As filed with the Securities and Exchange Commission on July 31, 2000
File No.
---------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DISCOUNT MORTGAGE SOURCE, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Texas 522200 75-2882833
----------------------------- ------------------------- ------------------
(State or jurisdiction of (Primary Industrial I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.
750 I-30 East, Suite 170, Rockwall, Texas 75087 (972) 771-3863
--------------------------------------------------------------
(Address, including the ZIP code & telephone number, including area code of
Registrant's principal executive office)
Michael Kamps
750 I-30 East, Suite 170, Rockwall, Texas 75087 (972) 771-3863
--------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code of
agent for service)
Copies to:
Lamberth & Stewart, PLLC
Attorneys at Law
2840 Lincoln Plaza, 500 N. Akard Street
Dallas, Texas 75201
(214) 740-4270
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of Each Amount Proposed Maximum Proposed Amount of
Class of Securities To be Offering Price Maximum Aggregate Registration
to be Registered Registered Per Share Offering Price Fee
----------------------------------------------------------------------------------------------
Common Stock,
$0.001 par value
Minimum 240,000 $0.25 $ 60,000 $269
Maximum 2,000,000 $0.25 $ 500,000 $269
----------------------------------------------------------------------------------------------
</TABLE>
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 specifically states that the registration statement
shall hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Initial public offering
prospectus
Discount Mortgage Source, Inc.
Minimum of 240,000 shares of common stock, and a
Maximum of 2,000,000 shares of common stock
$0.25 per share
We are making a best efforts offering to sell common stock in our company. The
common stock will be sold by our sole officer and director, Michael Kamps. The
offering price was determined arbitrarily and we will raise a minimum of $60,000
and a maximum of $500,000. The funds will be held in escrow by an attorney until
the minimum amount is sold, at which time the funds will be released to the
company and stock certificates issued. The offering will end on December 31,
2000 and should we not sell the minimum amount and funds are returned to
investors, no interest will be paid on these funds.
The Offering:
Per Share Minimum Maximum
Public Offering Price . . . $0.25 $ 60,000 $500,000
There is currently no market for our securities.
----------------------------
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" Beginning on Page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
-----------------------------
This Prospectus is dated July 31, 2000
1
<PAGE>
PROSPECTUS SUMMARY
OUR COMPANY
We were incorporated on July 11, 2000 in the State of Texas. We are
engaged in the application of mortgage loans over the internet. To date we have
had three applications for loans. The first loan application closed on July 24,
2000 on which we earned revenue of $995.00. The other two are in the
underwriting process. The funds from this offering will allow us to begin
advertising, make strategic marketing alliances and make agreements with other
suppliers in order to increase sales. The minimum funds raised in this offering
will take us to a point where we reach the operating stage.
THE OFFERING
Minimum Maximum
--------- ---------
Common stock offered 240,000 2,000,000
Total shares outstanding after this offering 2,320,000 3,080,000
Officers, directors and their affiliates will not be able to purchase shares in
this offering.
USE OF PROCEEDS
Most of the money you invest will represent proceeds to the company. We will use
the proceeds from this offering to:
o pay expenses of this offering
o develop our website to offer more products and better service
o marketing and general working capital
2
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and all other
information contained in this prospectus before making an investment decision.
We are a recently formed company, formed in the State of Texas on July 11, 2000,
with limited activity and losses that may continue for the foreseeable future.
We have not achieved profitability and expect to continue to incur net losses
for the foreseeable future. We expect to incur significant operating expenses
and, as a result, will need to generate significant revenues to achieve
profitability, which may not occur. Even if we do achieve profitability, we may
be unable to sustain or increase profitability on a quarterly or annual basis in
the future. If we are unable to achieve profitability, your investment in our
common stock may decline or become worthless.
We rely on our sole officer for decisions and he will retain substantial control
over our business after the offering and may make decisions that are not in the
best interest of all stockholders.
Upon completion of this offering, our sole officer will, in the aggregate,
beneficially own approximately 81.96% (or 47.62% if maximum is sold) of the
outstanding common stock. As a result, our sole officer will have the ability to
control substantially all the matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. He will also
control our management and affairs. Accordingly, this concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
us, impeding a merger, consolidation, takeover or other business combination
involving us or discouraging a potential acquirer from making a tender offer or
otherwise attempting to take control of us, even if the transaction would be
beneficial to other stockholders. This in turn could materially cause the value
of our stock to decline or become worthless.
We may have to raise additional capital which may not be available or may be too
costly.
Our capital requirements are and will continue to be more than our operating
income. We do not have sufficient cash to indefinitely sustain operating losses.
Our potential profitability depends on our ability to generate and sustain
substantially higher net sales while maintaining reasonable expense levels. We
cannot assure you that we will be able to operate on a profitable basis or that
cash flow from operations will be sufficient to pay our operating costs. We
anticipate that the funds raised in this offering will be sufficient to fund
operations through June 2001. Thereafter, if we do not achieve profitability, we
will need to raise additional capital to finance our operations. We anticipate
seeking additional financing through debt or equity offerings. We cannot assure
you that additional financing will be available to us, or, if available, any
3
<PAGE>
financing will be on terms acceptable or favorable to us. If we need and cannot
raise additional funds, further development of our business, upgrades in our
technology, additions to our product lines may be delayed and we otherwise may
not be able to execute our business plan, all of which may have a material
adverse effect on our operations; if this happens, the value of your investment
will decline and may become worthless.
We are dependent on mortgage lender relationships to approve our borrowers and
if we lose these relationships without replacing them, our business could
decline and cause your investment to become worthless.
We are dependent on four mortgage lender relationships to funds on mortgage
loans since we act as a broker. These lenders are under no obligation to
continue their relationships with us or make a loan to any potential borrower we
present to them. Our reliance on this group of lenders makes our origination
volume more susceptible to changes in the rates, services and products such
lenders offer. The loss of our relationship with any of these lenders, or the
failure of these lenders to offer competitive terms, could have a material
adverse impact on our ability to attract borrowers and close loans which could
cause the value of your investment to decline or become worthless.
If there are interruptions or delays in obtaining appraisal, credit reporting,
title searching and other underwriting services from third parties, we may
experience customer dissatisfaction and difficulties closing loans which would
affect our revenue and the value of your investment would decline or become
worthless.
We rely on other companies to perform certain aspects of the loan underwriting
process, including appraisals, credit reporting and title searches. If the
provision of these ancillary services were interrupted or delayed, it could
cause delays in processing and closing loans for our customers. The value of the
service we offer and the ultimate success of our business are dependent on our
ability to secure the timely provision of these ancillary services by the third
parties with whom we have these relationships. If we are unsuccessful in
securing the timely delivery of these ancillary services we will likely
experience customer dissatisfaction and our revenue would suffer causing the
value of your investment to decline or to become worthless.
If interest rates rise, demand for mortgages generally declines which in turn
affects our revenue adversely and will cause your investment to decline in
value.
The residential mortgage business depends upon the overall levels of sales and
refinancing of residential real estate as well as on mortgage loan interest
rates. An increase in interest rates, which is outside our control, could have a
material adverse impact on our business. Rising interest rates discourage
refinancing activities and generally reduce the number of home sales that occur.
If interest rates should rise, our revenue could be adversely affected and the
value of your investment will decline.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our industry, our beliefs
and our assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" and elsewhere in this prospectus. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus.
USE OF PROCEEDS
The total cost of the minimum offering is estimated to be $16,769, or
$33,769 if the maximum is sold consisting primarily of legal, accounting and
blue sky fees.
The following table sets forth how we anticipate using the proceeds
from selling common stock in this offering, reflecting the minimum and maximum
subscription amounts:
$60,000 $500,000
Minimum Maximum
--------------------------------------------------------------------------------
Legal, Accounting & Printing Expenses 9,500 26,500
Other Offering Expenses 7,269 7,269
Net Proceeds to Company 43,231 466,231
-------- --------
TOTAL $ 60,000 $500,000
The following describes each of the expense categories:
o legal, accounting and printing expense is the estimated costs
associated with this offering;
o other offering expenses includes SEC registration fee, blue sky fees
and miscellaneous expenses with regards to this offering.
The following table sets forth how we anticipate using the net proceeds
to the company:
$60,000 $500,000
Minimum Maximum
--------------------------------------------------------------------------------
Development of website $ 10,000 $ 50,000
Office equipment 4,000 46,000
5
<PAGE>
Salaries -0- 78,000
Internet security -0- 27,000
Advertising our website 19,000 215,000
Expenses in adding new products/services 5,000 30,000
General corporate overhead 5,231 20,231
-------- --------
Proceeds to company $ 43,231 $466,231
We have a fully operational website which is our main asset. To date,
our internet activity is limited and we have little revenue from operations. We
have three loans in process of which one closed on July 24, 2000, resulting in
revenue of $995.00.
DILUTION
If you purchase the common stock, you will experience an immediate and
substantial dilution in the pro forma net tangible book value of the common
stock from the initial offering price.
The pro forma net tangible book value of the common stock as of July
15, 2000 was $25,175 or $0.01 per share. Pro forma net tangible book value per
share is equal to our total tangible assets, less total liabilities, divided by
the number of shares of common stock outstanding.
After giving effect to the sale of common stock offered by us in this
offering, and the receipt and application of the estimated net proceeds
therefrom (at an assumed initial public offering price of $0.25 per share, after
deducting estimated offering expenses), our pro forma tangible book value as of
July 15, 2000 would have been approximately $68,406 or $0.03 per share, if the
minimum is sold, and $491,406 or $0.12 per share, if the maximum is sold.
This represents an immediate increase in net tangible book value per
common share to our current stockholders and an immediate and substantial
dilution to new stockholders purchasing shares in this offering. The decrease in
net tangible book value to new stockholders is: o $53,272 or $0.22 per share if
we sell the minimum number of shares (240,000) in this offering; and
o $265,997 or $0.13 per share if we sell the maximum number of shares
(2,000,000) in this offering.
The following table illustrates this per share dilution:
Minimum Maximum
------- -------
Assumed initial public offering price $0.25 $0.25
Pro forma net tangible book value as of July 15, 2000 $0.01 $0.01
Pro forma net tangible book value after this offering $0.03 $0.12
Increase attributable to new stockholders: $0.02 $0.11
6
<PAGE>
Pro forma net tangible book value
as of July 15, 2000 after this offering $0.03 $0.12
Decrease to new stockholders ($0.22) ($0.13)
Percentage dilution to new stockholders 84 % 20 %
The following table summarizes on a pro forma basis as of June 15,
2000, shows the differences between the number of shares of common stock
purchased, the total consideration paid and the total average price per share
paid by the existing stockholders and the new investors purchasing shares of
common stock in this offering:
Minimum offering
----------------
Number Percent Average
of shares of shares Amount price per
owned owned paid share
--------------------------------------------------------------------------------
Current
shareholders 2,200,000 90.1 $ 27,000 $ 0.012
New investors 240,000 9.9 $ 60,000 $ 0.25
--------------------------------------------------------------------------------
Total 2,440,000 100.0 $ 74,000
Maximum offering
----------------
Number Percent Average
of shares of shares Amount price per
owned owned paid share
--------------------------------------------------------------------------------
Current
shareholders 2,200,000 52.4 $ 27,000 $ 0.012
New investors 2,000,000 47.6 $ 500,000 $ 0.25
--------------------------------------------------------------------------------
Total 4,200,000 100.0 $ 527,000
PLAN OF DISTRIBUTION
This is a direct participation offering of the common stock of our
company and is being sold on our behalf by our sole officer and director, who
will receive no commission on such sales. All sales will be made by personal
contact by our sole officer and director, Michael Kamps or by directing persons
to our website where we will post the offering. We will not be mailing our
prospectus to anyone or soliciting anyone who is not personally known by Mr.
Kamps, introduced to Mr. Kamps and personally contacted by him or referred to
him who is directed to our website.
7
<PAGE>
The money we raise in this offering before the minimum amount is sold
will be held under an escrow agreement with T. Alan Owen & Associates, P.C.,
Attorneys at Law. Such funds will be refunded immediately, without interest, if
the minimum amount is not sold by December 31, 2000.
Certificates for shares of common stock sold in this offering will be
delivered to the purchasers by Signature Stock Transfer, Inc., the stock
transfer company chosen by the company as soon as the minimum subscription
amount is raised.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings at this time.
MANAGEMENT OF THE COMPANY
The directors and officers of the company, their ages and principal
positions are as follows:
Name Age Position
---- --- --------
Michael Kamps 42 President; Secretary and Director
Background of Directors and Executive Officers:
Michael Kamps. Mr. Kamps, a 42 year old native Texan, formed the company and at
this time is its only officer and director. He graduated from Texas A&M
University, College Station Texas in 1979, and since that time has been involved
in many aspects of the financial and real estate industries. Mr. Kamps has held
numerous licenses and certifications, including that of Certified Public
Accountant, and licensed Real Estate and Insurance agent. Mr. Kamps has been a
mortgage loan broker since 1986. As of January, 2000, mortgage loan officers and
brokers are required to be licensed in the State of Texas, and Mr. Kamps is
licensed as a Mortgage Broker. Since July, 1996, Mr. Kamps has been President of
Heritage Funding Company, LLC, a full service mortgage brokerage firm.
Initially, Mr. Kamps will not spend full time on the activities of the
company since his current activities would take up some of his time. In
addition, the company's activities need very little time since most steps in the
business of the company are automated. These activities include operating
Heritage Funding Company, LLC, a traditional - as opposed to a fully automated
internet based - residential mortgage company. Mr. Kamps can devote more and
more time to the activities of the company as time goes on since his employees
can run Heritage Funding Company, LLC. and Mr. Kamps can step aside from those
responsibilities at any time. Initially, he expects to spend ten hours per week
and increase that weekly time as the activities of the company require. Mr.
Kamps is prepared to devote himself full time to the success of the company.
8
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table lists the officers, directors and stockholders who,
at the date hereof, own of record or beneficially, directly or indirectly, more
than 10% of the outstanding common stock, and all officers and directors of the
company:
Name and Address Amount owned
Title of Owner before offering Percent
--------------------------------------------------------------------------------
President, Secretary Michael Kamps 2,000,000 90.91%
And Director 750 I-30 East, Suite 170
Rockwall, Texas 75087
---------- -------
Total 2,000,000 100.00%
After offering: Minimum 2,000,000 81.96%
--------------
Maximum 2,000,000 47.62%
DESCRIPTION OF SECURITIES
We have authorized capital in our company consisting of 50,000,000
shares of common stock, $0.001 par value per share. As of July 15, 2000, there
were 2,200,000 shares of common stock issued and outstanding.
Every investor who purchases common stock is entitled to one vote at
meetings of the shareholders of the company and to participate equally and
ratably in any dividends declared by us and in any property or assets that may
be distributed by us to the holders of common stock in the event of a voluntary
or involuntary liquidation, dissolution or winding up of the company.
The existing stockholders have no preemptive rights to purchase common
stock offered for sale by us, and no right to cumulative voting in the election
of our directors.
LEGAL MATTERS
Certain matters relating to the legality of the Common Stock offered
hereby will be passed upon for the Company by Lamberth & Stewart, PLLC, 2840
Lincoln Plaza, 500 N. Akard Street, Dallas, Texas 75201.
EXPERTS
The financial statements as of July 15, 2000, and for the period from
inception (July 11, 2000) to July 15, 2000 of the Company included in this
9
<PAGE>
Prospectus have been audited by Charles E. Smith, independent certified public
accountant, as set forth in his report. The financial statements have been
included in reliance upon the authority of him as an expert in accounting and
auditing.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation provides that the liability of our
officers and directors for monetary damages shall be eliminated to the fullest
extent permissible under Texas law, which includes elimination of liability for
monetary damages for defense of civil or criminal actions. The provision does
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
We have no underwriting agreement and therefore no provision for
indemnification of officers and directors is made in an underwriting by a broker
dealer.
DESCRIPTION OF BUSINESS
We were incorporated in Texas on July 11, 2000. The founder, Michael
Kamps is our sole director, officer and employee and holds 2,000,000 shares of
common stock which we issued to him for $2,000, composed of $500 cash and $1,500
of his services.
We are an internet-based loan marketplace for consumers and lenders.
Adhering to the simple principal that "not everyone needs a loan officer", we
collect consumer credit requests and compare these requests and related credit
information to the underwriting criteria in our automated approval process.
We are a provider of online mortgage services and technology to
businesses and consumers. Our vision is to create the leading definitive
internet-based technology platform for originating, underwriting, processing,
closing and selling mortgage loans. We have designed this platform to decrease
the cost of originating, closing and selling loans, so consumers who obtain a
loan via our technology platform will save money when compared to obtaining a
loan using a traditional lender.
10
<PAGE>
We believe that borrowers are generally dissatisfied with the
traditional mortgage lending process. This dissatisfaction stems from the
complexity of the process, inefficiencies and delays related to the manual
collection and transfer of information and the borrower's inability to monitor
the status of the loan. Mortgage lending on the Internet can offer borrowers an
easier, faster and less expensive way to obtain mortgage loans and has the
potential to eliminate many of the borrower's frustrations found in traditional
mortgage lending. We believe companies that provide these benefits to borrowers
will gain a competitive advantage. In all cases, we offer our services directly
to borrowers, although we are increasingly moving away from this strategy as we
realize the benefits of leveraging the inefficiencies of and demand by the real
estate marketplace.
We offer borrowers a more satisfying, less frustrating mortgage
experience. We use our internet platform and other proprietary technologies to
make the mortgage lending process more efficient.
Currently, we operate the web site http://discountmortgagesource.com,
offering 15 and 30 year fixed rate mortgages up to and including $252,700. Year
to date, the total broker compensation on loan volume has been $995. Given
prevailing market conditions, a traditional mortgage broker source would have
earned $4,000 on the same loan volume. The company, recognizing the market niche
of lower broker fees, is developing additional product offerings that will
provide for loans up to $1,000,000, the expectation fees will increase
proportionately. To date we have had three mortgage loan applications. The first
loan closed on July 24, 2000 generating $995.00 revenue to us and the other two
are in the approval and/or closing process.
Our process is simple, straightforward and customer friendly. We
recognize some borrowers have issues which may cause an underwriter to decline
their loan request. Consequently, the assistance of a good loan officer is
justified. However, it is our President's experience that many borrowers do not
have credit problems. They know exactly what their financial capabilities are,
where they are getting the down payment funds, what type of mortgage they want,
and so on. It is for these types of customers that our company was founded. The
borrower simply completes an on-line application and submits it to the
processor. The processor ensures that all the information is complete and
correct and electronically submits the application to an automated underwriter
which either approves or declines the loan. If the loan is approved, the
borrower is notified of the approval along with any conditions determined by the
automated underwriter. If the loan request is declined, we will notify the
customer and recommend the use of a loan officer. We do not employ loan
officers, believing the filling of the niche in the marketplace for informed and
knowledgeable borrowers to be their focus.
Industry Background:
In traditional mortgage lending, a borrower obtains a mortgage loan by
contacting a mortgage originator, such as a mortgage banker, mortgage broker or
a financial institution. After a borrower has selected a mortgage originator, an
employee or commissioned loan officer of the mortgage originator collects
information about the borrower and completes a loan application by hand, while
the borrower waits.
11
<PAGE>
The loan officer, while an essential element of many transactions, is
also one of the single largest expense items in the purchase of a home. Although
the loan officer provides product information and other advisory capacities, the
loan officer is compensated for their efforts on a commission basis.
Consequently, we believe most loan officers work in the best interests of their
commission rather than the customer. Typically, the commission paid is between
50 and 70 "basis points", or $500 to $700 on a $100,000 loan. In addition, the
loan officer may add "points" to the original quote, thereby increasing fee
income, the loan officer receiving a percentage of all fees received. Not only
are there out of pocket expenses incurred by the borrower, but typically the
loan officer must price a loan to generate profit for their financial
institution to support their activity as an officer. Therefore, using a loan
officer will generally cost a minimum of $800 if not more.
We believe the mortgage origination market is highly fragmented with
many small originators. This leads to a lack of consistency in the pricing and
processing of mortgage loans and contributes to borrower dissatisfaction with
the entire process.
The United States Mortgage Market:
---------------------------------
The United States residential mortgage market is a substantial and
growing part of the U.S. economy. According to the Mortgage Bankers Association,
outstanding consumer mortgage debt exceeded $4.3 trillion at the end of 1998.
Loan origination volume in the U.S. reached a record high of $1.5 trillion in
1998, compared to $834 billion in 1997. The residential mortgage market is
fragmented, with the largest mortgage lender, Norwest Mortgage, accounting for
only 7.7% of funded loans in 1998.
Consumers generally seek mortgage loans to finance a home purchase or
to refinance existing mortgage debt. In some cases, a borrower may refinance for
more than the existing mortgage amount and use the cash generated for other
purposes. Mortgage loans are originated through two primary lending channels,
frequently referred to as retail and wholesale. These terms correspond to our
business-to-consumer and business-to-business channels. Traditional retail
originators generate loans through direct contact with the consumer. Retail
originators work through local branch offices or telemarketing centers.
Wholesale originators pay loan origination fees to mortgage brokers or purchase
closed loans from other lenders, who, in either case, work directly with
consumers from local offices.
Typically, the traditional mortgage loan process involves the following
steps:
o meeting with lender or broker to complete the lengthy paper
application;
o gathering extensive supporting documentation for the application;
12
<PAGE>
o entering the application information/data into the broker's or lender's
processing system;
o ordering appraisals, title and credit reports and verifying deposit and
other factual matters;
o submitting the paper loan file to an underwriter to determine loan
eligibility;
o receiving conditions to approval of loan by the underwriter;
o collecting additional information and complying with the conditions;
o resubmitting the revised paper file for approval;
o preparing loan documents and closing instructions;
o reviewing and approving the loan for funding; and
o closing of the transaction.
This paper intensive process generally takes at least three weeks to complete.
The traditional mortgage loan application and closing process described
above is complex, time-consuming, paper-intensive and costly. We believe that
this process causes many consumers to feel:
o uncertain that lenders and brokers are providing unbiased advice and
recommending the most suitable mortgage products;
o skeptical that rates initially quoted will ultimately be available;
o intimidated by the number and variety of mortgage products available;
o pressured to commit to a particular mortgage product before they have
researched and compared alternative products to their satisfaction;
o aggravated by the amount and types of loan fees they are required to
pay; and
o frustrated by the substantial time and effort that it takes to complete
a mortgage loan.
In 1998, approximately 70% of all mortgages in the United States were
originated through mortgage brokers. The mortgage broker industry is highly
fragmented with approximately 36,000 mortgage broker businesses operating in the
United States according to Wholesale Access. Mortgage broker businesses are
13
<PAGE>
typically small, local enterprises that increasingly lack the financial
resources and technological capability to compete with financially stronger and
better- organized mortgage lenders, including on-line mortgage originators. In
particular, they generally lack access to the technology necessary to determine
borrower eligibility quickly and to search and analyze available mortgage
products to find the best match for their customers. Because local practices and
customs in the mortgage industry vary significantly from jurisdiction to
jurisdiction, and many consumers will continue to prefer face-to-face local
contact, we believe that nationwide lenders will not be able to meet the needs
of local mortgage consumers. Mortgage brokers will thus continue to be an
integral and important part of the mortgage lending process for the foreseeable
future. However, as technological advances make it easier for consumers to deal
directly with lenders, we believe that mortgage brokers will need to find new
ways to compete more effectively for the consumers' business.
With the advent of on-line and e-commerce technologies, loan
originations can be made electronically, resulting in cost and time savings to
consumers and the mortgage brokers who assist those consumers. Although the
on-line mortgage industry is still relatively new, it is expected to grow
rapidly. According to Forrester Research, the market for on-line mortgage
originations is expected to grow from an estimated $18.7 billion in 1999 to over
$91.2 billion in 2003, representing an increase in on-line mortgage originations
from 1.5% of the existing market in 1999 to 9.6% of the projected market in
2003.
We intend to become a leading provider of on-line mortgage origination
services to consumers and mortgage broker businesses.
Growth of internet usage and electronic commerce:
Consumer lending markets are both large and highly fragmented.
The United States Federal Reserve estimates that as of year-end 1998
there were approximately $5.8 trillion in outstanding consumer loans.
The American Bankers Association estimates that there were over 26,000
consumer credit providers in the United States.
Forrester Research, a market research organization, projects that over
46 million consumer loan transactions amounting to approximately $2 trillion in
loan origination occurred in the United States during 1999. Forrester also
projects that 1.3% of consumer loan origination was conducted online in 1999,
growing to 9.5% by 2003, and that total online credit originations will grow
from $25.7 billion in 1999 to $167.6 billion in 2003, representing a compound
annual growth rate of 60%.
Forrester Research released in the fall of 1999 - projected online
mortgage transactions. The following table summarizes their projections by
consumer product category for the periods presented, the dollar volume and
14
<PAGE>
number of online loan originations, as well as the dollar volume of online
originations as a percentage of total originations in the United States:
Projected online originations, applications and related percentages:
Projected Online Projected Online Originations
Originations Originations As % of Total
Category ($ in Billions) (in thousands) $ Originated
-------- --------------- -------------- -------------
1999 2003 1999 2003 1999 2003
---- ---- ---- ---- ---- ----
Mortgages 18.7 91.2 116 599 1.5% 9.6%
Credit Cards 5.2 21.5 990 3,674 4.3% 16.3%
Automobiles 0.8 21.4 36 952 0.2% 4.7%
Home Equity 1.0 20.2 25 422 0.6% 11.4%
Student Loans -0- 3.3 12 3,261 0.1% 25.3%
------ ----- ----- -----
Total 25.7 167.6 1,179 8,908
According to International Data Corporation, the internet has emerged
as a global medium for communication, content delivery and electronic commerce,
and internet use continues to increase rapidly. They estimate that the number of
users worldwide will increase from 142 million in 1998 to over 500 million in
2002. As consumers have become increasingly adept at using the internet for
evaluating and purchasing a variety of goods, the dollar volume of online
commerce transactions has risen dramatically. Additionally, they estimate that
the volume of goods and services purchased through the internet will increase
from $50 billion in 1998 to more than $2.8 trillion in 2002.
Based on a recent report, Spring 2000, from Forrester Research,
electronic commerce on the internet through direct-to-consumer channels is
expected to grow from $33 billion in 2000 to $108 billion in 2003, a 227%
increase, while electronic commerce on the internet through business-to-business
channels is expected to grow from $251 billion in 2000 to $1.34 trillion in
2003, a 444% increase.
Market validation of opportunity:
---------------------------------
The following excerpts from various news sources validate the market
acceptance and opportunity for on-line mortgage origination:
o According to a company press release dated 6/13/00, FiNet.com's B2B
subsidiary, Monument Mortgage, received two prestigious industry
awards. Monument Mortgage received the East Bay Region of California
Association of Mortgage Brokers ("CAMB") Affiliate of the Year Award,
and was recently named CAMB's State Affiliate of the Month.
15
<PAGE>
o According to a company press release dated 6/6/00, FiNet.com reported a
35% increase in fundings and a 25.6% increase in applications. The
Company's fundings increased 35% in May to $74.2 million, compared to
$55 million in April. The B2B component represented 82%, or 61 million,
with the business to consumer (B2C) segment accounting for 18%, or $13
million, of the total volume. In addition, the Company reported a 25.6%
increase in loan applications in May through its B2B channel.
o According to a company press release dated 6/12/00, Mortgage.com and
Mindbox(TM) partnered to deliver customer-focused electronic mortgage
lending platform. The press release said Mortgage.com, the leader in
B2B online home financing solutions, and Mindbox, Inc., the leading
provider of artificial intelligence solutions for the financial
services industry, announced a strategic alliance to jointly develop
key components of Mortgage.com's electronic mortgage transaction
platform. The intent is to improve the quality and relevance of
information and services provided to users during their interaction
with the site and will increase the ratio of sales to visitors for
existing and potential customers, thereby reducing dependence on human
interaction.
o According to a press release dated 6/13/00, Mortgage.com added two
large real estate clients to their point of sales network. Two
exclusive agreements were signed with real estate companies in Arizona
and southeastern New England delivering Mortgage.com's point-of-sale
mortgage technology right to their real estate offices. The
Keller-Williams realty Company, based in Ahwatukee, Arizona, has more
than 150 real estate agents in its super-office and was ranked as the
8th largest producing office in the nation by RealTrends last year.
Independent Brokers Network (IBN), the largest real estate brokerage
network in southeastern New England, has 42 offices and more than 375
real estate agents throughout the Rhode Island and southeastern
Massachusetts area.
o According to an article by CNNfn written by staff writer Shelly
Schwartz as of 7/12/00, noted is that would-be homeowners once relied
exclusively upon professional agents to do their legwork for them. But
today, armed with the Internet, Web-savvy consumers are learning to do
for themselves - shopping for real estate property listings, putting
their own homes on the market and locking in mortgages with little or
no assistance. Advocates of do-it-yourself real estate say such
technology puts the buyer back in the driver's seat, giving them the
tools they need to save valuable time and money. Schwartz goes on to
say although still in its infancy, the internet already has left a
profound footprint on the real estate industry. Its popularity and
efficiency are impossible to ignore. The National Association of
Realtors (NAR) reports that close to 40% of homebuyers today use the
internet in some way, shape, or form during the home-buying process.
16
<PAGE>
Our company's statements with respect to our perception of online financing:
----------------------------------------------------------------------------
o The internet provides companies with additional ways to reach potential
customers along with the opportunity to transact business with them in
a more efficient, centralized and low-cost manner than business
transacted through traditional channels. In addition, the internet
offers companies flexibility, permitting them to adjust features,
presentations and prices in response to competition. Consumers benefit
from improved overall convenience, low-cost access to information
regarding available products and services, ease of use, numerous
choices and often more competitive pricing.
o Financial services is one of the more prominent industries that has
taken advantage of the internet. The information potential of the
internet and the potential lower costs associated with conducting
business electronically underlie the success of financial services Web
sites. Many of these financial services companies have undertaken
aggressive marketing campaigns to establish their online brands. We
believe that consumers will become more willing to conduct financial
transactions online, including mortgage transactions, as internet use
increases, internet brands are established and concerns about security
and privacy are alleviated. We also believe that pending federal and
state legislation authorizing the use of electronic signatures will
expedite the use of online mortgage transactions, if such legislation
is adopted.
o The mortgage industry is well suited for transformation to an internet
platform. Mortgage origination on the internet can offer borrowers an
easier, faster, less expensive way to obtain mortgage loans and has the
potential to eliminate many of a borrowers' frustrations found in
traditional mortgage lending. The legal and technology framework that
will allow mortgage underwriting, processing, closing and sales to take
full advantage of the power of the internet is still developing. We are
at the forefront of developing the technology framework for these
"back-office" services to supplement the origination platform we have
already developed. The same principles that make online mortgage
lending an easier, faster and less expensive process for the borrower
can also benefit mortgage providers. Mortgage providers will be under
increasing pressure to offer their borrowers an Internet origination
and closing process
o We believe that very few of the largest mortgage loan originators have
capitalized on the mortgage lending opportunities on the internet. Most
mortgage originators lack the expertise to develop their own internet
technologies and have been slow to address the online market. We
believe the majority of the prominent mortgage originators use the
Internet primarily to advertise and provide contact information. Even
among originators that offer online applications, we believe that many
still have problems seamlessly integrating their internet applications
with the systems that assist in processing, underwriting and closing
the mortgage loans. As a result, mortgage originators have not been
leveraging the internet as a means to increase borrowers' satisfaction
and reduce overall costs.
17
<PAGE>
We believe that to maximize the potential of computer-related
technology in the mortgage industry, a company must be able to provide
borrowers:
o low cost loan choices when compared to obtaining a loan
through a traditional lender;
o multiple loan product and loan servicer choices, with an easy
way to compare the options;
o online loan applications and loan pre-qualifications;
o seven day a week convenience, with the option to speak with a
person for extended hours every day;
o service guarantees that are backed up by management commitment
and cash refunds when appropriate; and
o the ability to monitor the status of their loans from
origination through closing.
We believe companies that are able to provide these benefits to
borrowers will gain a competitive advantage.
Our company's strategy and business environment:
------------------------------------------------
Marketing Strategy:
Our marketing strategy is to promote our name and attract buyers to our
website. To attract users to our website, we historically have relied primarily
on word of mouth and being one of many on-line mortgage companies that come up
on search engines. Going forward, we are contemplating sponsorship relationships
with high traffic websites and agreements with search engines so that our site
will be near the top/front of searches for our products. Future marketing
programs will include the use of strategic purchases of online advertising to
place advertisements in areas in which it believes it can reach its target
audience. The Company also will engage in a number of marketing activities in
traditional media such as advertising in print media and at trade shows and
other events. DMS also plans to advertise in a number of targeted publications.
We also plan to purchase online advertising and sponsorships on selected
websites with high affinity to consumer credit such as websites relating to real
estate and personal finance. We also plan to sponsor certain keywords on the
major search engines. For example, when a search is made for the keywords "loan"
or "mortgage," a DMS banner advertisement may appear.
18
<PAGE>
In order to respond to changes in the competitive environment, we the
Company may, from time to time, make pricing, service or marketing decisions or
acquisitions that could harm its business. We are not bound by traditional
geographic market boundaries. The on-line nature of our business enables us to
offer our services nationwide and does not require us to establish a physical
presence in new markets. However, we must be licensed in any state where we make
loans. While we currently make loans in Texas we expect that the expanded
geographic scope of our e-commerce lending capabilities will cause the
proportion of loans we make outside of Texas to increase. In addition, we intend
to become licensed in the states in which we are not currently licensed to
originate mortgage loans.
Growth Strategy:
It is the objective of the company to be the leading provider of
e-commerce on-line mortgages. Key elements of our growth strategy include:
o Partner with industry leaders to quickly acquire customers. The company
intends to form strategic relationships with industry leaders to
rapidly acquire customers, build brand name recognition and accelerate
adoption of Internet based mortgages. We anticipate continuing to add
additional strategic partnerships as our business grows and we expand
our portfolio of products and services.
o Build and promote our brand. The company intends to invest in building
brand awareness through a variety of marketing and promotional
techniques, both independently and in conjunction with our strategic
partners. Our brand will be promoted through word of month as well as
print, online banners, and virtual marketing, such as including our
logo and Web site address on each product purchased.
o Pursue multiple and recurring revenue streams. In addition to
originating single family home mortgages through our Web site, we
intend to expand those product offering to include other financial.
We believe that direct marketing is especially effective to increase
loan closure rates and develop lifetime relationships with consumers. Our direct
marketing is conducted through a variety of channels, including:
o Direct E-mail. We use e-mail to prompt consumers to visit our website,
communicate with consumers throughout the lending process, and promote
loan closing.
o Cross Selling. Through our cross-sell efforts, consumers will have the
opportunity to purchase related products and services at various points
in the loan process. Future cross- sell offerings are proposed to
include credit cards, homeowners' insurance, and life insurance. We
intend to increase the breadth of our cross-sell efforts.
As mentioned, the Company plans to expand its e-commerce capability to include:
19
<PAGE>
o Selling goods and services promoted to our advertisers' storefronts;
o Electronic marketplaces;
o Exchanges; and
o Selling goods and services from our proprietary virtual store
We will receive either a fee per transaction, a percentage of sales
revenue or some other minimum guaranteed payment. This type of revenue sharing
or commission sharing relationship is typical of e-commerce transactions and
relationships on the internet.
Competition:
The market for online loan shopping and related services is new and
rapidly developing. We believe that we have an important first mover advantage,
but current and potential new competitors could establish online loan
marketplaces that are competitive with ours. In addition, we expect competition
from: online lenders/brokers such as E-LOAN, mortgage.com, QuickenMortgage,
iOwn.com, and NextCard; traditional banks and brokers; and existing online
referral agents such as GetSmart, Microsoft's HomeAdvisor, Creditland, and
MortgageAuction.com. Some of these competitors are also participants in our
marketplace.
We believe that the primary competitive factors in the online financial
services market are:
pricing and breadth of product offering;
time of market entry;
brand awareness;
variety, quantity, and quality of partners and strategic relationships;
proprietary and scalable technology infrastructure;
ease of use and convenience; and
strength of relationships and depth of technology integration with
customers.
Our success depends upon capturing and maintaining a significant share
of consumers who obtain loans through the internet. In order to do this, we must
continue to build on our first mover advantage, continue to increase brand
awareness among consumers and lenders, expand our network of lenders, establish
additional strategic relationships, and continually upgrade our technology. Many
of our current competitors, however, have longer operating histories, greater
name recognition, larger customer bases, and significantly greater financial,
technical, and marketing resources than we do. In addition, participants in
other areas of the financial services industry may enter the consumer loan
marketplace.
20
<PAGE>
Operations and Technology:
--------------------------
We have built a robust, but basic transaction processing system. Our
system handles all aspects of the sales process. The market in which the we
compete is characterized by rapidly changing technology, evolving industry
standards, frequent new service and product announcements, introductions and
enhancements and changing customer demands. Accordingly, our future success will
depend on our ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the
performance, features and reliability of its service in response to competitive
service and product offerings and evolving demands of the marketplace. The
failure of the Company to adapt to such changes would harm the company's
business. In addition, the widespread adoption of new internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by the company to modify or adapt its services or
infrastructure. If we only raise a small amount in this offering and technology
changes too rapidly, we may not have the funds to devote to these changes and if
this happens, your investment may become worthless.
Additional information:
-----------------------
We have made no public announcements to date and have no additional or
new products or services. In addition:
o we don't intend to spend funds in the field of research and
development;
o no money has been spent or is contemplated to be spent on customer
sponsored research activities relating to the development of new
products, services or techniques; and
o we don't anticipate spending funds on improvement of existing products,
services or techniques.
As of the filing date, we have no paid employees. As necessary due to
lease volume, work load, and the like, employees will be brought on board.
We do not expect nor have we encountered any material effect from the
discharge of materials, environmental agencies, capital expenditures for
environmental control facilities, nor does it anticipate having to deal with any
such issue in the future.
No segmented data is required for this offering.
PLAN OF OPERATIONS
Following is our plan of operations based upon the amount of capital we
raise in this offering. Discount Mortgage Source, Inc. is a statewide (State of
Texas) mortgage lender. We are currently seeking to raise between $60,000 and
$500,000 to expand our business. Our market is defined as those borrowers having
excellent credit, seeking to borrow between $100,000 and $252,700 secured by
their personal residences (either purchase or refinance) and who are willing to
apply for such credit over the internet.
21
<PAGE>
Our initial concentration will be in the Austin, Texas market, as it
has been the experience of our broker of record that consumers (borrowers) in
Austin are more likely to utilize the internet than consumers in any other
metropolitan region of the state. The Austin area, much like the other
metropolitan areas of the state, is experiencing an excellent real estate
market, with prices increasing and activity robust.
Assuming we raise the minimum amount in this offering, netting approximately
$43,231 to the company, we will be able to fund the following:
o Design and Printing of brochures;
o Design enhancements to the existing website;
o Direct mail to the Realtors(R) in the Austin, Texas area;
o Travel and refreshment costs for broker to hold Realtor(R)
meetings in the Austin area, introducing Realtors(R) to the
Discount Mortgage Source concept and website;
o Advertising on News/Talk format radio stations in the Austin
area.
At this level of funding, we would outsource our processing at a cost
of $300 per loan until we were closing at least 20 loans per month. It is
anticipated that a processor would be able to handle approximately 35-45 loans
per month. When we reach the level of hiring a processor, we will also need
computer equipment and processing software costing about $16,000. This equipment
could be leased or purchased.
At this level of funding, we will be profitable and operationally self
sustaining and will not need to raise additional capital for operations.
Assuming we raise the maximum amount in this offering, netting approximately
$466,231 to the company, we will be able to accomplish the following:
o Quickly expand the Austin model to other metropolitan areas of
Texas, without having to wait for profits from Austin to
finance the expansion;
o Identify other promising states in which to do business, and
obtain licensing in those states, with a view to becoming a
nationwide lender;
o Be approved by FNMA (Fannie Mae) and FHLMC (Freddie Mac) as a
"seller servicer", allowing us to build additional
income/value by servicing the product we originate;
o Obtain a warehouse line of credit, allowing us more control of
closings and the opportunity for additional income.
DESCRIPTION OF PROPERTY
Our corporate facilities are shared with our sole officer and director
which includes the use of telephones and equipment for $150.00 per month. This
arrangement will start in August 2000 and continue until such time as the
Company needs and can afford to lease its own office facilities.
22
<PAGE>
We also lease space on an internet service provider's server based upon
the amount of memory we use.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
Our Articles of Incorporation and our Bylaws limit the liability of
directors to the maximum extent permitted by Texas law. We carry no director or
executive liability insurance.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In July 2000, the president of the company received 2,000,000 shares of
common stock which we issued to him for $2,000, composed of $500 cash and $1,500
of his services.
In July 2000, we entered into an agreement with two companies to
develop and link our website for which the companies received a total of 200,000
shares valued at $0.125 per share. In addition, we are required to register
their shares as part of this offering.
As of the date of this filing, there are no agreements or proposed
transactions, whether direct or indirect, with anyone, but more particularly
with any of the following:
o a director or officer of the issuer;
o any principal security holder;
o any promoter of the issuer;
o any relative or spouse, or relative of such spouse, of the above
referenced persons.
SUMMARY FINANCIAL DATA
The following table sets forth certain of our summary financial
information. This information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this prospectus.
Audited
Balance Sheet: July 15, 2000
------------------------ ----------------
Working Capital $ 175
Total Assets $25,175
Total Liabilities $ -0-
Stockholders' Equity $25,175
July 11, 2000 (date
of inception) to
Statement of Operations: July 15, 2000
------------------------ -------------------
Revenue $ -0-
Cost of Sales $ -0-
Operating Expense $ 1,825
Net Income (Loss) $(1,825)
23
<PAGE>
DIVIDEND POLICY
To date, we have not declared or paid any dividends on our common
stock. We do not intend to declare or pay any dividends on our common stock in
the foreseeable future, but rather to retain any earnings to finance the growth
of our business. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our results of
operations, financial condition, contractual and legal restrictions and other
factors it deems relevant.
CAPITALIZATION
The following table sets forth our capitalization as of July 15, 2000.
Our capitalization is presented on:
o an actual basis;
o a pro forma basis to give effect to net proceeds from the sale of the
minimum number of shares (240,000) we plan to sell in this offering;
and
o a pro forma basis to give effect to the net proceeds from the sale of
the maximum number of shares (2,000,000) we plan to sell in this
offering.
After After
Actual Minimum Maximum
July 15, 2000 Offering Offering
------------- --------- ---------
Stockholders' equity
Common Stock, $0.001 par value;
25,000,000 shares authorized; 2,200 2,440 4,200
Additional Paid In Capital 24,800 67,791 489,031
Retained deficit ( 1,825) ( 1,825) ( 1,825)
Total Stockholders' Equity 25,175 68,406 491,406
Total Capitalization 25,175 68,406 491,406
Number of shares outstanding 2,200,000 2,440,000 4,200,000
The company has only one class of stock outstanding. The common stock
sold in this offering will be fully paid and non assessable, having voting
rights of one vote per share, have no preemptive or conversion rights, and
liquidation rights as is common to a sole class of common stock. The company has
no sinking fund or redemption provisions on any of the currently outstanding
stock and will have none on the stock sold in this offering.
24
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
There are no special federal tax implications associated with this
business enterprise.
TRANSFER AGENT
We will serve as our own transfer agent and registrar for the common
stock until such time as this registration on is effective and then we intend to
retain Signature Stock Transfer, Inc., 14675 Midway Road, Suite 221, Dallas,
Texas 75244.
DIRECTOR AND EXECUTIVE COMPENSATION
Our sole officer and director has received no compensation other than
the 1,500,000 shares of common stock he received for services on July 11, 2000
and has no employment contract with the company.
Name of Person Capacity in which he served Aggregate
Receiving compensation to receive remuneration remuneration
--------------------------------------------------------------------------------
Michael Kamps President, Secretary 1,500,000 shares
and Treasurer of common stock
The common stock was issued soon after formation of the company and it
is impracticable to determine the cash value. The stock was issued over six
months ago for services performed which we cannot estimate the value since that
work continues through the filing and effectiveness of this registration
statement, with no other compensation to be granted for the work done on this
filing.
As of the date of this offering, there are no plans to pay any
remuneration to anyone in or associated with the company. When the company has
funds and/or revenue, the board of directors will determine any remuneration at
that time.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have retained the same accountant, Charles E. Smith, as our
independent certified public accountant since our inception on July 11, 2000. We
have had no disagreements with him on accounting and disclosure issues.
25
<PAGE>
Charles E. Smith
Certified Public Accountant
709-B West Rusk
Suite 580
Rockwall, Texas 75087
TELEPHONE (214) 212-2307
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of Discount Mortgage Source, Inc.
I have audited the accompanying balance sheets of Discount Mortgage
Source, Inc. as of July 15, 2000, and the related statements of operations,
stockholders' equity and accumulated deficit, and cash flows for the period from
inception (July 11, 2000) to July 15, 2000. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Discount Mortgage
Source, Inc. as of July 15, 2000, and the results of operations and its cash
flows for the period from inception (July 11, 2000) to July 15, 2000 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described in Note E to the
financial statements the Company is a start up enterprise and presently does not
have capital resources which raises doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustment that might arise from the outcome of this uncertainty.
Charles E. Smith
Rockwall, Texas
July 22, 2000
F-1
<PAGE>
DISCOUNT MORTGAGE SOURCE, INC.
BALANCE SHEETS
July 15, 2000
ASSETS
July 15, 2000
----------------
CURRENT ASSETS:
Cash $175
PROPERTY AND EQUIPMENT:
Website 25,000
----------------
TOTAL ASSETS $25,175
================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value 2,200
Additional paid-in-capital 24,800
Accumulated Deficit (1,825)
----------------
Total Stockholders' Equity 25,175
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,175
================
See accompanying notes F-2
<PAGE>
DISCOUNT MORTGAGE SOURCE, INC.
STATEMENT OF OPERATIONS
Period from Inception (July 11, 2000) to July 15, 2000
Period from
Inception
(July 11, 2000)
to
July 15, 2000
----------------
REVENUE:
Sales $0
Interest income
Total revenue $0
COST OF SALES: 0
----------------
GROSS PROFIT 0
OPERATING EXPENSE:
Depreciation and amortization 0
Consulting - related party 1,500
General and administrative 325
----------------
Total Operating Expense 1,825
----------------
NET LOSS ($1,825)
================
Weighted average shares outstanding 29,589
================
LOSS PER SHARE ($0.00)
================
See accompanying notes F-3
<PAGE>
<TABLE>
<CAPTION>
DISCOUNT MORTGAGE SOURCE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Period from inception (June 30, 1999) to June 30, 2000
Common Stock Paid In
Shares Amount Capital Total
-------------------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Balance,
July 11, 2000
(date of inception) -0- -0- -0- -0-
Shares issued on July 11, 2000 for:
Cash 500,000 500 500
Services 1,500,000 1,500 1,500
July 12, 2000 for:
Website 200,000 200 24,800 25,000
Net Loss (1,825)
-------------------------------------------------------- ----------------
Balance
June 30, 2000 2,200,000 $2,200 $24,800 $25,175
======================================================== ================
</TABLE>
See accompanying notes F-4
<PAGE>
<TABLE>
<CAPTION>
DISCOUNT MORTGAGE SOURCE, INC.
STATEMENT OF CASH FLOWS
Period from inception (June 30, 1999) to June 30, 2000
Period from
Inception
(July 11, 2000)
to
July 15, 2000
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,825)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Items not requiring cash - stock issued for services 1,500
----------------
NET CASH (USED) BY OPERATING ACTIVITIES: (325)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 500
----------------
Total cash flows from financing activities 500
----------------
NET INCREASE IN CASH $175
CASH, BEGINNING OF PERIOD 0
----------------
CASH, END OF PERIOD $175
================
</TABLE>
Note:
-----
Non-cash investing activity - the company issued 200,000 shares valued at $0.125
per share for a total of $25,000 for development of its website.
See accompanying notes F-5
<PAGE>
DISCOUNT MORTGAGE SOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
July 15, 2000
Note A - Nature of Business and Summary of Significant Accounting Policies:
---------------------------------------------------------------------------
History:
--------
The Company was organized July 11, 2000 under the name of Discount
Mortgage Source, Inc. in the State of Texas. The Company's business plan
outlines its plan of operations which is to allow people to obtain residential
mortgage loans over the internet.
Basis of Accounting:
--------------------
It is the Company's policy to prepare its financial statements on the accrual
basis of accounting in conformity with generally accepted accounting principles.
Sales are recorded as income in the period in which they are earned and expenses
are recognized in the period in which the related liability is incurred.
Revenue Recognition:
--------------------
Revenue is recognized when a loan is closed. The company receives a fee for each
loan that is processed through its website and subsequently closed.
Cash and Cash Equivalents:
--------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Loss per Common Share:
----------------------
Loss applicable to common share is based on the weighted average number of
shares of common stock outstanding during the year.
Accounting Estimates:
---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Tax:
-----------
The Company is subject to the greater of federal income taxes computed under the
regular system or the alternative minimum tax (ATM) system. The Company uses an
asset and liability approach for the accounting and financial reporting of
income tax. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the temporary differences are expected to reverse.
F-6
<PAGE>
DISCOUNT MORTGAGE SOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
July 15, 2000
Note B - Web site:
------------------
The Company's primary asset is its web site which is the center of its
operational and income generating activities for which it paid $25,000. The cost
of the web site is being amortized over three years starting in August 2000, the
first full month of operation.
Note C - Stockholders' Equity:
------------------------------
Common Stock:
-------------
The Company is authorized to issue 50,000,000 common shares of stock at a par
value of $0.001 per share. These shares have full voting rights. At July 15,
2000, there were 2,200,000 shares outstanding respectively.
The Company has not paid a dividend to its shareholders.
Note D - Income Taxes:
----------------------
The Company had a net operating loss of $1,825 for the period presented. No
deferred tax asset has been recognized for the operating loss as any valuation
allowance would reduce the benefit to zero.
Note E - Going Concern:
-----------------------
The Company has minimal capital resources available to meet obligations expected
to be incurred given that it is a start up enterprise. Accordingly, the
Company's continued existence is dependent upon the successful operation of the
Company's plan of operations, selling common stock in the Company, or obtaining
financing. Unless these conditions among others are met, the Company may be
unable to continue as a going concern.
F-7
<PAGE>
No dealer, salesman or any other person has been authorized to give any
quotation or to make any representations in connection with the offering
described herein, other than those contained in this Prospectus. If given or
made, such other information or representation'; must not he relied upon as
having been authorized by the Company or by any Underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an otter to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
Prospectus Summary 2
Corporate Information 2
Risk Factors 3
Forward Looking Statements 5
Use of Proceeds 5
Dilution 6
Plan of Distribution 7
Legal Proceedings 8
Management of the Company 8
Principal Shareholders 9
Description of Securities 9
Legal Matters 9
Experts 9
Disclosure of Commission Position of Indemnification for
Securities Act Liabilities 10
Description of Business 10
Plan of Operations 21
Description of Property 22
Director's and Officers' Indemnification and Insurance 23
Interest of Management and Others in Certain Transactions 23
Summary Financial Data 23
Dividend Policy 24
Certain Federal Tax Implications 24
Transfer Agent 25
Director and Executive Compensation 25
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 25
Financial Statements F-1
Until the (90th day after the later of (1) the effective date of the
registration statement or (2) the first date on which the securities are offered
publicly), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Indemnification of Directors and Officers
Not applicable.
Item 14. Other Expenses of Issuance and Distribution
All expenses, including all allocated general administrative and
overhead expenses, related to the offering or the organization of the Company
will be borne by the Company.
The following table sets forth a reasonable itemized statement of all
anticipated out-of-pocket and overhead expenses (subject to future
contingencies) to be incurred in connection with the distribution of the
securities being registered, reflecting the minimum and maximum subscription
amounts.
Minimum Maximum
-------- --------
SEC Registration Fee $ 269 $ 269
Printing and Engraving Expenses 2,000 19,000
Legal Fees and Expenses 5,000 5,000
EDGAR Fees 1,800 1,800
Accounting Fees and Expenses 2,500 2,500
Blue Sky Fees and Expenses 5,000 5,000
Miscellaneous 200 200
-------- --------
TOTAL $ 16,769 $ 33,769
Item 15. Recent Sales of Unregistered Securities
The Company sold on July 11, 2000 to its founder 2,000,000 shares of
common stock which was issued to him for $2,000, composed of $500 cash and
$1,500 of his services. This stock was issued under the exemption under the
Securities Act of 1933, section 4(2); this section states that transactions by
an issuer not involving any public offering is an exempted transaction. The
company relied upon this exemption because in a private transaction during July
1999, the founder, sole officer and director purchased stock for a combination
of $500 cash and $1,500 of services.
The Company issued 200,000 shares on July 12, 2000 to two companies,
(100,000 shares each) in consideration for building and developing the website.
This stock was valued at $25,000 or $0.125 per share. This stock was issued
under the exemption under the Securities Act of 1933, section 4(2); this section
states that transactions by an issuer not involving any public offering is an
exempted transaction. The company relied upon this exemption because in a
private transaction on July 12, 2000, these companies developed the web site in
exchange for 200,000 shares (100,000 each) of stock valued at $0.125 per share
or a total of $25,000. The purchasers were sophisticated investors who purchased
the stock for their own account and not with a view toward distribution to the
public. The certificates evidencing the securities bear legends stating that the
shares may not be offered, sold or otherwise transferred other than pursuant to
an effective registration statement under the Securities Act, or an exemption
from such registration requirements. Our agreement with them requires us to
register these shares in this offering.
<PAGE>
Item 16. Exhibits
The following Exhibits are filed as part of the Registration Statement:
Exhibit No. Identification of Exhibit
3.1 - Articles of Incorporation
3.2 - By Laws
4.2 - Specimen Stock Certificate
10.4 - Subscription Escrow Agreement
10.6 - Form of Subscription Agreement
23.1 - Opinion of Lamberth & Stewart, PLLC, Attorneys at Law
23.2 - Consent of Lamberth & Stewart, PLLC, Attorneys at Law
23.3 - Consent of Charles E. Smith, Certified Public Accountant
Item 17. Undertakings
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act; and
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form SB-1 and authorizes this Registration Statement
to be signed on its behalf by the undersigned, being duly authorized, in the
City of Rockwall, State of Texas, on the 25th day of July, 2000.
Discount Mortgage Source, Inc.
By: /s/ Michael Kamps
-----------------------------
Michael Kamps, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following person in the capacity and on
the date indicated:
Signature Title Date
--------------------- ----------------------- ---------------
/s/ Michael Kamps President, Secretary,
--------------------- Treasurer; Director July 25, 2000
