<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Check One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) UNDER THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period _________________ to ____________________
Commission File No.000-25795
HOME FINANCING CENTERS, INC
----------------------------
(Exact Name of Small Business Issuer as specified in its charter)
NEVADA
(State or other jurisdiction 93-1249831
of incorporation or organization) (IRS Employer Identification Number)
112-114 BURRILL STREET SWAMPSCOTT, MASSACHUSETTS 01907-1808
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(Address of principal executive offices)
(781) 596-1992
(Issuer's telephone number)
--------------------------
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
equity, as of the last practicable date: 17,902,124 as of September 30, 2000.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [ ]
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Balance Sheet
As of
September 30, 2000
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ASSETS
Current Assets:
Cash $ 12,432
Restricted Cash 913
Other Loans Receivable 4,102
Shareholder Loan Receivable 138,390
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$ 155,837
Fixed Assets:
Office Furniture 6,836
Office Equipment 33,753
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40,589
Less: Accumulated Depreciation 17,510
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$ 23,079
Other Assets:
Cash Surrender Value of Officer's Life Insurance 4,515
Deposits 1,243
Computer Software, Net of Amortization 75,886
Prepaid Taxes 46,475
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$ 128,119
----------
Total Assets $ 307,035
==========
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Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Balance Sheet
As of
September 30, 2000
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LIABILITIES
Current Liabilities:
Current Portion of Long Term Debt $ 20,436
Line of Credit 46,724
Accounts Payable 27,815
Accrued Profit Sharing 30,000
Accrued Taxes 9,138
---------
$ 134,113
Long Term Debt
Note Payable $ 71,938
Less: Less Current Portion 20,436
---------
$ 51,502
---------
Total Liabilities $ 185,615
SHAREHOLDER'S EQUITY
Common Stock,(No Par Value) 50,000,000 Shares
Authorized, 17,902,124 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 398,827
Retained Earnings (Deficit) (523,400)
---------
$ 121,420
---------
Total Liabilities & Shareholder's Equity $ 307,035
=========
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Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Statement of Retained Earnings (Deficit)
For the Nine Months Ended
September 30, 2000
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Balance - January 1, 2000 $ (238,685)
Net Income (Loss) (186,621)
----------
Balance - June 30, 2000 $ (425,306)
Net Income (Loss) (98,094)
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Balance - September 30, 2000 $ (523,400)
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Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Income Statements
For the Three Months Ended
June 30 to September 30, 2000
&
For the Nine Months Ended
September 30, 2000
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<TABLE>
<CAPTION>
For the Three For the Nine For the Six
Months Months Months
June 30, to Ended Ended
September 30, 2000 September 30, 2000 June 30, 2000
------------------ ------------------ -------------
<S> <C> <C> <C>
Net Mortgage Fees Earned $ 40,557 $ 148,808 $ 108,251
--------- --------- ---------
Cost Of Closing:
Appraisal Fees 6,645 11,615 4,970
Closing Expenses -- 11,921 11,921
Referral Fees 2,549 4,284 1,735
Credit Report Fees (366) 1,390 1,756
Internet Services 4,319 20,252 15,933
Other Miscellaneous Fees 3,202 4,184 982
--------- --------- ---------
Total Costs Of Closing $ 16,349 $ 53,646 $ 37,297
--------- --------- ---------
Gross Profit $ 24,208 $ 95,162 $ 70,954
Selling, General & Administrative Expenses $ 137,262 $ 421,565 $ 284,303
--------- --------- ---------
Operating Income (Loss) $(113,054) $(326,403) $(213,349)
Other (Deductions):
Interest Income $ 3 $ 84 $ 81
Interest Expense (1,939) (4,871) (2,932)
--------- --------- ---------
Income (Loss) Before Income Tax Expense (Benefit $(114,990) $(331,190) $(216,200)
Income Tax Expense (Benefit) $ (16,896) $ (46,475) $ (29,579)
--------- --------- ---------
Net Income (Loss) $ (98,094) $(284,715) $(186,621)
========= ========= =========
</TABLE>
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Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Statements of Selling, General & Administrative Expenses
For the Three Months Ended
June 30 to September 30, 2000
&
For the Nine Months Ended
September 30, 2000
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<TABLE>
<CAPTION>
For the Three For the Nine For the Three
Months Months Months
June 30, to Ended Ended
September 30, 2000 September 30, 2000 June 30, 2000
------------------ ------------------ -------------
<S> <C> <C> <C>
Administrative Salaries $ 38,200 $ 116,690 $ 78,490
Payroll Taxes 3,378 10,653 7,275
Employee Benefits 2,209 6,607 4,398
Advertising 33,319 107,775 74,456
Automobile Expenses 3,004 7,526 4,522
Depreciation & Amortization 6,318 15,753 9,435
Dues & Subscriptions 30 362 332
Insurance Expense 10,993 20,515 9,522
Investor Relations 8,578 12,093 3,515
Licenses - 1,125 1,125
Office Supplies 5,034 21,023 15,989
Professional Fees 10,294 42,620 32,326
Rent Expense 1,200 9,200 8,000
Repairs & Maintenance 2,822 6,003 3,181
State & Local Taxes 462 662 200
Telephone Expenses 5,934 12,890 6,956
Travel & Entertainment 3,178 23,889 20,711
Utilities 983 2,035 1,052
Miscellaneous 1,326 4,144 2,818
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Total General & Administrative Expenses $ 137,262 $ 421,565 $ 284,303
========= ========= =========
</TABLE>
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Home Financing Centers, Inc.
(Formerly Kentex Energy, Inc.)
Statements of Cash Flow
For the Three Months Ended
June 30 to September 30, 2000
&
For the Nine Months Ended
September 30, 2000
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<TABLE>
<CAPTION>
For the Three For the Nine For the Three
Months Months Months
June 30, to Ended Ended
September 30, 2000 September 30, 2000 June 30, 2000
------------------ ------------------ -------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ (98,094) $(284,715) $(186,621)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation 1,994 5,346 3,352
Amortization 4,325 10,407 6,082
Change in Current Assets and Liabilities:
Decrease in Accounts Receivable -- 100,000 100,000
Increase in Notes Receivable (4,102) (4,102) --
Increase in Shareholder Receivable -- (1,536) (1,536)
Decrease in Prepaid Insurance -- 1,643 1,643
Increase in Prepaid Taxes (16,896) (46,475) (29,579)
Increase (Decrease) in Accounts Payable 10,234 (150,301) (160,535)
Increase in Accrued Profit Sharing -- -- --
Decrease in Accrued Taxes -- (3,000) (3,000)
--------- --------- ---------
Total Adjustments $ (4,445) $ (88,018) $ (83,573)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $(102,539) $(372,733) $(270,194)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (1,498) (10,593) (9,095)
Development of Website Software -- (83,873) (83,873)
Additional Paid In Capital Received 47,500 398,827 351,327
Issuance of Common Stock -- 28,000 28,000
--------- --------- ---------
NET CASH PROVIDED BY(USED BY) INVESTING ACTIVITIES $ 46,002 $ 332,361 $ 286,359
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease (Increase) in Restricted Cash Accounts (834) (782) 52
(Increase) in Cash Surrender Value of Officer's
Life Insurance -- --
Payments on Line of Credit (1,000) (72,166) (71,166)
Borrowings on Line of Credit 22,724 37,224 14,500
Payments on Note (3,312) (4,062) (750)
Borrowings on Note 26,000 76,000 50,000
--------- --------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES $ 43,578 $ 36,214 $ (7,364)
--------- --------- ---------
NET (DECREASE) IN CASH $ (12,959) $ (4,158) $ 8,801
CASH BALANCE, BEGINNING OF PERIOD $ 25,391 $ 16,590 $ 16,590
--------- --------- ---------
CASH BALANCE, END OF PERIOD $ 12,432 $ 12,432 $ 25,391
========= ========= =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,939 $ 4,871 $ 2,932
========= ========= =========
</TABLE>
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Item 2. Management's Discussion and Analysis or Plan of Operation
Forward Looking Statements
Certain statements made in this quarterly report 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
quarterly report are based on events through the date on which the statements
are made.
Overview
We are emerging as a leading Internet destination site for homeowners and
homebuyers, 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 our mortgage broker services in 1993 and
launched our website 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 the lender pays us. Additionally, we also derive revenues from origination
and sale of loans. Originated and sold loans are loans that are funded through
our own warehouse line 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 dale of loans
includes a service release premium.
To date, we have generated transactions revenues primarily through our
consumer-direct channel. We reach customers online and offline through
television, radio and print media, as well as our relationships with other real
estate professionals. We intend to aggressively expand into other market
channels, including Realtors, homebuilders, financial institutions, mortgage
brokers and relocation specialists. We hope to derive mortgage fees and other
revenues from these channels in the future.
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 September 30, 2000, Compared to Three Months Ended June 30,
2000
Revenues. Total revenues decreased by $37,191 to $40,557 for the three months
ended September 30, 2000 from $77,748 for the three months ended June 30, 2000.
The decrease in total revenues primarily resulted from a decrease in transaction
revenues due to a lower number of closed loans in the third quarter.
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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 closings.
Operations expenses decreased $1,391 to $16,349 for the three months ended
September 30, 2000 from $ 17,740 for the three months ended June 30, 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 decreased $53,942 to $137,262 for the three months ended September 30,
2000 from $191,204 for the three months ended June 30, 2000. We experienced a
decrease in the third quarter because of the reduced seasonal commitment to A
MAJOR NEWSPAPER AND RADIO ADVERTISING CAMPAIGN AND THE PURCHASE OF A HIGHLY
DESIRABLE TOLL-FREE TELEPHONE NUMBER AND RADIO JINGLE CENTERED AROUND THE THEME
OF 1-877-MYNEWLOAN, 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.
Liquidity and Capital Resources
The Company has experienced a period of rapid growth that has placed a strain on
its resources. We continue to maintain credit facilities to assist us in our
business operations. Our revenues have been sufficient to fund the Company's
recent operations, however, general economic conditions as well as changes in
the interest rates can have material adverse effect on the home buying market
and the real estate market as a whole. Additionally, we are committed to
continue an aggressive marketing campaign to establish our brand name nationwide
and to expand our operations. We have also continued our efforts to forge
strategic partnerships with other companies, including Internet companies, to
further promote our brand name.
Our 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, we will continue to pursue several initiatives
intended to increase liquidity and better position the Company to compete under
current market conditions. We are hopeful that our revenues will be sufficient
to sustain our capital requirements for the next six to twelve months, however,
there can be no assurance that adverse market conditions and/or added costs of
expansion and marketing could require us to raise additional capital in fiscal
year 2001.
Quantitative and Qualitative Disclosures About Market Risk
Interest rate movements significantly impact our volume of closed loans.
Interest rate movements represent the primary component of market risk to us. In
a higher interest rate environment, borrower demand for mortgage loans,
particularly refinancing of existing mortgages, declines. Interest rate
movements affect the interest income earned on loans we hold for sale in the
secondary market, interest expense on our warehouse lines, the value of mortgage
loans we hold for sale in the secondary market and ultimately the gain on the
sale of those mortgage loans. In addition, in an increasing interest rate
environment, the volume of mortgage loans that our clients originate declines.
Prior to January 2000, we originated mortgage loans and managed the market
risk related to those loans by pre-selling them on a best efforts basis to the
anticipated secondary market investors at the same time that we established the
borrowers' interest rates. When selling loans on a best efforts basis, if we can
deliver the loans within the time frames established by the secondary market
investors, we have no interest rate risk exposure on those loans. However, if
<PAGE> 10
the loan closes but we cannot deliver the loan within those time frames, and if
interest rates increase, we may experience a reduced gain or may even incur a
loss on the sale of the loan. In the third quarter, we sold the majority of the
loans through best efforts commitments, which means we do not suffer a penalty
if the loans do not close.
The balance of the loans, including sub-prime loans, are sold on a
mandatory delivery basis. Selling on a mandatory delivery basis means we are
required to sell the loans to a secondary market investor at a price we agree
upon at the time of sale, regardless of whether the loans close and are
available for delivery. This potentially generates greater revenue for us
because secondary market investors are willing to pay more for a mandatory
delivery commitment from us. However, it also exposes us to penalties if the
loans do not close or are not available for delivery.
An effective hedging strategy is complex and no hedging strategy can
completely eliminate our risk. Part of this is because the prices of
mortgage-backed securities do not necessarily move in tandem with the prices of
loans we receive from investors when we sell them. To the extent the two prices
do not move in tandem, our hedging strategy may not work, and we may experience
losses on our sales of mortgage loans in the secondary market. The other key
factor is whether our projections properly estimate the number of loans that
will actually close. To the extent that our projections prove inaccurate so that
we have not effectively matched our purchases and sales of mortgage-backed
securities with the sale of the closed loans we have originated, our gains on
sales of mortgage loans would be reduced, or we would experience a net loss on
those sales.
We do not currently maintain a trading portfolio. As a result, we are not
exposed to market risk as it relates to trading activities. Our entire loan
portfolio is held for sale. Accordingly, we must perform market valuations of
our pipeline, our mortgage portfolio held for sale and the related sale
commitments in order to properly record the portfolio and the pipeline at the
lower of cost or market. Therefore, we measure the value of our loan portfolio
based on the prices at which the loans would sell in the secondary market, using
prevailing interest rates in the market.
Based on the hedging and loan sale strategies described, we believe that a
1% increase or decrease in long-term interest rates would not have a significant
adverse effect on our earnings from interest rate sensitive assets. We pay off
warehouse lines when the loans are sold in the 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. However, since a significant percentage of our closed loan
volume is from refinancing mortgage loans and because overall loan volume is
somewhat dependent upon long-term interest rates, our future operating results
may be more sensitive to interest rate movements.
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PART II OTHER INFORMATION
Item 5. Other Information
In October, 2000, the Company began a strategic partnership with
Monsterdaata.com, which is a leading provider of real estate due diligence
information and transaction facilitation tools over the Internet. The
partnership features a co-branded site to help consumers find home sales, school
and neighborhood profiles, cost of living , crime, demographic, employment,
environmental and town and community information for areas they may be
interested in living in. This site will be hosted by Monsterdaata.com and
featured within our website. We believe that this content will assist visitors
to our website in gathering information relative to the home buying process.
On November 6, 2000, the Company's common stock was accepted for quotation on
the OTC Bulletin Board under the symbol "HFCI."
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 22, 2000 Home Financing Centers, Inc.
/s/ Gary J. Kovner
-------------------------
Gary J. Kovner, President
