE OF LOANS AND SERVICING RIGHTS
We intend to sell the loans we fund, typically within 30 days of
origination, rather than hold them for investment. We currently sell our loans
to our customers' chosen lenders.
We do not currently retain the rights to service the mortgages we originate
and sell. We transfer the servicing to the customer's chosen lender when we sell
the loan. In the future, we may elect to sell a loan directly to an end
investor, such as Freddie Mac or Fannie Mae, and concurrently transfer the
servicing to the lender chosen by the customer. In the future, we may choose to
retain the servicing on some loans, or to sub-service the loan on behalf of the
chosen lender or investor. Such a strategy would provide us with new
opportunities for additional, stable revenue streams, but would also subject us
to additional risks.
We attempt to limit our exposure to certain risks related to lending by
delivering, selling or swapping loans to others. The lenders to whom we sell our
customers' mortgages subject us to general representations and warranties
contained in our selling agreements with these lenders. These representations
and warranties may require us to repurchase loans if an early payment default
occurs, an underwriting defect exists or other material defects exist. We reduce
our repurchase risk through our extensive use of automated underwriting systems
available through Fannie Mae and Freddie Mac and our loan quality control
process. To further reduce the risks related to loans to customers with
less-than-perfect credit, we fund these loans only with a firm approval from the
end lender or investor.
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APPROACH TO RISK MANAGEMENT
Our current approach to risk management is to limit the level of risk to
which we are exposed as a mortgage broker or banker. When we fund loans, we
potentially subject ourselves to interest rate risk on mortgages that we
originate and close prior to delivery of these loans to the customers' chosen
lenders. Interest rate risk results from price changes in market interest rates
which impact the value of loans that we are obligated to fund. If interest rates
rise, the value of loans we are obligated to fund declines. If interest rates
decline, the borrower may decide not to accept our commitment to fund their
loan. We currently reduce our interest rate exposure by selling loans to the
customers' chosen lenders in a "best efforts" delivery. In a "best efforts"
delivery, a customer's rate on a mortgage is locked with their chosen lender at
the same time the borrower requests a rate lock. We are committed to the lender
to deliver that loan for purchase if we actually fund the loan. If we do not
fund the loan, we have no obligation to deliver a loan to the lender and have no
exposure to interest rate risk.
In the future, we may elect to increase our revenue opportunities, and
correspondingly increase our risk, by switching to an approach of mandatory
delivery of loans to investors. Under mandatory delivery, we can elect to lock
the interest rate on a customer's mortgage with an investor of our choice and
pay a penalty fee if we fail to deliver the loan by the commitment expiration
date.
QUALITY CONTROL
We have developed loan quality control policies and procedures to monitor
and report on the quality and accuracy of our loan origination efforts. For
example, Every tenth loan that is closed is audited by the Quality Control
department of our staff. We employ experienced staff to monitor loan quality and
have developed a sampling process that we believe meets Fannie Mae's and Freddie
Mac's requirements for quality control plans. Our staff uses specific audit
procedures to detect, analyze and correct discrepancies in our processes. Our
senior management and staff meets weekly to review the results of quality
control inspections, changes in lender and agency programs and guidelines, as
well as other topics relevant to our continues reviews.
GOVERNMENT REGULATION
The residential mortgage financing business is highly regulated. Our
business is subject to extensive and complex rules and regulations of, and
examinations by, various federal, state and local government authorities and
government sponsored enterprises, including the Department of Housing and Urban
Development (HUD), the Federal Housing Administration, the Veteran's
Administration, Fannie Mae, Freddie Mac, Ginnie Mae and various state regulatory
authorities. These rules and regulations impose obligations and restrictions on
our loan origination and credit activities, including the processing,
underwriting, making, selling, securitizing and servicing of mortgage loans.
Our lending activities also are subject to various federal laws, including
the Federal Truth-in-Lending Act and Regulation Z thereunder (TILA), the Home
ownership and Equity Protection Act of 1994, the Federal Equal Credit
Opportunity Act and Regulation B thereunder (ECOA), the Fair Credit Reporting
Act of 1970 (FCRA), the Real Estate Settlement Procedures Act of 1974 and
Regulation X thereunder (RESPA), the Fair Housing Act, the Home Mortgage
Disclosure Act and Regulation C thereunder (HMDA) and the Federal Debt
Collection Practices Act, as well as other federal statutes and regulations
affecting our activities. Our loan origination activities also are subject to
the laws and regulations of each of the states in which we conduct our
activities.
Under TILA, lenders are required to provide consumers with uniform,
understandable information concerning certain terms and conditions of their loan
and credit transactions. These disclosures include providing the annual
percentage rate, monthly payment amount and total amount financed, plus certain
disclosures concerning alternative mortgage transactions. In addition, TILA
gives borrowers, among other things, the right to rescind loan transactions in
certain circumstances if the lender fails to provide the requisite disclosure.
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Under the Fair Housing Act and ECOA, creditors are prohibited from
discriminating against applicants on the basis of race, color, sex, age,
religion, national origin or marital status. The regulations under ECOA also
restrict creditors from requesting certain types of information from loan
applicants. FCRA requires lenders to supply applicants with certain information,
often referred to as an "adverse action notice," when the lender denies the
applicants' request for credit.
RESPA requires certain disclosures, including a good faith estimate of
closing costs and fees, as well as mortgage servicing transfer practices. RESPA
also prohibits the payment or receipt of kickbacks or referral fees, fee shares
or splits, or unearned fees in connection with the provision of real estate
settlement services. It is a common practice for online mortgage companies to
enter into advertising, marketing and distribution arrangements with other
Internet companies and websites whereby the mortgage companies pay the Internet
companies fees for such advertising, marketing and distribution services and
other goods and facilities based on the number of click-throughs, completed loan
applications or closed loans derived from such arrangements. The applicability
of RESPA's referral fee prohibitions to the compensation provisions of these
arrangements is unclear and the Department of Housing and Urban Development has
provided no guidance to date on the subject. Although we believe that we have
structured our relationships with Internet advertisers to ensure compliance with
RESPA, some level of risk is inherent absent amendments to the law or
regulations, or clarification from regulators.
TECHNOLOGY
Applications. We host a wide variety of home-related applications,
including advice about the home buying process, home loan rate searches and the
ability to submit an online loan application. Several of these applications
support a subscription customer base that includes daily interest rate alerts,
and refinance recommendation alerts. Our web applications are all server-side
applications requiring little or no special consumer hardware or software.
Security. We use internally-developed systems for transaction processing to
maximize security. We believe that we provide a secure solution and intend to
continue to lead the industry in the safekeeping of customer data. We follow a
daily routine of tape backup. Our tape backups are stored off-site.
COMPETITION
The market for web-based services is highly competitive and there are no
substantial barriers to entry, making it possible for new competitors to
proliferate rapidly. In addition, many of our existing and potential competitors
have longer operating histories in the traditional mortgage and Internet
markets, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. We believe
competition takes place on many levels, including pricing, convenience in
obtaining mortgage loans, breadth of product offerings and lending sources,
customer service, marketing and brand awareness. Currently, the Company's
principal competitors include:
- traditional lenders and mortgage brokers with no online presence;
- traditional lenders and brokers that offer access to their mortgage
products over the Internet.
In addition, we compete with a variety of websites for customer awareness
and Internet traffic, some of which are also our partners and all of which
compete with us for awareness, including:
- websites that provide access to real estate-related content and
services, including mortgage calculators and information on the home
buying process and which generate leads for mortgage providers,
including Priceline.com (PCLN), Lending Tree (TREE) and Microsoft's
HomeAdvisor (MSFT)
- websites that offer real estate listings and related services, such as
Realtor.com, RealEstate.com, Homes.com, Homestore.com and Microsoft's
HomeAdvisor;
- general purpose consumer websites such as AltaVista, Excite@Home (ATHM),
Lycos (LCOS), GO.COM (GO) and Yahoo! (YHOO) that offer real
estate-related content;
- newspapers and magazines that advertise real estate listings; and
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- other financial institutions that are partnering with mortgage brokers
to offer related services, such as DLJ Direct (DIR), E*Trade (EGRP) and
Charles Schwab (SCH).
Studies show that traditional mortgage brokers are dragging their feet when
it comes to the Internet. The race, however, is well underway. Consumers are
suddenly up-for-grabs and winning the race means being the first to get to them.
If traditional brokers hope to maintain their loyal clients, they must be
online, with a competitive web site, or consumers will simply go with the
competition. It will be discovered that the Internet is the perfect vehicle to
market home mortgages. No inventory, no deliveries, little overhead, and nothing
more than a conduit for needed and valuable information.
We believe the value of Internet mortgage originations in the years to come
will be staggering. Estimates from various sources put Internet sales in the
billion to trillion dollar stratosphere in just a few years. The mortgage
industry has caught on to the Internet faster than most other industries. There
are approximately twenty major national players vying for this net business. The
most successful will be what we call "clicks and bricks" operations, strong
Internet presence with local offices. This is the philosophy that we intend to
follow. We feel that there is no downside to originating loans online. When a
consumer is ready to talk to a live person, we have trained and educated loan
officers available for immediate consultation. Because HFCI has a low overhead
and operates from only one location, we can offer lower mortgage rates than our
competition.
TRANSACTIONS RELATING TO THE COMPANY
The Company was incorporated in Nevada in 1968 under the name
Arizona-Nevada Gold-Copper and Silver Mining Company. On June 4, 1998, we
changed our name to Kentex Energy, Inc. Until merging with Home Financing
Centers, Inc. a Massachusetts company in January 2000, we did not conduct any
significant operations.
On January 5, 2000, we entered into a Plan and Agreement of Reorganization
(the "Merger Agreement") with Home Financing Centers, Inc., a Massachusetts
company, which was operating the business described in this prospectus..
Immediately prior to entering into the Merger Agreement, we changed our name to
"Home Financing Centers, Inc." Pursuant to the Merger Agreement, we issued
13,000,000 of our common stock in exchange for all of the issued and outstanding
shares of Home Financing Centers, Inc., a Massachusetts company. Upon the
consummation of the transaction on January 13, 2000, we acquired and began
operating the business described in this prospectus.
On April 26, 2000, we entered into an agreement with MAS Capital, Inc. to
exchange approximately 96.83% of shares in MAS Acquisition X Corp., an Indiana
company ("MAS") which was a reporting company under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), in exchange for 315,000 shares of
our company. Under Section 12g-3(a) of the Rules of the Exchange Act, we are
permitted and we elected to become a successor issuer to MAS and continue to
file public reports under the Exchange Act effective May 16, 2000.
In addition to our warehouse lending agreement, we also have two credit
lines: $75,000 with the Beverly National Bank and $50,000 with Marblehead
Savings Bank.
RECENT DEVELOPMENTS
The Company has acquired the rights to use for perpetuity the highly
desirable toll-free number 1-877-MYNEWLOAN from Handy Music, Inc. of Wilmington,
MA. The purchase price was $35,000.00. As part of the package, a studio
engineered jingle for TV and Radio was produced for the Company's use. The
Company also owns the following domain names to be used for marketing and
promotional purposes: www.homefinancingcenters.com, www.hfci.com,
www.1877mynewloan.com, www.imortgage2000.com, www.zerodownmortgages.com,
www.2hourloanapproval.com, www.1800hfci.com, www.thebestmortgagecompany.com,
www.thebestmortgagebrokers.com, www.businessfinancingcenters.com.
EMPLOYEES
The Company currently employs approximately 15 persons at its headquarters
who provide services with respect to processing and originating loans brokered
or originated by the Company. As the Company's
27
<PAGE> 29
business expands into additional markets, the Company will seek to open
additional offices and expand its work force accordingly. All Internet and
administrative services other than those provided by its current employees are
performed by consultants.
FACILITIES
Our headquarters are currently located in a leased facility in Swampscott,
Massachusetts. consisting of approximately 1,568 square feet of office space in
a single building.
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In addition to historical information,
the discussion in this prospectus contains certain forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by these forward-looking statements due to factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We are emerging as a leading Internet destination site for homeowners and
home buyers, providing a fundamentally better way to finance the purchase of a
home. We are engaged in the brokerage, origination and sale of mortgage loans
secured by residential real estate.
We were incorporated in Massachusetts in 1993 and merged with Kentex
Energy, Inc. in January 2000. We began offering online services in 1996 and
first derived revenues as an online mortgage broker in 1996.
We derive our transactions revenues primarily from the brokering of home
loans. We charge a fixed processing fee, a credit report fee and a markup on the
lender's loan price. We recognize revenues when the loan is closed, at which
time we are paid by the lender. Additionally, we also derive revenues from
origination and sale of loans. Originated and sold loans are loans that are
funded through our own warehouse lines of credit and sold to mortgage loan
purchasers. Loan origination and sale of revenues consist of proceeds in excess
of the carrying value of the loan, origination fees less certain direct
origination costs, and processing fees. We earn additional revenue from loan
origination and sale operations as compared to brokered loan operations because
the sale of loans includes a service release premium.
To date, we have generated transactions revenues through our
consumer-direct channel. We reach customers online and offline through
television, radio and print media, as well as or relationship which other real
estate professionals. We intend to aggressively expand into other market
channels, including Realtors, home builders, financial institutions, mortgage
brokers and relocation specialists. We hope to derive mortgage fees and other
revenues from these channels in the future.
We also derive revenues from mortgage banking operations. Our revenues from
these operations consist of proceeds in excess of the carrying value of the
loan, origination fees less certain direct origination costs, other processing
fees and interest paid by borrowers on loans that we hold for sale. These
revenues are recognized at the time the loan is sold. We hope to increase our
revenues per loan from our mortgage banking operations as compared to our
existing brokerage loan operations.
Since inception, we have relied solely on the expertise of Gary J. Kovner,
the Chief Executive Officer and sole director of the Company. We have a limited
operating history upon which investors may evaluate our business and prospects.
We intend to expend significant financial and management resources on developing
additional products and services, increasing marketing activities, improving our
technologies and expanding our operations. As a result, we expect to incur
losses and negative cash flow for the foreseeable future. Our revenues may not
increase or even continue at their current levels, and we may not achieve or
maintain profitability or generate cash from operations in future periods. Our
prospects should be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stages of development.
THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Revenues. Total revenues increased by $46,705 to $77,478 for the three
months ended June 30, 2000 from $30,773 for the three months ended March 31,
2000. The increase in total revenues primarily resulted from an increase in
transaction revenues due to a higher number of closed loans in the second
quarter.
Operations. Our operations expenses primarily consist of the cost of
closing loans, including obtaining title and credit reports, appraisals,
document shipping and handling and other expenses associated with loan
29
<PAGE> 31
closings. Operations expenses decreased $1,817 to $17,740 for the three months
ended June 30, 2000 from $19,557 for the three months ended March 31, 2000.
Sales and Marketing/General and Administrative Expenses. Our general and
administrative expenses primarily consist of compensation and benefits for
finance, administrative and human resources personnel, fees for professional
advisors and rent and other overhead. General and administrative expenses
increased $98,105 to $191,204 for the three months ended June 30, 2000 from
$93,099 for the three months ended March 31, 2000. We experienced an increase in
the second quarter because of the substantial commitment in the second quarter
to a major newspaper and radio advertising campaign and the purchase of a highly
desirable toll-free telephone number and radio jingle, enhancement of our
website, sales and marketing and higher occupancy costs related to an increase
in the square footage leased at our corporate headquarters in Swampscott,
Massachusetts. We anticipate that selling and marketing expenses will increase
as we hire additional marketing personnel and increase expenditures for
promotion and marketing.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Total revenues decreased by $36,993 to $547,148 in 1999 from
$584,141 in 1998. The decrease in total revenues was primarily the result of
decreased transactions revenues due to a lower number of closed loans.
Operations. Operations expenses, which includes costs of closing loans,
decreased $22,419 to $117,051 in 1999 from $139,470 in 1998. This decrease was
primarily attributable to a decrease in the costs of credit reports and house
appraisals and other services utilized in closing loans due to increased
efficiency in technology and competition in the industry.
Sales and Marketing/General and Administrative Expenses. General
Administrative Expenses, which includes sales and marketing expenses, increased
$32,211 to $329,751 in 1999 from $297,540 in 1998. This increase was
attributable to a combination of factors, including, increase in administrative
salaries, additional insurance expenses, and sales and marketing activities.
During 1999, we also upgraded our website and began hiring additional personnel.
We expect that operations expenses will increase in the future as we hire
additional personnel, expand our facilities and incur associated expenses to
support our anticipated growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced a period of rapid growth that has placed a
significant strain on its resources. The Company's near and long-term strategies
focus on exploiting existing and potential competitive advantages while
eliminating or mitigating competitive disadvantages. In response to current
market conditions and as part of its ongoing corporate strategy, the Company is
pursuing several initiatives intended to increase liquidity and better position
the Company to compete under current market conditions.
DISCLOSURES ABOUT MARKET RISK
The residential real estate and mortgage industry is sensitive to swings in
the national economy in general and interest rate movements in particular. In a
high interest rate environment, consumer demand for mortgage loans declines,
particularly with respect to refinancing of existing mortgages. A significant
rise in interest rates could therefore have a negative impact on our volume of
closed loans. As such, interest rate movements represent the primary component
of our market risk.
We originate mortgage loans and manage the market risk related to these
loans by pre-selling them on a best efforts basis to the anticipated secondary
market investors at the same time that we establish the borrowers' interest
rates. If we can deliver mortgage loans within the time frames established by
the secondary market investors, we have no interest rate risk exposure on those
loans. However, if we cannot process the loan within this time frame and
interest rates increase, we may honor our original rate commitment in order to
maintain customer satisfaction, which may result in a loss on the sale of the
loan. With the exception of pre-selling loans through best-efforts commitments,
we currently do not engage in any hedging activities. All loans that we fund are
held for sale. Draw-downs on our warehouse lines are repaid when the loans are
sold in the
30
<PAGE> 32
secondary market. Because the loans are held in the warehouse lines for a short
period of time, we do not expect to incur significant losses from an increase in
interest rates on the warehouse lines.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1986, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 91, "Accounting
for Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases." SFAS No. 91 establishes the accounting for
nonrefundable fees and costs associated with lending, committing to lend, or
purchasing a loan or a group of loans. Under SFAS No. 91, direct loan
origination costs, net of loan origination fees, are recognized as a reduction
of the loan's yield over the earlier of the life of the related loan or the sale
of the loan. In effect, SFAS No. 91 requires that origination fees be offset by
their related direct loan costs and that net deferred fees be recognized over
the earlier of the life of the loan or the sale of the loan, whether the loan is
sold through securitization or on a whole basis. As we initiate mortgage banking
activities this statement will begin to affect us.
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption of
SOP No. 98-1 did not have a material impact on our financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. Those standards are based on
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with default
dates ending in 99, the common two-digit reference for 1999. As a result, as we
transition from the 20th century to the 21st century, computer systems and
software used by many companies and organizations in a wide variety of
industries will produce erroneous results or fail unless they have been modified
or upgraded to process date information correctly. Significant uncertainty
exists in the software industry and other industries concerning the scope and
magnitude of problems associated with the year 2000 issue.
State of Readiness. We have completed our initial assessment of the
potential overall impact of the impending century change on our business. Based
on our current assessment, we believe the current versions of our systems,
website and software products are year 2000 compliant, although prior versions
of software may not be year 2000 compliant. By year 2000 compliant, we mean that
our systems, website and software products, when used with accurate date data
and in accordance with their associated documentation, are capable of properly
processing date data from, into and between the 20th and 21st centuries,
including the years 1999, 2000 and leap years, provided that all other products,
e.g., hardware, software and firmware, used with our products properly exchange
date data with them. We may face claims based on year 2000 problems in other
companies' products, or issues arising from the integration of multiple products
within an overall system even if our products are otherwise year 2000 compliant.
Although we have not been a party to any litigation or arbitration proceeding
involving our products or services related to year 2000 compliance issues, we
may in the future be required to defend our products or services in these
proceedings, or to negotiate resolutions of claims based on year 2000 issues.
The costs of defending and resolving year 2000-related
31
<PAGE> 33
disputes, regardless of the merits of these disputes, and any liability we have
for year 2000-related damages, including consequential damages, could adversely
affect our business.
We have reviewed our internal management information and other computer
systems to identify any year 2000 problems, and have communicated with the
external vendors that supply us with material software and information systems
and with our significant suppliers to determine their year 2000 readiness, and
we have not identified any year 2000 readiness problems.
Costs. To date, we have not incurred any material costs directly associated
with our year 2000 compliance efforts. We do not expect the total cost of year
2000 problems to be material to our business. However, we will continue to
evaluate new versions of our products, new software and information systems
provided to us by third parties and any new infrastructure systems that we
acquire to determine whether they are year 2000 compliant. Despite our current
assessment, we may not identify and correct all significant year 2000 problems
on a timely basis. Year 2000 compliance efforts may involve significant time and
expense and unremediated problems could adversely affect our business. We
currently have no contingency plans to address the risks associated with
unremediated year 2000 problems.
Risks. We are not currently aware of any year 2000 readiness problems
relating to our internally-developed proprietary systems that would adversely
affect our business. We may discover year 2000 readiness problems in these
systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our material systems may need
to be revised or replaced, all of which could be time-consuming and expensive.
Our failure to fix or replace our internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could adversely affect our business.
Moreover, our failure to adequately address year 2000 readiness issues in our
internally developed proprietary software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and other entities outside of our
control may not be year 2000 ready. The failure by these entities to be year
2000 ready could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our customers, decrease the use of
the Internet or prevent users from accessing our websites.
Contingency Plan. The Company utilizes state of the art computers which
were tested to be fully year 2000 compliant. The Company uses the Genesis 2000
software in connection with it loan processing and this program was also
certified year 2000 compliant. In the event that we should experience
disruptions due to year 2000 failures, we purchased Y2K BIOS cards for all of
our computers which would correct any year 2000 problems the company may
experience.
DESCRIPTION OF PROPERTY
The Company does not own any real property, however, it leases its office
space located at 112-114 Burrill Street, Swampscott, MA 01907-1808. The
Company's phone number is 781-596-1992. The toll-free number is 1-877-MYNEWLOAN.
The Company also maintains an Internet website located at www.hfci.com.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Over the Counter Pink Sheets under the
symbol "HFCI." On August 8, 2000, the last reported price of our stock was $.50
per share.
32
<PAGE> 34
As of July 31, 2000, the approximate number of recordholders of the
Company's Common Stock is 1,483 inclusive of those brokerage firms and/or
clearing houses holding the Company's common shares in street name for their
clientele (with each such brokerage house and/or clearing house being considered
as one holder). The aggregate number of shares of Common Stock outstanding is
17,802,124 as of July 31, 2000. No dividends on Common Shares have ever been
paid by the Company, nor does the Company anticipate that dividends will be paid
in the foreseeable future.
EXECUTIVE COMPENSATION
The following table sets forth the Executive Compensation for the Company
for fiscal years set forth below:
<TABLE>
<CAPTION>
NAME YEAR SALARY(1) BONUS OTHER COMPENSATION
---- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Gary J. Kovner........................... 1999 $130,738 $ 25,568 $0
Gary J. Kovner........................... 1998 $124,492 $108,759 $0
Gary J. Kovner........................... 1997 $ 51,543 $ 54,631 $0
</TABLE>
---------------
(1) During fiscal years 1997, 1998 and 1999, Home Financing Centers, Inc., a
Massachusetts company, had elected to be treated as a Subchapter S
Corporation by the Internal Revenue Service. Therefore, the compensation
paid to Mr. Kovner during the last three fiscal years is reflective of the
amounts reported to the Internal Revenue Service for these periods.
Mr. Kovner does not have any employment agreement with the Company at this
time.
We have not established any long term compensation programs specifically
for our executives as of this date. In 1999, we established a Profit Sharing
Plan and Money Purchase Pension Plan for our employees.
Our Profit Sharing Plan is an individual account plan. The contributions
are not fixed, but are discretionary up to a maximum deductible contributions of
15% of covered payroll. Contributions to the plan are not contingent upon our
company having current or accumulated profits.
Our Money Purchase Pension Plan is also an individual account plan which
contribution formula is 24% of covered payroll not to exceed $30,000 per
individual participant.
In 1999, 2 employees of our company participated in the Profit Sharing Plan
and the Money Purchase Pension Plan. In fiscal year 1999, $15,000 in connection
with the Profit Sharing Plan and $15,000 in connection with the Money Purchase
Pension Plan was contributed to the account of Mr. Kovner, for a total of
$30,000 in contributions for fiscal year ended 1999.
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<PAGE> 35
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountants' Report............................. F-2
Comparative Balance Sheets.................................. F-3
Comparative Income Statements............................... F-4
Comparative Statement of Shareholder's Equity............... F-5
Comparative Statements of Cash Flow......................... F-6
Notes to Comparative Financial Statements................... F-7
</TABLE>
COMPARATIVE SUPPLEMENTAL FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C>
Accountants' Report On Additional Information............... F-10
Comparative Statements of Selling, General & Administrative
Expenses.................................................. F-11
Comparative Statements of Key Analytical Ratios............. F-12
</TABLE>
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<S> <C>
Statement of Information Furnished.......................... F-13
Balance Sheet............................................... F-14
Income Statement............................................ F-15
Statement of Shareholder's Equity........................... F-16
Statement of Cash Flow...................................... F-17
Notes to Financial Statements............................... F-18
</TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<S> <C>
Statement of Information Furnished.......................... F-21
Statement of Selling, General & Administrative Expenses..... F-22
Statements of Key Analytical Ratios......................... F-23
</TABLE>
F-1
<PAGE> 36
CERASI, KRAUS & ASSOCIATES, INC.
CERTIFIED PUBLIC ACCOUNTANTS
150 EAST SPRAGUE ROAD
BROADVIEW HEIGHTS, OHIO 44147
INDEPENDENT AUDITORS' REPORT
To Mr. Gary J. Kovner, President
Home Financing Centers, Inc.
(A Subchapter S Corporation)
We have audited the accompanying Comparative Balance Sheets of Home
Financing Centers, Inc. (a SubChapter S Corporation) as of December 31, 1999 and
1998 and the related Comparative Statements of Income, Retained Earnings and
Cash Flow for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted the audit in accordance with generally accepted auditing
standards. 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 this audit provides 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 Home Financing Centers, Inc.
(a SubChapter S Corporation) as of December 31, 1999 and 1998 and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
There is no provision for Income Taxes included in these statements since
the Corporation is taxed as a SubChapter S Corporation and taxes are considered
the responsibility of the shareholder.
/s/ CERASI, KRAUS & ASSOCIATES, INC.
--------------------------------------
CERASI, KRAUS & ASSOCIATES, INC. CPA'S
May 22, 2000
F-2
<PAGE> 37
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................... $ 16,390 $ 26,291
Restricted Cash........................................ 131 2,439
Accounts Receivable.................................... 100,000 --
Shareholder Loan Receivable............................ 136,854 97,701
Prepaid Insurance...................................... 1,643 --
-------- --------
$255,018 $126,431
Fixed Assets:
Office Furniture..................................... 6,123 5,703
Office Equipment..................................... 23,873 19,670
-------- --------
29,996 25,373
Less: Accumulated Depreciation......................... 12,164 6,515
-------- --------
$ 17,832 $ 18,858
Other Assets:
Deposits............................................... 1,243 1,343
Computer Software, Net of Amortization................. 2,420 2,583
Cash Surrender Value of Officer's Life Insurance....... 4,515 2,250
-------- --------
$ 8,178 $ 6,176
-------- --------
Total Assets...................................... $281,028 $151,465
======== ========
LIABILITIES
Current Liabilities:
Line of Credit Payable................................. $ 81,666 $ 70,718
Accounts Payable....................................... 7,873 3,197
Accrued Profit Sharing................................. 30,000 20,000
Accrued Taxes.......................................... 12,138 --
-------- --------
Total Liabilities................................. $131,677 $ 93,915
SHAREHOLDER'S EQUITY
Common Stock (No Par Value) 200,000 Shares Authorized, 100
Shares Issued & Outstanding............................... 100 100
Retained Earnings...................................... 149,251 57,450
-------- --------
$149,351 $ 57,550
-------- --------
Total Liabilities & Shareholder's Equity.......... $281,028 $151,465
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-3
<PAGE> 38
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net Mortgage Fees Earned.................................... $547,148 $584,141
-------- --------
Cost Of Closing:
Appraisal Fees......................................... 43,648 78,790
Closing Expenses....................................... 4,638 10,515
Referral Fees.......................................... 32,958 27,225
Credit Report Fees..................................... 12,188 16,766
Delivery Cost.......................................... 3,573 2,366
Title Fees............................................. -- 1,005
Internet Services...................................... 16,595 --
Other Miscellaneous Fees............................... 3,451 2,803
-------- --------
Total Costs Of Closing............................ $117,051 $139,470
Gross Profit................................................ $430,097 $444,671
-------- --------
Selling, General & Administrative Expenses.................. $329,751 $297,540
-------- --------
Operating Income............................................ $100,346 $147,131
Other (Deductions):
Interest Income........................................ $ 4 $ --
Interest Expense....................................... (6,549) (8,404)
-------- --------
$ (6,545) $ (8,404)
-------- --------
Net Income.................................................. $ 93,801 $138,727
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-4
<PAGE> 39
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- --------
<S> <C> <C> <C>
Balance -- January 1, 1998.................. $100 $ 5,813 $ 5,913
Net Income.................................. 138,727 138,727
Distributions............................... -- (87,090) (87,090)
---- -------- --------
Balance -- December 31, 1998................ $100 $ 57,450 $ 57,550
Net Income.................................. 93,801 93,801
Distributions............................... -- (2,000) (2,000)
---- -------- --------
Balance -- December 31, 1999................ $100 $149,251 $149,351
==== ======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-5
<PAGE> 40
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net Income.................................................. $ 93,801 $ 138,727
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operating Activities:
Depreciation........................................... 5,649 3,100
Amortization........................................... 163 41
Change in Current Assets and Liabilities:
Increase in Accounts Receivable........................ (100,000) --
Increase in Prepaid Insurance.......................... (1,643)
Increase in Accounts Payable........................... 4,676 233
Increase in Accrued Profit Sharing..................... 10,000 20,000
Increase in Accrued Taxes.............................. 12,138 --
--------- ---------
Total Adjustments................................. $ (69,017) $ 23,374
--------- ---------
Net Cash Provided by Operating Activities................... $ 24,784 $ 162,101
Cash Flows from Investing Activities
Capital Expenditures................................... (4,623) (15,363)
Purchase of Computer Software.......................... -- (2,624)
Refund of Deposits..................................... 100 --
Distributions Paid..................................... (2,000) (87,090)
--------- ---------
Net Cash (Used By) Investing Activities..................... $ (6,523) $(105,077)
Cash Flows from Financing Activities
Decrease (Increase) in Restricted Cash Accounts........ 2,308 (2,439)
(Increase) in Cash Surrender Value of Officer's Life
Insurance............................................. (2,265) (2,250)
Payments on Borrowings................................. (37,881) (4,152)
Borrowings on Line of Credit........................... 48,829 --
Borrowings on Shareholder Loan Receivable.............. (39,153) (48,884)
--------- ---------
Net Cash (Used By) Financing Activities..................... $ (28,162) $ (57,725)
--------- ---------
Net (Decrease) in Cash...................................... $ (9,901) $ (701)
Cash Balance, Beginning of Year............................. $ 26,291 $ 26,992
--------- ---------
Cash Balance, End of Year................................... $ 16,390 $ 26,291
========= =========
Cash Paid During the Year For:
Interest............................................... $ 6,549 $ 8,404
========= =========
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-6
<PAGE> 41
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
NOTES TO COMPARATIVE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Home Financing Centers,
Inc. (A SubChapter S Corporation) (the Company) is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY
The Company was formed in May 1993 to provide residential mortgage loans,
refinancing and home equity loans. The company's offices are located in
Swampscott, Massachusetts.
SUBCHAPTER S CORPORATION TAX STATUS
The Company with the consent of its shareholder has elected under the
Internal Revenue Code to be treated as an S Corporation. In lieu of Corporation
income taxes, the shareholder is taxed on the income at his personal tax rate.
Therefore, no provision for federal income tax (Current or Deferred) has been
included in these statements.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting. The accounting method recognizes revenues in the accounting
period in which they are earned and expenses when they are incurred regardless
of when cash is paid or received.
NOTE B -- CASH -- RESTRICTED BALANCES
The Company acts as an escrow agent for certain closings by specific
lenders. The Company can only access these funds after a settlement sheet is
presented by the title company at closing.
NOTE C -- RELATED PARTY TRANSACTIONS
SHAREHOLDER LOAN RECEIVABLE
The shareholder borrows funds from the company in anticipation of an
earnings distribution. No formal written agreement exists for this loan.
LEASE OF OFFICE BUILDING
The Company rents its office building from the shareholder on twelve month
lease at $1,000 per month.
NOTE D -- FIXED ASSETS
Fixed Assets are carried at historical cost. The depreciation of the
Property and Equipment is provided using the straight-line method for financial
reporting purposes.
The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Office Furniture...................................... 7 Years
Office Equipment...................................... 5 Years
</TABLE>
F-7
<PAGE> 42
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
NOTES TO COMPARATIVE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Expenditures for maintenance and repairs are charged to expense as
incurred.
NOTE E -- COMPUTER SOFTWARE
The Company capitalizes its software costs and amortizes these costs over
five years.
NOTE F -- LINES OF CREDIT
The Company has two Lines of Credit, one in the amount of $75,000, with
$64,493 outstanding at December 31, 1999. This line bears interest at prime plus
1 1/2% and is due on demand. The other Line of Credit is in the amount of
$50,000 with $17,172 outstanding. This line bears interest at 10% (fixed) and is
due on demand.
NOTE G -- WAREHOUSE LINE OF CREDIT
The Company has a Warehouse Line of Credit in the amount of $1,000,000,
with no outstanding balance at December 31, 1999. The loan bears interest at
prime and expires at the end of July, 2000
Under the terms of the agreements the Company can draw funds on
pre-approved mortgages based on certain underwriting criteria. These funds are
paid back as each loan is closed with the ultimate lender.
NOTE H -- COMMON STOCK
The Company has 200,000 shares of common stock authorized, 100 shares
issued and outstanding at no par value.
NOTE I -- RENTALS UNDER OPERATING LEASES
The Company has Office buildings and Office Equipment under operating
leases that expire over the next three years.
The following is a schedule of the minimum rental payments required under
the operating leases that have remaining non-cancelable lease terms.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
----------- -------
<S> <C>
2000...................................................... 11,513
2001...................................................... 3,513
2002...................................................... 2,508
2003...................................................... --
2004...................................................... --
-------
$17,534
=======
</TABLE>
F-8
<PAGE> 43
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE SUPPLEMENTAL FINANCIAL INFORMATION
F-9
<PAGE> 44
CERASI, KRAUS & ASSOCIATES, INC.
CERTIFIED PUBLIC ACCOUNTANTS
150 EAST SPRAGUE ROAD
BROADVIEW HEIGHTS, OHIO 44147
(440) 546-9359
ACCOUNTANTS' OPINION ON
COMPARATIVE SUPPLEMENTAL FINANCIAL INFORMATION
To Mr. Gary J. Kovner President
Home Financing Centers, Inc.
(A Subchapter S Corporation)
Our report on the audited comparative financial statements of Home
Financing Centers, Inc. (a SubChapter S Corporation) for the years ended
December 31, 1999 and 1998 appears on Page 1. The Comparative Statements of
Selling, General and Administrative Expenses and Comparative Statements of Key
Analytical Ratios are presented for the purposes of additional analysis and is
not a required part of the basic Financial Statements. The Comparative
Statements of Selling, General and Administrative expenses have been compiled by
us and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole. The Comparative Statements of
Key Analytical Ratios, which is of a non-accounting nature which have been
compiled by us during the audit of the basic financial statements, and we
express no opinion on it.
/s/ CERASI, KRAUS & ASSOCIATES, INC.
--------------------------------------
CERASI, KRAUS & ASSOCIATES, INC. CPA'S
May 22, 2000
F-10
<PAGE> 45
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE STATEMENTS OF SELLING, GENERAL & ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Administrative Salaries..................................... $143,880 $139,951
Payroll Taxes............................................... 9,264 7,932
Advertising................................................. 26,371 37,734
Automobile Expenses......................................... 8,721 6,569
Computer Rental Expenses.................................... -- 3,204
Depreciation & Amortization................................. 5,812 3,141
Dues & Subscriptions........................................ 1,811 2,442
Insurance Expense........................................... 17,500 3,686
Office Supplies............................................. 12,272 10,834
Professional Fees........................................... 5,034 2,418
Profit Sharing Plan Contribution............................ 30,000 30,000
Rent Expense................................................ 12,000 12,000
Repairs & Maintenance....................................... 8,416 3,875
State & Local Taxes......................................... 12,594 456
Telephone Expenses.......................................... 11,586 12,246
Travel & Entertainment...................................... 17,828 12,873
Utilities................................................... 2,777 3,860
Miscellaneous............................................... 3,885 4,319
-------- --------
Total General & Administrative Expenses........... $329,751 $297,540
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-11
<PAGE> 46
HOME FINANCING CENTERS, INC.
(A SUBCHAPTER S CORPORATION)
COMPARATIVE STATEMENTS OF KEY ANALYTICAL RATIOS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Profitability Ratios:
Return on Equity.......................................... 62.81% 241.05%
Return on Total Investment................................ 163.27% 241.05%
Return on Total Assets.................................... 33.38% 91.59%
Return on Operating Profit to Net Worth................... 67.19% 255.66%
Liquidity Ratios:
Working Capital........................................... $ 123,341 $ 32,516
Current Ratio............................................. 1.94 1.35
Asset Productivity Ratios:
Net Fixed Assets to Total Assets.......................... 6.35% 12.45%
Total Liabilities to Equity....................... 0.88 1.63
Long Term Debt to Equity.................................. N/A N/A
Net Worth to Debt......................................... 1.13 0.61
Interest Coverage......................................... N/A N/A
Net Worth to Total Assets................................. 0.53 0.38
Current Assets to Total Assets............................ 90.74% 83.47%
Turnover Ratios:
Cash Turnover............................................. 10.9 Days 16.4 Days
Accounts Payable Turnover................................. 24.6 Days 8.4 Days
Efficiency Ratios:
Sales Increases (Decreases):
Dollars................................................ $ (36,993) $ 323,248
Percent................................................ (14.18)% 123.90%
Total Assets to Sales............................. 0.51 0.26
Fixed Assets to Sales..................................... 0.03 0.03
Sales to Working Capital.................................. 4.44 17.96
Sales Per Day............................................. $ 1,499 $ 1,600
Contribution Ratios:
Gross Profit:
Dollars................................................ $ 430,097 $ 444,671
Percent................................................ 78.61% 76.12%
Sales Breakeven Point
Monthly................................................... $ 34,958 $ 32,572
Annually.................................................. $ 419,493 $ 390,863
</TABLE>
The Accompanying Notes Are An Integral Part of These Financial Statements.
F-12
<PAGE> 47
STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited interim financial statements have been prepared
in accordance with Form SB-2 instructions and in the opinion of management
contains all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of Home Financing Centers,
Inc. as of March 31, 2000, and the results of operations, and statements of cash
flows and stockholders' equity for the three months ended March 31, 2000. These
results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of the Company's 1999 financial statements.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Company's 1999 financial
statements.
F-13
<PAGE> 48
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
<S> <C>
ASSETS
Current Assets:
Cash................................................... $163,810
Restricted Cash........................................ 623
Shareholder Loan Receivable............................ 136,854
Prepaid Insurance...................................... 657
--------
$301,944
Fixed Assets:
Office Furniture....................................... 6,123
Office Equipment....................................... 25,468
--------
31,591
Less: Accumulated Depreciation............................ 13,662
--------
$ 17,929
Other Assets:
Cash Surrender Value of Officer's Life Insurance....... 4,515
Deposits............................................... 1,243
Computer Software, Net of Amortization................. 33,186
Prepaid Taxes.......................................... 12,374
--------
$ 51,318
--------
Total Assets...................................... $371,191
========
LIABILITIES
Current Liabilities:
Line of Credit......................................... $ 86,227
Accounts Payable....................................... 10,689
Accrued Profit Sharing................................. 30,000
Accrued Taxes.......................................... 9,138
--------
Total Liabilities................................. $136,054
SHAREHOLDER'S EQUITY
Common Stock,(No Par Value) 50,000,000 Shares 16,827,122
Shares Issued & Outstanding............................... 236,991
Convertible Preferred Stock, ($0.01 Par Value 2,000,000
Shares Authorized; 1615 Issued & Outstanding)............. 9,002
Additional Paid In Capital.................................. 299,500
Retained Earnings........................................... (310,356)
--------
$235,137
--------
Total Liabilities & Shareholder's Equity.......... $371,191
========
</TABLE>
F-14
<PAGE> 49
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31, 2000
--------------------
<S> <C>
Net Mortgage Fees Earned.................................... $ 30,773
--------
Cost Of Closing:
Appraisal Fees......................................... 1,175
Closing Expenses....................................... 519
Referral Fees.......................................... 1,035
Credit Report Fees..................................... 4,866
Internet Services...................................... 11,876
Other Miscellaneous Fees............................... 86
--------
Total Costs Of Closing............................ $ 19,557
--------
Gross Profit................................................ $ 11,216
Selling, General & Administrative Expenses.................. $ 93,099
--------
Operating Income (Loss)..................................... $(81,883)
Other (Deductions):
Interest Income........................................ $ --
Interest Expense....................................... (2,162)
--------
Income (Loss) Before Income Tax Expense (Benefit)........... $(84,045)
Income Tax Expense (Benefit)................................ $(12,374)
--------
Net Income (Loss)........................................... $(71,671)
========
</TABLE>
F-15
<PAGE> 50
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
RETAINED
COMMON PREFERRED ADDITIONAL EARNINGS
STOCK STOCK PAID IN CAPITAL (DEFICIT) TOTAL
-------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 2000.............. $208,891 $9,002 $ -- $(387,936) $(170,043)
Merger with HFCI........................ $ 100 $ 149,251 $ 149,351
Net Income (Loss)....................... (71,671) $ (71,671)
Common Stock Issued..................... 28,000 $299,500 $ 327,500
-------- ------ -------- --------- ---------
Balance -- March 31, 2000............... $236,991 $9,002 $299,500 $(310,356) $ 235,137
======== ====== ======== ========= =========
</TABLE>
F-16
<PAGE> 51
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31, 2000
--------------
<S> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income (Loss)...................................... $ (71,671)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation...................................... 1,498
Amortization...................................... 1,757
Change in Current Assets and Liabilities:
Decrease in Accounts Receivable................... 100,000
Decrease in Prepaid Insurance..................... 986
Increase In Prepaid Taxes......................... (12,374)
Decrease in Accounts Payable...................... (167,427)
Decrease in Accrued Taxes......................... (3,000)
---------
Total Adjustments............................ $ (78,560)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $(150,231)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures................................... (1,595)
Development of Website................................. (32,523)
Additional Paid in Capital Received.................... 299,500
Issuance of Common Stock............................... 28,000
---------
NET CASH (USED BY) INVESTING ACTIVITIES..................... $ 293,382
CASH FLOWS FROM FINANCING ACTIVITIES
(Increase) in Restricted Cash Accounts................. (492)
Payments on Borrowings................................. (4,500)
Borrowings on Line of Credit........................... 9,061
---------
NET CASH (USED BY) FINANCING ACTIVITIES..................... $ 4,069
---------
NET (DECREASE) IN CASH...................................... $ 147,220
CASH BALANCE, BEGINNING OF YEAR............................. $ 16,590
---------
CASH BALANCE, END OF QUARTER................................ $ 163,810
=========
CASH PAID DURING THE YEAR FOR:
Interest............................................... $ 2,162
=========
</TABLE>
F-17
<PAGE> 52
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Home Financing Centers,
Inc. (Formerly Kentex Energy, Inc.) (the Company) is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY
The Company was formed in May, 1993 to provide residential mortgage loans,
refinancing and home equity loans. The Company's offices are located in
Swampscott, Massachusetts.
On January 13, 2000, the Company shareholder exchanged his stock with
Kentex Energy, Inc. Over the Counter (OTCBB). As part of the exchange Kentex
Energy, Inc. agreed to change its name to Home Financing Centers, Inc. pursuant
to a planned reorganization.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting. The accounting method recognizes revenues in the accounting
period in which they are earned and expenses when they are incurred regardless
of when cash is paid or received.
NOTE B -- CASH -- RESTRICTED BALANCES
As part of a contractual relationship with the company's lenders certain
fees earned by the Company are not immediately available. The fees are required
to remain on deposit with the lender until certain reserves are met.
Additionally, the Company acts as an escrow agent for certain closings by
specific lenders. The Company can only access these funds after a settlement
sheet is presented by the title company at closing.
NOTE C -- FIXED ASSETS
Fixed Assets are carried at historical cost. The depreciation of the
Property and Equipment is provided using the straight-line method for financial
reporting purposes.
The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Office Furniture............................................ 10 Years
Office Equipment............................................ 5 Years
Computer Equipment.......................................... 3 Years
Capitalized Leases.......................................... 5 Years
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred.
NOTE D -- WAREHOUSE LINE OF CREDIT
The Company has a Warehouse Line of Credit in the amount of $1,000,000,
with nothing outstanding at March 31, 2000. This line bears interest at prime
plus 1%. Under terms of the agreement the Company can draw funds on pre-approved
mortgages based on certain underwriting criteria. These funds are paid back as
each loan is closed with the ultimate lender. Interest is payable monthly on
construction loans and at the time
F-18
<PAGE> 53
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of sale for all other loans. This loan commitment can be terminated only upon
120 days written notice from either party.
NOTE E -- COMMON STOCK
The Company has 50,000,000 shares of common stock authorized, 16,827,122
shares issued and outstanding at a par value of $.01.
F-19
<PAGE> 54
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
SUPPLEMENTAL FINANCIAL INFORMATION
FOR THE THREE MONTHS ENDED
MARCH 31, 2000
F-20
<PAGE> 55
STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited interim financial statements have been prepared
in accordance with Form SB-2 instructions and in the opinion of management
contains all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of Home Financing Centers,
Inc. as of March 31, 2000, and the results of operations, and statements of cash
flows and stockholders' equity for the three months ended March 31, 2000. These
results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of the Company's 1999 financial statements.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Company's 1999 financial
statements.
F-21
<PAGE> 56
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENT OF SELLING, GENERAL & ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31, 2000
--------------
<S> <C>
Administrative Salaries..................................... $36,796
Payroll Taxes............................................... 4,416
Employee Benefits........................................... 2,199
Advertising................................................. 3,681
Automobile Expenses......................................... 2,999
Depreciation & Amortization................................. 3,255
Dues & Subscriptions........................................ 182
Licenses.................................................... 525
Insurance Expense........................................... 5,331
Office Supplies............................................. 9,028
Professional Fees........................................... 6,500
Rent Expense................................................ 3,000
Repairs & Maintenance....................................... 1,694
State & Local Taxes......................................... 100
Telephone Expenses.......................................... 4,729
Travel & Entertainment...................................... 7,371
Utilities................................................... 432
Miscellaneous............................................... 861
-------
Total General & Administrative Expenses................ $93,099
=======
</TABLE>
F-22
<PAGE> 57
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENT OF KEY ANALYTICAL RATIOS
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
<S> <C>
Profitability Ratios:
Return on Equity....................................... -30.48%
Return on Total Investment............................. -23.10%
Return on Total Assets................................. -19.31%
Return on Operating Profit to Net Worth................ -34.82%
Liquidity Ratios:
Working Capital........................................ $252,117
Current Ratio.......................................... 6.06
Asset Productivity Ratios:
Net Fixed Assets to Total Assets....................... 4.83%
Total Liabilities to Equity................................. 0.58
Long Term Debt to Equity............................... N/A
Net Worth to Debt...................................... 1.73
Interest Coverage........................................... N/A
Net Worth to Total Assets.............................. 0.63
Current Assets to Total Assets......................... 81.34%
Turnover Ratios:
Cash Turnover.......................................... 1943.0 Days
Efficiency Ratios:
Total Assets to Sales.................................. 12.06
Fixed Assets to Sales.................................. 58.26%
Sales to Working Capital............................... 12.21%
Sales Per Day.......................................... $341.92
Contribution Ratios:
Gross Profit:
Dollars........................................... $11,216
Percent........................................... 36.45%
Sales Breakeven Point
Monthly................................................ $21,286
Annually............................................... $255,433
</TABLE>
F-23
<PAGE> 58
STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited interim financial statements have been prepared
in accordance with Form SB-2 instructions and in the opinion of management
contains all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of Home Financing Centers,
Inc. as of June 30, 2000, and the results of operations, and statements of cash
flows and stockholders' equity for the three months ended June 30, 2000. These
results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of the Company's 1999 financial statements.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Company's 1999 financial
statements.
F-24
<PAGE> 59
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
JUNE 30, 2000
-------------
<S> <C>
ASSETS
Current Assets:
Cash................................................... $ 25,391
Restricted Cash........................................ 79
Shareholder Loan Receivable............................ 138,390
--------
$163,860
Fixed Assets:
Office Furniture....................................... 6,123
Office Equipment....................................... 32,968
--------
39,091
Less: Accumulated Depreciation......................... 15,516
--------
$ 23,575
Other Assets:
Cash Surrender Value of Officer's Life Insurance....... 4,515
Deposits............................................... 1,243
Computer Software, Net of Amortization................. 80,211
Prepaid Taxes.......................................... 29,579
--------
$115,548
--------
Total Assets...................................... $302,983
========
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt...................... $ 9,824
Line of Credit......................................... 25,000
Accounts Payable....................................... 17,581
Accrued Profit Sharing................................. 30,000
Accrued Taxes.......................................... 9,138
--------
$ 91,543
Long Term Debt
Note Payable........................................... $ 49,250
Less: Less Current Portion............................. 9,824
--------
$ 39,426
--------
Total Liabilities................................. $130,969
SHAREHOLDER'S EQUITY
Common Stock, ($0.01 Par Value), 50,000,000 Shares
Authorized, 17,802,824 Shares Issued & Outstanding........ 236,991
Convertible Preferred Stock, ($0.01 Par Value 2,000,000
Shares Authorized; 1,615 Issued & Outstanding)............ 9,002
Additional Paid In Capital.................................. 351,327
Retained Earnings........................................... (425,306)
--------
$172,014
--------
Total Liabilities & Shareholder's Equity.......... $302,983
========
</TABLE>
F-25
<PAGE> 60
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENT OF RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
Balance -- January 1, 2000............................... $(238,685)
Net Income (Loss)........................................ (71,671)
---------
Balance -- March 31, 2000................................ $(310,356)
Net Income (Loss)........................................ (114,950)
---------
Balance -- June 30, 2000................................. $(425,306)
=========
</TABLE>
F-26
<PAGE> 61
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31 TO JUNE 30, 2000
AND
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX FOR THE THREE
MONTHS MONTHS MONTHS
MARCH 31, TO ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000 MARCH 31, 2000
------------- ------------- --------------
<S> <C> <C> <C>
Net Mortgage Fees Earned................................ $ 77,478 $ 108,251 $ 30,773
--------- --------- --------
Cost Of Closing Appraisal Fees.......................... 3,795 4,970 1,175
Closing Expenses................................... 11,402 11,921 519
Referral Fees...................................... 700 1,735 1,035
Credit Report Fees................................. (3,110) 1,756 4,866
Internet Services.................................. 4,057 15,933 11,876
Other Miscellaneous Fees........................... 896 982 86
--------- --------- --------
Total Costs Of Closing........................ $ 17,740 $ 37,297 $ 19,557
--------- --------- --------
Gross Profit............................................ $ 59,738 $ 70,954 $ 11,216
Selling, General & Administrative Expenses.............. $ 191,204 $ 284,303 $ 93,099
--------- --------- --------
Operating Income (Loss)................................. $(131,466) $(213,349) $(81,883)
Other (Deductions):
Interest Income.................................. $ 81 $ 81 $ --
Interest Expense................................. (770) (2,932) (2,162)
--------- --------- --------
Income (Loss) Before Income Tax Expense (Benefit)....... $(132,155) $(216,200) $(84,045)
Income Tax Expense (Benefit)............................ $ (17,205) $ (29,579) $(12,374)
--------- --------- --------
Net Income (Loss)....................................... $(114,950) $(186,621) $(71,671)
========= ========= ========
</TABLE>
F-27
<PAGE> 62
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
STATEMENTS OF CASH FLOW
MARCH 31 TO JUNE 30, 2000
AND
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX FOR THE THREE
MONTHS MONTHS MONTHS
MARCH 31, TO ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000 MARCH 31, 2000
------------- ------------- --------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income......................................... $(114,950) $(186,621) $ (71,671)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation.................................. 1,845 3,352 1,496
Amortization.................................. 4,325 6,082 1,757
Change in Current Assets and Liabilities:
Decrease in Accounts Receivable............... -- 100,000 100,000
Increase in Shareholder Receivable............ (1,516) (1,536) --
Decrease in Prepaid Insurance................. 657 1,643 986
Increase in Prepaid Taxes..................... (17,205) (29,579) (12,374)
Increase (Decrease) in Accounts Payable....... 6,892 (160,535) (167,427)
Increase in Accrued Profit Sharing............ -- -- --
Decrease in Accrued Taxes..................... -- (3,000) (3,000)
Total Adjustments........................ -- -- --
--------- --------- ---------
$ (5,013) $ (83,573) $ (78,560)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... $(119,963) $(270,194) $(150,231)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures............................... (7,500) (9,095) (1,595)
Development of Website Software.................... (51,350) (83,873) (32,523)
Additional Paid in Capital Received................ 51,827 351,327 299,500
Issuance of Common Stock........................... -- 28,000 28,000
--------- --------- ---------
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES..... $ (7,023) $ 286,359 $ 293,382
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease (Increase) in Restricted Cash Accounts.... 544 52 (492)
(Increase) in Cash Surrender Value of Officer's
Life Insurance................................... -- -- --
Payments on Line of Credit......................... (66,666) (71,166) (4,500)
Borrowings on Line of Credit....................... 5,439 14,500 9,061
Payments on Note................................... (750) (750) --
Borrowings on Note................................. 50,000 50,000 --
--------- --------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES................. $ (11,433) $ (7,364) $ 4,069
--------- --------- ---------
NET (DECREASE) IN CASH.................................. $(138,419) $ 8,801 $ 147,220
--------- --------- ---------
CASH BALANCE, BEGINNING OF PERIOD....................... $ 163,810 $ 16,590 $ 16,590
--------- --------- ---------
CASH BALANCE, END OF PERIOD............................. $ 25,391 $ 25,391 $ 163,810
========= ========= =========
CASH PAID DURING THE PERIOD FOR:........................ $ 770 $ 2,932 $ 2,162
========= ========= =========
Interest..............................................
</TABLE>
F-28
<PAGE> 63
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Home Financing Centers,
Inc. (Formerly Kentex Energy, Inc.) (the Company) is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY
The Company was formed in May, 1993 to provide residential mortgage loans,
refinancing and home equity loans. The Company's offices are located in
Swampscott, Massachusetts.
On January 13, 2000, the Company shareholder exchanged his stock with
Kentex Energy, Inc. Over the Counter (OTCBB). As part of the exchange Kentex
Energy, Inc. agreed to change its name to Home Financing Centers, Inc. pursuant
to a planned reorganization.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting. The accounting method recognizes revenues in the accounting
period in which they are earned and expenses when they are incurred regardless
of when cash is paid or received.
NOTE B -- CASH -- RESTRICTED BALANCES
As part of a contractual relationship with the company's lenders certain
fees earned by the company are not immediately available. The fees are required
to remain on deposit with the lender until certain reserves are met.
Additionally, the Company acts as an escrow agent for certain closings by
specific lenders. The Company can only access these funds after a settlement
sheet is presented by the title company at closing.
NOTE C -- FIXED ASSETS
Fixed Assets are carried at historical cost. The depreciation of the
Property and Equipment is provided using the straight-line method for financial
reporting purposes.
The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Office Furniture............................................ 10 Years
Office Equipment............................................ 5 Years
Computer Equipment.......................................... 3 Years
Capitalized Leases.......................................... 5 Years
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred.
NOTE D -- LINE OF CREDIT
The Company has a Warehouse Line of Credit in the amount of $1,000,000,
with nothing outstanding at June 30, 2000. This line bears interest at prime
plus 1%. Under terms of the agreement the Company can draw funds on pre-approved
mortgages based on certain underwriting criteria. These funds are paid back as
each loan is closed with the ultimate lender. Interest is payable monthly on
construction loans and at the time of sale for all other loans. This loan
commitment can be terminated only upon 120 days written notice from either
party.
F-29
<PAGE> 64
HOME FINANCING CENTERS, INC.
(FORMERLY KENTEX ENERGY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- NOTE PAYABLE
The Company has a note payable in the amount of $50,000, with $49,250 at
June 30, 2000. This note is payable over the next 46 months at $1,417 per month
at and interest rate of 15.99%.
NOTE F -- COMMON STOCK
The Company has 50,000,000 shares of common stock authorized, 17,802,824
shares issued and outstanding at a $0.01 par value.
F-30
<PAGE> 65
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
As a result of the acquisition of MAS Acquisition X Corp. Transaction,
Cerasi, Kraus & Associates, Inc., Certified Public Accountants, 150 East Sprague
Road, Broadview Heights, Ohio 44147 is the new certifying accountant MAS.
Cerasi, Kraus & Associates, Inc. has been certifying accountant of the Company
prior to the acquisition of MAS by the Company. The decision to change
accountants was approved by the board of directors.
The reports of the former certifying accountant of MAS, Stark Tinter &
Associates, LLC, did not contain an adverse opinion, disclaimer of opinion, nor
was qualified nor modified as to uncertainty, audit scope or accounting
principals, except for the uncertainty with respect to the Company's ability to
continue as a going concern. Moreover, there was no disagreement nor "reportable
event" with the former accountants of MAS.
F-31
<PAGE> 66
---------------------------------------------------------
---------------------------------------------------------
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Available Information................... 2
Information Incorporated by Reference... 2
Summary Information and Risk Factors.... 3
Forward Looking Statements.............. 13
Selling Security Holders................ 14
Plan of Distribution.................... 15
Legal Proceedings....................... 15
Directors, Executive Officers, Promoters
and Control Persons................... 15
Security Ownership of Certain Beneficial
Owners and Management................. 16
Description of Securities............... 16
Experts and Counsel..................... 17
Interest of Named Experts and Counsel... 17
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... 17
Description of the Business............. 17
Managements Discussion and Analysis or
Plan of Operation..................... 29
Description of Property................. 32
Certain Relationships and Related
Transactions.......................... 32
Market for Common Equity and Related
Stockholder Matters................... 32
Executive Compensation.................. 33
Financial Statements.................... F-1
Changes In and Disagreements With
Accountants and Financial
Disclosure............................ F-31
</TABLE>
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
5,165,000 SHARES
OF
COMMON STOCK
[HomeFinancingCenters.com]
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 67
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.750 of the Nevada Revised Statutes provides mandatory and
discretionary indemnification providing that a corporation may indemnify any
officer, director and other persons for against any liability incurred for
actions taken by them on behalf of the company provided that such person acts in
good faith and in a manner which he reasonably believed to be in the best
interest of the company and, and with respect to criminal proceedings, if such
person had a reasonable basis to believe that his conduct was lawful.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate (except with respect to SEC
Registration fees) of all fees and expenses in connection with the issuance and
distribution of the securities being registered, all of which will be paid by
the Company:
SEC registration fee: $681.78
Printing expenses: $3,000.00
Legal fees and expenses: $5,000.00
Accounting fees and expenses: $1,500.00
Blue Sky fees and expenses: $500.00
Transfer agent fees: $250.00
Edgar Fees and Expenses: $100.00
Miscellaneous: $500.00
RECENT SALES OF UNREGISTERED SECURITIES
In January, 2000, the Company issued 560,000 shares of its common stock to
Mr. Steven Stark and certain of his nominees in satisfaction of certain
compensation owed to Mr. Stark for consulting services provided to the Company
in 1998. The shares were issued pursuant to an exemption afforded by Section
4(2) under the Act. The Company took all the necessary steps to assure that the
persons issued shares were sophisticated investors and understood the risk of
investing in the Company. Each person was given information regarding the
Company and was afforded an opportunity to ask questions and receive additional
information about the company. All persons receiving the shares represented to
the company that they were acquiring the shares for their own accounts without a
view of distribution thereof and for investment purposes only. Each person
understood and was willing to bear the risk of an investment in the common
stock.
On February 3, 2000, the Company issued 13,000,000 shares of its common
stock to Mr. Kovner, the sole stockholder of Home Financing Centers, Inc., a
Massachusetts company in connection with the Merger Agreement in reliance upon
Section 3(a)(9) of the Act.
In February, 2000, the Company completed an offering of 2,600,000 shares of
its common stock pursuant to Regulation D under the Act. No underwriter or
placement agent was involved in the offering. The gross proceeds of the offering
were $2,600.00. The offering was made to accredited investors only. The Company
obtained written subscription documents indicating that each of the purchasers
was an "accredited investor" within the meaning of Regulation D and each
investor provided the Company with information concerning, among other things,
his or her education and past investment activity. Each investor was given
information concerning the company and was afforded and opportunity to ask
questions and receive any additional information which he or she deemed relevant
in making an investment in the Company. Each investor further represented to the
company that he or she was acquiring the shares for investment purposes only
without a view of distribution and understood and was willing to bear the risk
the investment in the common stock.
In April, 2000, the Company completed an offering of 580,000 shares of its
common stock pursuant to Regulation D under the Act. No underwriter or placement
agent was involved in the offering. The gross proceeds of the offering was
$290,000.00. The offering was made to accredited investors only. The Company
obtained written subscription documents indicating that each of the purchasers
was an "accredited investor"
II-1
<PAGE> 68
within the meaning of Regulation D and each investor provided the Company with
information concerning, among other things, his or her education and past
investment activity. Each investor was given information concerning the company
and was afforded and opportunity to ask questions and receive any additional
information which he or she deemed relevant in making an investment in the
Company. Each investor further represented to the company that he or she was
acquiring the shares for investment purposes only without a view of distribution
and understood and was willing to bear the risk the investment in the common
stock.
II-2
<PAGE> 69
EXHIBITS
<TABLE>
<CAPTION>
NUMBER NAME
------ ----
<C> <S>
2.1 Plan and Agreement of Reorganization between Home Financing
Centers, Inc., a Nevada corporation and Home Financing
Centers, Inc. a Massachusetts corporation.
3.1 Articles of Incorporation of the Company
3.2 By-Laws of the Company
5.1* Legality Opinion of Falcone & Curd LLP
10.1 Agreement, dated April 26, 2000, between Home Financing
Centers, Inc. and MAS Capital Corp., (Incorporated by
reference to Form 8-K of the Company, dated May 16, 2000)
10.2 Master Revolving Loan and Security Agreement, dated June 30,
2000, between Home Financing Centers, Inc. and Warehouse
Lending Corporation of America.
16 Letter of Stark Tinter & Associates, LLC regarding change in
certifying accountants of the Company (Incorporated by
reference to Form 8-K of the Company, dated May 16, 2000)
23.1 Consent of Falcone & Curd LLP (incorporated in the text of
Exhibit 5.1)
23.2 Consent of Cerasi, Krauss & Associates, Inc
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for the quarter ended June
30, 2000
</TABLE>
---------------
* To be filed by Amendment.
II-3
<PAGE> 70
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (1)(a) and (1)(b) above do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall by deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 15, Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment to the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof
II-4
<PAGE> 71
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of
Swampscott, State of Massachusetts on September 1, 2000.
HOME FINANCING CENTERS, INC.
/s/ GARY J. KOVNER
--------------------------------------
GARY J. KOVNER, PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated
September 1, 2000
/s/ GARY J. KOVNER
--------------------------------------
GARY J. KOVNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND DIRECTOR
II-5
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER NAME
------ ----
<C> <S>
2.1 Plan and Agreement of Reorganization between Home Financing
Centers, Inc., a Nevada corporation and Home Financing
Centers, Inc. a Massachusetts corporation.
3.1 Articles of Incorporation of the Company
3.2 By-Laws of the Company
5.1* Legality Opinion of Falcone & Curd LLP
10.1 Agreement, dated April 26, 2000, between Home Financing
Centers, Inc. and MAS Capital Corp. (Incorporated by
reference to Form 8-K of the Company, dated May 16, 2000)
10.2 Master Revolving Loan and Security Agreement, dated June 30,
2000, between Home Financing Centers, Inc. and Warehouse
Lending Corporation of America.
16 Letter of Stark Tinter & Associates, LLC regarding change in
certifying accountants of the Company (Incorporated by
reference to Form 8-K of the Company, dated May 16, 2000)
23.1 Consent of Falcone & Curd LLP (incorporated in the text of
Exhibit 5.1)
23.2 Consent of Cerasi, Krauss & Associates, Inc.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for the quarter ended June
30, 2000
</TABLE>
---------------
* To be filed by Amendment.
