As Filed with the Securities and Exchange Commission on November 29, 2000
Registration No. 333-
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
Community Home Mortgage Corporation
(Name of small business issuer in its charter)
New York 6162 13-3495610
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
510 Broadhollow Road, Melville, New York 11747, telephone 631-391-9100
(Address and telephone number of principal executive offices)
510 Broadhollow Road, Melville, New York 11747
(Address of principal place of business or
intended principal place of business)
Ira Silverman, 510 Broadhollow Road, Melville, New York 11747,
telephone 631-391-9100
(Name, address and telephone number of agent for service)
Copies to:
Howard M. Sommers, Esq. James R. Kruse
444 Madison Avenue, 17th Floor Kevin C. Timken
New York City, NY 10022 Kruse, Landa & Maycock, L.L.C.
Telephone: (212) 935-9060 50 West Broadway, 8th Floor
Facsimile: (212) 421-1650 Salt Lake City, UT 84101
Telephone (801) 531-7090
Facsimile: (801) 531-7091
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed maximum Proposed maximum
Title of each class of securities to Amount offering price per aggregate offering Amount of
be registered to be registered unit price(1) registration fee
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.01 500,000 $0.47 $235,000 $62.04
par value per share
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(f) under the Securities Act of 1933
based on the per share book value of Registrant as of June 30, 2000.
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 this registration
statement shall thereafter 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 Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
[insert logo]
eSAFETYWORLD, Inc.
80 Orville Drive
Bohemia, New York
November [ ], 2000
To all eSAFETYWORLD, Inc. Stockholders:
On November 9, 2000, the Board of Directors of eSAFETYWORLD, Inc.
("eSAFETYWORLD") declared a dividend of 234,615 shares of Community Home
Mortgage Corporation ("Community Home Mortgage") which will result in Community
Home Mortgage becoming a separate, publicly-traded company.
If you are a stockholder of eSAFETYWORLD as of the close of business on
[_____________], 2000, the record date for the dividend, stock certificates
representing your shares in Community Home Mortgage will be mailed to you on or
about [__________], 2000. For every 13 shares of eSAFETYWORLD that you hold as
of the close of business on this date, you will receive one share of Community
Home Mortgage, except that no fractional shares will be issued. The eSAFETYWORLD
certificates that you currently hold will continue to represent your investment
in eSAFETYWORLD.
Shares of Community Home Mortgage will trade on the Over-the-Counter
Bulletin Board ("OTCBB") as soon as possible after the effective date the shares
are distributed to you. The proposed symbol for Community Home Mortgage will be
"CHMC." Shares of eSAFETYWORLD will continue to trade on the Nasdaq under the
symbol "SFTY."
Detailed information on Community Home Mortgage and the spin-off plan
is contained in the accompanying document, which we suggest that you read for
information purposes.
The Board believes the spin-off will increase the value of Community
Home Mortgage common stock and provide potential value to eSAFETYWORLD
stockholders.
Sincerely,
Edward A. Heil
President and
Chief Executive Officer
eSAFETYWORLD, Inc.
<PAGE>
[Community Home Mortgage Corporation letterhead]
Dear new Community Home Mortgage Corporation Stockholder:
Welcome as a new stockholder of Community Home Mortgage Corporation.
The enclosed information provides important details about our company. We urge
you to read it carefully and to follow our progress closely. We welcome your
support and questions. Please feel free to contact me at any time at our
corporate offices.
Sincerely,
Community Home Mortgage Corporation
Ira Silverman
President
<PAGE>
Subject To Completion, Dated November [__], 2000
The information contained in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
500,000 Shares of
Community Home Mortgage Corporation
Common Stock
eSAFETYWORLD, Inc. is distributing to its stockholders of record on the
record date of [___________], 2000, 234,615 shares of common stock of Community
Home Mortgage Corporation. The distribution will be pro rata to the eSAFETYWORLD
stockholders based on the number of shares owned by each. eSAFETYWORLD
stockholders will receive one Community Home Mortgage share for each 13 shares
held. Fractional shares will be rounded to the nearest whole share. eSAFETYWORLD
will send Community Home Mortgage stock certificates to the eSAFETYWORLD
stockholders on about [__________], 2000.
eSAFETYWORLD stockholders are not required to take any action to
receive their shares of Community Home Mortgage common stock. No consideration
will be paid by holders of eSAFETYWORLD common stock for shares of Community
Home Mortgage common stock.
This prospectus also relates to the resale of 265,385 shares of
Community Home Mortgage common stock by the stockholders named under the caption
"Selling Stockholders" on page 30. The selling stockholders may offer and sell
from time to time common stock using this prospectus in transactions:
o on the over-the-counter market or otherwise;
o at market prices, which may vary during the offering period,
or at negotiated prices; and
o in ordinary brokerage transactions, in block transactions, in
privately negotiated transactions, or otherwise.
The selling stockholders will receive all of the proceeds from the sale of the
shares and will pay all underwriting discounts and selling commissions relating
to the sale of the shares.
There currently is no public market for the Community Home Mortgage
stock, and neither eSAFETYWORLD nor Community Home Mortgage can assure that a
trading market will develop. Community Home Mortgage is applying to have its
common stock quoted on the Over-the-Counter Bulletin Board ("OTCBB") under the
symbol "CHMC" effective at the time of the distribution. See "The Distribution."
The ownership of Community Home Mortgage common stock involves
significant risks. 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 determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November [__], 2000.
<PAGE>
eSAFETYWORLD is not seeking approval by its stockholders of the
distribution of the stock of Community Home Mortgage to the stockholders of
eSAFETYWORLD. No approval by the stockholders of eSAFETYWORLD is required.
This information does not constitute an offer to sell or the
solicitation of an offer to buy any securities.
You should rely on the information contained in this document. No
person is authorized to give information that is not contained in this document.
This document is not an offer to sell nor is it seeking an offer to buy these
securities. This information is correct only as of the date set forth on the
cover page, regardless of the time of the delivery of this prospectus.
Until [________], 2001 (90 days after the commencement of the
offering), 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.
eSAFETYWORLD, the selling stockholders and any broker-dealers that
participate in the Distribution of the shares may be deemed to be "underwriters"
within the meaning of section 2(11) of the Securities Act of 1933. Any
compensation received and any profits realized by eSAFETYWORLD, the selling
stockholders or such broker-dealers may be considered underwriting discounts and
commissions under the Securities Act.
Stockholders of eSAFETYWORLD with inquiries related to the Distribution
should contact R. Bret Jenkins, the Chief Financial Officer of eSAFETYWORLD, at
80 Orville Drive, Bohemia, NY 11716. eSAFETYWORLD's telephone number is
631-244-1454.
All common stock amounts give effect to Community Home Mortgage's
10,000-for-1 stock split effective November 3, 2000.
<PAGE>
Table of Contents
Caption Page
------- ----
Questions and Answers about the Distribution and Related Matters......... ii
Summary.................................................................. 1
Risk Factors............................................................. 3
The Distribution......................................................... 6
Community Home Mortgage's Capitalization................................. 13
Community Home Mortgage Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 14
Community Home Mortgage's Business....................................... 17
Community Home Mortgage's Management..................................... 25
Description of Community Home Mortgage's Common Stock.................... 27
Securities of Certain Beneficial Owners and Management................... 29
Certain Transactions..................................................... 30
Selling Stockholders..................................................... 30
Plan of Resale........................................................... 31
Legal Matters............................................................ 32
Experts.................................................................. 32
Available Information.................................................... 32
Index to Financial Statements of Community Home Mortgage Corporation..... F-1
i
<PAGE>
Questions and Answers
about the Distribution and Related Matters
The following section answers various questions that you may have about
the pro rata distribution to eSAFETYWORLD stockholders of 234,615 shares of
Community Home Mortgage common stock owned by eSAFETYWORLD. We refer to this
distribution in this document as the "Distribution."
Q1: What is the Distribution?
A: The Distribution is the method by which eSAFETYWORLD will spin-off
shares held by it in Community Home Mortgage resulting in Community
Home Mortgage becoming a publicly-traded company. According to the
terms of the Distribution, eSAFETYWORLD will distribute to its
stockholders, as of the close of business on [______________], 2000, in
a dividend, one share of Community Home Mortgage common stock for every
13 shares of eSAFETYWORLD common stock held on [______________], 2000.
Q2: What is Community Home Mortgage?
A: Community Home Mortgage is a mortgage banker that is licensed to
operate in 42 states. In 1999, it funded mortgages and home improvement
loans having an aggregate principal balance of approximately
$171,000,000. As is typical of mortgage bankers, Community Home
Mortgage sells the loans that it funds. Community Home Mortgage is
located in Melville, New York, and was founded in 1988.
Q3: Why is eSAFETYWORLD effecting the Distribution?
A: eSAFETYWORLD is effecting the Distribution because it believes that the
Distribution may result in an increase in the value of Community Home
Mortgage common stock and provide potential value to eSAFETYWORLD's
stockholders.
Q4: What is the tax effect of the Distribution?
A: eSAFETYWORLD believes that the Distribution should qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code.
Neither eSAFETYWORLD nor Community Home Mortgage has obtained a written
opinion of counsel regarding the tax-free nature of the spin-off. If
the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, each eSAFETYWORLD stockholder receiving shares of
Community Home Mortgage common stock in the Distribution would be
treated as if such stockholder had received a taxable distribution in
an amount equal to the fair market value of the Community Home Mortgage
common stock received.
Q5: What will eSAFETYWORLD stockholders receive in the Distribution?
A: In the Distribution, eSAFETYWORLD stockholders will receive one share
of Community Home Mortgage common stock for every 13 shares of
eSAFETYWORLD common stock they own on [______________], 2000.
Immediately after the Distribution, eSAFETYWORLD's stockholders will
still own their shares of eSAFETYWORLD common stock. Shares of
eSAFETYWORLD common stock will represent stockholders' interests in the
business of eSAFETYWORLD, and
ii
<PAGE>
shares of Community Home Mortgage common stock that stockholders
receive in the Distribution will represent their interests in the
Community Home Mortgage business.
Q6: What happens to eSAFETYWORLD shares after the Distribution?
A: After the Distribution, shares of eSAFETYWORLD common stock will
continue to represent ownership of the businesses of eSAFETYWORLD and
will continue to be traded on the Nasdaq SmallCap Market under the
ticker symbol "SFTY."
Q7: What does an eSAFETYWORLD stockholder need to do now?
A: eSAFETYWORLD stockholders do not need to take any action. The approval
of the eSAFETYWORLD stockholders is not required to effect the
Distribution, and eSAFETYWORLD is not seeking a proxy from any
stockholders. eSAFETYWORLD stockholders should not send in their
eSAFETYWORLD share certificates to effect the Distribution.
eSAFETYWORLD stockholders will automatically receive their shares of
Community Home Mortgage common stock shortly following the
Distribution.
Q8: Where can eSAFETYWORLD stockholders get more information?
A: eSAFETYWORLD stockholders with additional questions related to the
Distribution should contact R. Bret Jenkins, the Chief Financial
Officer of eSAFETYWORLD, at eSAFETYWORLD, Inc., 80 Orville Drive,
Bohemia, New York 11716. eSAFETYWORLD's telephone number is
631-254-1454.
iii
<PAGE>
Summary
The following is a summary of certain information contained in this
document. While this summary provides an accurate description of all material
information included in this document, it is qualified in its entirety by the
more detailed information and financial statements contained elsewhere in this
document. Certain capitalized terms used in this summary are defined elsewhere
in this document.
Why You Were Sent This Document
eSAFETYWORLD sent you this document because you were an owner of
eSAFETYWORLD common stock on [______________], 2000. Holders of record of
eSAFETYWORLD common stock, as of the close of business on [______________],
2000, will be entitled to receive a pro rata distribution of one share of
Community Home Mortgage for every 13 shares of eSAFETYWORLD common stock held.
No action is required on your part to participate in the Distribution, and you
are not required to pay cash or other consideration to receive your Community
Home Mortgage shares. No stockholder approval of the Distribution is required or
sought. We are not asking you for a proxy, and you are requested NOT to send us
a proxy.
This document describes Community Home Mortgage's business, how this
transaction benefits eSAFETYWORLD's stockholders and provides other information
to assist you in evaluating the benefits and risks of holding or disposing of
the Community Home Mortgage shares that you will receive in the Distribution.
You should be aware of certain risks relating to the Distribution and Community
Home Mortgage's business, which are described in this document beginning on page
3.
Forward-Looking Statements
This document and other materials filed or to be filed by eSAFETYWORLD
or Community Home Mortgage with the Securities and Exchange Commission, referred
to as the "SEC," as well as information included in oral statements or other
written statements made or to be made by eSAFETYWORLD and Community Home
Mortgage, contain statements that are "forward-looking." These statements appear
in a number of places in this document and include, but are not limited to, all
statements relating to plans for future growth and other business development
activities, as well as capital expenditures, financing sources and the effects
of regulation and competition, the terms of the Distribution and all other
statements regarding the intent, plans, beliefs or expectations of Community
Home Mortgage, as well as its respective directors or officers.
Stockholders and readers are cautioned that such forward-looking
statements are not assurances of future performance or events and involve risks
and uncertainties that could cause actual results and developments to differ
materially from those covered in such forward-looking statements. These risks
and uncertainties include, but are not limited to:
o the level of demand for mortgage credit, insurance and
securities products, which is affected by such external
factors as the level of interest rates, the strength of the
various segments of the economy and demographics of our
markets;
o the direction of interest rates;
o the relationship between mortgage interest rates and the cost
of funds;
<PAGE>
o federal and state regulation of mortgage banking, closing
services, capital markets and the insurance industry; and
o competition within the mortgage banking industry, capital
markets and insurance industries.
Summary of Community Home Mortgage's Business
Community Home Mortgage is a New York corporation founded in 1988 as
Esquire Funding Group, Inc. It changed its name to Community Home Mortgage
Corporation in 1993. It is a licensed mortgage banker operating in 42 states. In
1999, it funded mortgages and home improvement loans having an aggregate
principal balance of $171,000,000. As is typical of mortgage bankers, Community
Home Mortgage sells the loans that it funds. Its corporate office is located at
510 Broadhollow Road, Melville, New York 11747, and its telephone number is
631-391-9100.
Community Home Mortgage Summary Financial Data
The following data is qualified in its entirety by the financial
statements of Community Home Mortgage and other information contained elsewhere
in this document. The following financial data should also be read in
conjunction with, and is qualified in its entirety by, the information set forth
under "Community Home Mortgage Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Balance Sheet Data (rounded):
September 30, 2000 December 31, 1999
-------------------------- ---------------------------
(unaudited)
<S> <C> <C>
Current assets..................................... $18,725,000 $16,408,000
Total assets....................................... 19,940,000 17,558,000
Warehouse notes payable............................ 16,700,000 13,891,000
Total liabilities.................................. 17,934,000 15,134,000
Stockholders' equity............................... 2,506,000 2,424,000
Income Statement Data (rounded):
<CAPTION>
Year ended December 31 Nine months ended September 30
------------------------------------ ------------------------------------
1999 1998 2000 1999
------------------ ----------------- ------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue........................ $10,776,000 $8,701,000 $8,625,000 $8,125,000
Operating expenses............. 10,747,000 9,008,000 8,535,000 7,960,000
Net income..................... 17,000 (196,000)* 82,000 120,000
----------------------
</TABLE>
* The operating loss in 1998 includes charges of $627,000 relating to the
start-up of the home improvement loan division.
2
<PAGE>
Risk Factors
In addition to the information contained elsewhere in this document,
you should carefully read the following risk factors related to Community Home
Mortgage and the Distribution.
Recipients of the Distribution may be confronted by potential taxation matters
eSAFETYWORLD believes that the Distribution should qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code. Neither
eSAFETYWORLD nor Community Home Mortgage has obtained a written opinion of
counsel regarding the tax-free nature of the spin-off. If the Distribution were
not to qualify under Section 355 of the Internal Revenue Code, each eSAFETYWORLD
stockholder receiving shares of Community Home Mortgage common stock in the
Distribution would be treated as if such stockholder had received a taxable
distribution in an amount equal to the fair market value of the Community Home
Mortgage common stock received. See "The Distribution--Federal Income Tax
Consequences of the Distribution."
The trading price of Community Home Mortgage common stock is likely to be
subject to significant fluctuations
There can be no assurance as to the prices at which the Community Home
Mortgage common stock will trade before, on or after the Distribution date.
Until the Community Home Mortgage common stock is fully distributed and an
orderly market develops in the Community Home Mortgage common stock, the price
at which such stock trades may fluctuate significantly and may be lower or
higher than the price that would be expected for a fully distributed issue.
Prices for the Community Home Mortgage common stock will be determined in the
marketplace and may be influenced by many factors, including:
o the depth and liquidity of the market for Community Home
Mortgage common stock,
o developments affecting the business of Community Home Mortgage
generally and the impact of those factors referred to below in
particular,
o investor perception of Community Home Mortgage, and
o general economic and market conditions.
Community Home Mortgage common stock has no prior trading market or liquidity
Prior to the date of this document, there has not been any established
trading market for Community Home Mortgage common stock. Application will be
made to list the shares of Community Home Mortgage common stock on the OTCBB
under the symbol "CHMC." Community Home Mortgage cannot predict the likelihood
of the application being accepted. If the application is accepted, Community
Home Mortgage cannot predict the extent to which investor interest in the
company will lead to the development of an active, liquid trading market. Active
trading markets generally result in lower price volatility and more efficient
execution of buy and sell orders for investors.
Community Home Mortgage has realized only limited operating profits
Community Home Mortgage operates in a competitive industry, has
realized limited levels in profitability in each of the past two years and has
an accumulated deficit at September 30, 2000. There are no assurances that
Community Home Mortgage will remain profitable in the future.
3
<PAGE>
Ira Silverman has complete operating control
Following the completion of the Distribution, Ira Silverman, Community
Home Mortgage's president, will own or control approximately 90% of the
outstanding common stock. Therefore, Mr. Silverman will be able to control all
votes of stockholders and elections of members of the board of directors.
Community Home Mortgage is heavily dependent on warehouse financing
Community Home Mortgage currently borrows substantially all of the
proceeds that it uses to fund mortgage loans pursuant to three warehouse
financing facilities aggregating $30.0 million. These borrowings are, in turn,
repaid with the proceeds received by Community Home Mortgage from selling the
mortgage loans in pools or individual whole loan sales to institutional
investors, usually within 30 days of when the loan is funded. The warehouse
facilities are renewable annually and expire on dates ranging through December
2001. The borrowings thereunder are collateralized by specific mortgage loans
held for sale to institutional investors and are guaranteed by Ira Silverman.
The amount outstanding under the warehouse facilities at September 30, 2000, was
$16,700,000. Any failure to renew or obtain adequate funding under its current
warehouse facilities, or any substantial reduction in the size of or increase in
the cost of such facilities, would have a material adverse effect on the
Community Home Mortgage's business, financial condition and results of
operations because it would limit or reduce Community Home Mortgage's ability to
fund mortgage loans.
Community Home Mortgage's operations are directly linked to prevailing economic
conditions
Community Home Mortgage's business will be adversely affected by
periods of economic slowdown or recession that may be accompanied by decreased
demand for consumer credit and declining real estate values. Any material
decline in real estate values reduces the ability of borrowers to use home
equity to support borrowings by negatively affecting loan-to-value ratios of the
home equity collateral. To the extent that loan-to-value ratios of the home
equity collateral of prospective borrowers do not meet Community Home Mortgage's
underwriting criteria, the volume of loans funded could decline. A decline in
loan origination volumes would have a material adverse effect on Community Home
Mortgage's business, financial condition and results of operations. In addition,
changes in the level of consumer confidence, real estate values and prevailing
interest rates, each of which tend to be affected by an economic slowdown, could
adversely affect the level and amount of consumer borrowing. Furthermore,
investment returns of investors purchasing mortgages are affected by, among
other things, the actual rates of delinquencies and foreclosures of the
mortgages they purchase, which could make mortgage loans less attractive to
investors during periods when such delinquencies and foreclosures are
increasing.
Community Home Mortgage Operations are heavily affected by the level of
prevailing interest rates
Community Home Mortgage's profitability may be directly affected by the
levels of and fluctuations in interest rates. The operations and profitability
of Community Home Mortgage are likely to be adversely affected during any period
of unexpected or rapid changes in interest rates.
Operations are heavily dependent on the contributions of Ira Silverman and
Daniel Silverman
Community Home Mortgage's future prospects are highly dependent on the
ongoing involvement and participation of Ira Silverman, its president, and
Daniel Silverman, its executive vice president. The loss of the services of
either or both of these officers could have a material adverse effect on the
future operations and financial condition of Community Home Mortgage.
4
<PAGE>
Community Home Mortgage has issued preferred stock with preferential rights to
its common stock
Community Home Mortgage has issued and outstanding 102 shares of Class
A Preferred Stock and 40 shares of Class B Preferred Stock, with liquidation
preferences of $10,000 and $25,000 per share, respectively. Therefore, on
liquidation or termination of the company, an aggregate of $2,020,000 in assets
would be distributed to the holders of the currently issued and outstanding
Class A and Class B Preferred Stock, after payment of all of the Company's
obligations, prior to any distribution to the holders of Common Stock. The Class
A and Class B Preferred Stock do not vote, except as otherwise required by the
corporate statutes of New York. If the Company seeks to amend its certificate of
incorporation to change the provisions relating to the Class A or Class B
Preferred Stock or to approve provisions that would require a class vote if they
were contained in an amendment to the certificate of incorporation, the approval
of the Class A and Class B Preferred Stock affected thereby, voting as separate
classes, would be required. Consequently, the holders of a relatively minor
number of shares of Class A or Class B Preferred Stock may be able to block such
proposals, even in circumstances where they would be in the best interests of
the holders of common stock. (See "Description of Community Home Mortgage
Capital Stock.")
5
<PAGE>
The Distribution
Introduction
On November 9, 2000, the board of directors of eSAFETYWORLD approved a
plan to distribute 234,615 shares of common stock of Community Home Mortgage
common stock held by eSAFETYWORLD to all holders of outstanding eSAFETYWORLD
common stock. The eSAFETYWORLD board of directors formally declared a dividend
payable to each holder of record of eSAFETYWORLD common stock at the close of
business on the record date of one share of Community Home Mortgage common stock
for every 13 shares of eSAFETYWORLD common stock held as of the close of
business on the record date. Holders of eSAFETYWORLD common stock will not
receive any fractional shares of Community Home Mortgage common stock in
connection with the Distribution.
On or before the Distribution date, eSAFETYWORLD will deliver the
shares of Community Home Mortgage common stock to be distributed to the
Distribution agent for transfer and distribution to the holders of record of
eSAFETYWORLD common stock as of the close of business on the record date. The
Distribution is expected to be made on or about [______], 2000.
Reasons for the Distribution
In September 2000, eSAFETYWORLD signed an agreement to provide certain
business and financial consulting services relating to web-centric marketing
systems and e-commerce applications to Community Home Mortgage.
In agreeing to assist Community Home Mortgage, eSAFETYWORLD considered
the following key factors:
o eSAFETYWORLD's management team has developed significant
expertise that it believed could be applied to other
industries, without detracting from its primary focus of
serving the industrial safety, laboratory supply and cleanroom
markets;
o eSAFETYWORLD retains its strong liquidity compared to its
projected requirements, so it was appropriate to consider
non-cash consideration for the services to be provided;
o eSAFETYWORLD believed it important that Community Home
Mortgage retain its cash resources to capitalize on the
expanded marketing opportunities that eSAFETYWORLD may help to
create; and
o eSAFETYWORLD might maximize the long-term financial return to
its stockholders by obtaining stock in Community Home Mortgage
and distributing it to its stockholders.
Based on these considerations, eSAFETYWORLD agreed to accept an aggregate of
375,000 shares of Community Home Mortgage common stock in consideration for the
principal consulting services that it is providing. These 375,000 shares
constitute approximately 6.8% of the issued and outstanding common stock of
Community Home Mortgage at November 3, 2000. eSAFETYWORLD now proposes to
distribute 234,615 shares of those shares of Community Home Mortgage stock to
the eSAFETYWORLD stockholders, pro rata in proportion to the number of shares of
eSAFETYWORLD held by each. Accordingly, the eSAFETYWORLD stockholders will
receive one share of Community Home Mortgage for approximately each 13 shares of
eSAFETYWORLD now held by them. eSAFETYWORLD will retain the 140,385 shares of
Community Home Mortgage not distributed to the eSAFETYWORLD stockholders.
6
<PAGE>
eSAFETYWORLD believes that the Distribution of Community Home Mortgage
shares and the resulting creation of a publicly-held corporation may increase
the value of the Community Home Mortgage shares and may offer the stockholders
of eSAFETYWORLD greater liquidity than if all 375,000 shares received by
eSAFETYWORLD were retained by it. In addition, the Distribution will result in
Community Home Mortgage becoming a publicly-traded company with equity
securities that could be used in its compensation programs and to facilitate
potential acquisitions and alliances.
The discussion of the reasons for the Distribution set forth herein
includes forward-looking statements that are based on numerous assumptions with
respect to the trading characteristics of the Community Home Mortgage common
stock and the ability of Community Home Mortgage management to successfully take
advantage of growth, acquisition and alliance opportunities. Many of those
factors are discussed above under the captions "Forward-Looking Statements" and
"Risk Factors."
Form of Transaction
The Distribution is the method by which eSAFETYWORLD will spin-off
shares of Community Home Mortgage resulting in Community Home Mortgage becoming
a publicly-traded company. In the Distribution, eSAFETYWORLD will distribute to
its stockholders 234,615 shares of common stock of Community Home Mortgage held
by eSAFETYWORLD. After the Distribution, stockholders of eSAFETYWORLD will
continue to own their shares in eSAFETYWORLD and the shares distributed to them
in Community Home Mortgage.
eSAFETYWORLD currently holds 375,000 shares of Community Home
Mortgage's common stock, which represents 6.8% of the total number of Community
Home Mortgage's shares of common stock outstanding. Following the Distribution,
eSAFETYWORLD will continue to hold 140,385 shares of Community Home Mortgage's
common stock.
eSAFETYWORLD may be deemed to be an "underwriter" within the meaning of
section 2(11) of the Securities Act of 1933. Any compensation received and any
profits realized by eSAFETYWORLD may be considered underwriting discounts and
commissions under the Securities Act.
Manner of Effecting the Distribution
The Distribution will be made on the Distribution date to holders of
record of eSAFETYWORLD common stock at the close of business on the record date.
Based on the 3,050,000 shares of eSAFETYWORLD common stock outstanding as of
[______________], 2000, the Distribution would consist of one share of Community
Home Mortgage common stock for each 13 shares of eSAFETYWORLD held.
eSAFETYWORLD will not deliver scrip evidencing a fractional share or
pay any related amount to a stockholder who would be entitled to a fractional
share. Instead, the number of shares of Community Home Mortgage stock to which
each eSAFETYWORLD stockholder of record is entitled will be rounded to the
nearest whole share. If, as a result of rounding, more than 234,615 shares are
required to complete the Distribution, the required additional shares will be
provided from the number to be retained by eSAFETYWORLD. Conversely, if less
than 234,615 shares are required to complete the Distribution, the remainder
will be added to the number retained by eSAFETYWORLD.
Prior to the Distribution date, eSAFETYWORLD will deliver the shares of
Community Home Mortgage common stock to be distributed to the Distribution agent
for distribution. The Distribution agent will mail, on or about the Distribution
date, certificates representing the shares of Community
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Home Mortgage common stock to eSAFETYWORLD stockholders of record as of the
close of business on the record date. Holders of eSAFETYWORLD common stock will
not receive any fractional shares of Community Home Mortgage common stock in
connection with the Distribution.
Holders of eSAFETYWORLD common stock will not be required to pay for
shares of Community Home Mortgage common stock received in the Distribution, or
to surrender or exchange certificates representing shares of eSAFETYWORLD common
stock in order to receive shares of Community Home Mortgage common stock. No
stockholder approval of the Distribution is required or sought. We are not
asking you for a proxy and you are requested NOT to send us a proxy.
In order to be entitled to receive shares of Community Home Mortgage
common stock in the Distribution, eSAFETYWORLD stockholders must be stockholders
at the close of business on the record date.
Federal Income Tax Consequences of the Distribution
eSAFETYWORLD believes that the Distribution qualifies as a tax-free
spin-off under Section 355 of the Internal Revenue Code. As a tax-free spin-off:
1. Holders of eSAFETYWORLD common stock would not recognize any income,
gain or loss as a result of the Distribution.
2. Holders of eSAFETYWORLD common stock will apportion the tax basis of
their eSAFETYWORLD common stock between such eSAFETYWORLD common stock and the
Community Home Mortgage common stock received in the Distribution in proportion
to the relative fair market values of the stock on the Distribution date.
eSAFETYWORLD will provide appropriate information as of the Distribution date to
each holder of record of eSAFETYWORLD common stock as of the close of business
on the record date enabling such holder to determine the tax basis of
eSAFETYWORLD common stock and the tax basis of Community Home Mortgage common
stock held by such holder.
3. The holding period for the Community Home Mortgage common stock
received in the Distribution by holders of eSAFETYWORLD common stock will
include the period during which holders held the eSAFETYWORLD common stock with
respect to which the Distribution was made, provided that the eSAFETYWORLD
common stock is held as a capital asset on the Distribution date.
4. The Distribution will not be treated as a taxable disposition of
Community Home Mortgage by eSAFETYWORLD.
If the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, then, in general, a corporate tax would be payable, based
on the difference between (x) the fair market value of the Community Home
Mortgage common stock and (y) the adjusted basis of such Community Home Mortgage
common stock. eSAFETYWORLD will be liable for the resulting corporate tax.
Furthermore, if the Distribution were not to qualify as a tax-free
spin-off, each eSAFETYWORLD stockholder receiving shares of Community Home
Mortgage common stock in the Distribution would be treated as if that
stockholder had received a taxable distribution in an amount equal to the fair
market value of Community Home Mortgage common stock received, which would
result in:
o a dividend to the extent of such stockholder's pro rata share
of eSAFETYWORLD's current and accumulated earnings and
profits;
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<PAGE>
o a reduction in such stockholder's basis in eSAFETYWORLD common
stock to the extent the amount received exceeds such
stockholder's share of earnings and profits until such basis
equals zero, and
o a gain to the extent the amount received exceeds the sum of
the amount treated as a dividend and the amount treated as a
reduction of the stockholder's basis in eSAFETYWORLD common
stock. Any gain of this type will generally be capital gain if
the eSAFETYWORLD common stock is held as a capital asset on
the Distribution date.
Current Treasury Department regulations require each holder of
eSAFETYWORLD common stock who receives Community Home Mortgage common stock
pursuant to the Distribution to attach to his or her federal income tax return
for the year in which the Distribution occurs a detailed statement setting forth
such data as may be appropriate in order to show the applicability of Section
355 of the Internal Revenue Code to the Distribution. eSAFETYWORLD will convey
the appropriate information as of the Distribution date to each holder of record
of eSAFETYWORLD common stock as of the close of business on the record date.
eSAFETYWORLD stockholders should consult their own advisers as to the
specific tax consequences of the Distribution, including the application and
effect of foreign, state and local tax laws.
Listing and Trading of Community Home Mortgage Common Stock
Prior to the date of this document, there has not been any established
trading market for Community Home Mortgage common stock. Application will be
made to list the shares of Community Home Mortgage common stock on the OTCBB
under the proposed symbol "CHMC." There can be no assurance as to the prices at
which the Community Home Mortgage common stock will trade on or after the
Distribution date. Until the Community Home Mortgage common stock is fully
distributed and an orderly market develops, if ever, in the Community Home
Mortgage common stock, the price at which it trades may fluctuate significantly.
Prices for the Community Home Mortgage common stock will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for shares of Community Home Mortgage common stock,
developments affecting the businesses of Community Home Mortgage generally,
including the impact of the factors referred to in "Risk Factors," investor
perception of Community Home Mortgage and general economic and market
conditions.
Shares of Community Home Mortgage common stock distributed to
eSAFETYWORLD stockholders will be freely transferable, except for shares of
Community Home Mortgage common stock received by persons who may be deemed to be
"affiliates" of Community Home Mortgage under the Securities Act of 1933, as
amended. Persons who may be deemed to be affiliates of Community Home Mortgage
after the Distribution generally include individuals or entities that control,
are controlled by or are under common control with Community Home Mortgage, and
may include senior officers and directors of Community Home Mortgage, as well as
principal stockholders of Community Home Mortgage. Persons who are affiliates of
Community Home Mortgage following the Distribution will be permitted to sell
their shares of Community Home Mortgage common stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemption
afforded by Section 4(1) of the Securities Act or Rule 144 issued under the
Securities Act.
Community Home Mortgage has applied to have its shares of common stock
listed and traded on the OTCBB. At the time of the Distribution of the stock to
the eSAFETYWORLD stockholders, it cannot give any assurances as to whether it
will be successful in having its shares listed on the OTCBB.
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<PAGE>
Penny Stock Restrictions
Until Community Home Mortgage's shares of common stock qualify for
inclusion in the Nasdaq system, if ever, the trading of its securities, if any,
will be in the over-the-counter markets which are commonly referred to as the
"pink sheets" or on the OTCBB. As a result, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the price of, the securities
offered.
SEC Rule 15g-9 establishes the definition of a "penny stock," for
purposes relevant to us, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to a limited number of exceptions. For any transaction involving a penny
stock, unless exempt, the penny stock rules require that a broker or dealer
approve a person's account for transactions in penny stocks and the broker or
dealer receive from the investor a written agreement to the transaction setting
forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must obtain financial information and investment
experience and objectives of the person and make a reasonable determination that
the transactions in penny stocks are suitable for that person and that person
has sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the SEC relating to the penny
stock market, which, in highlight form, sets forth the basis on which the broker
or dealer made the suitability determination and that the broker or dealer
received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stock in
both public offering and in secondary trading and commissions payable to both
the broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
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In order to be included and maintain a listing on the Nasdaq SmallCap
Market, a company must meet the following requirements:
Requirements Initial Listing Continued Listing
----------------------------------- ------------------- -------------------
Net Tangible Assets(1) $4 million $2 million
or or
Market Capitalization $50 million $35 million
or or
Net Income (in latest fiscal year $750,000 $500,000
or 2 of last 3 fiscal years)
Public Float (shares)(2) 1 million 500,000
Market Value of Public Float $5 million $1 million
Minimum Bid Price $4 $1
Market Makers 3 2
Shareholders (round lot holders)(3) 300 300
Operating History(4) 1 year N/A
or or
Market Capitalization $50 million
Corporate Governance Yes Yes
(1) For initial or continued listing, a company must satisfy one of the
following to be in compliance: the net tangible assets requirement (net
tangible assets means total assets, excluding goodwill, minus total
liabilities), the market capitalization requirement or the net income
requirement.
(2) Public float is defined as shares that are not held directly or indirectly
by any officer or director of the issuer and by any other person who is the
beneficial owner of more than 10% of the total shares outstanding.
(3) Round lot holders are considered holders of 100 shares or more.
(4) If operating history is less than one year, initial listing requires market
capitalization of at least $50 million.
There are no assurances that Community Home Mortgage will ever meet the
minimum listing requirements of Nasdaq, or that its common stock will be
accepted for quotation on Nasdaq even if it does meet the minimum requirements.
General Market Risks
There is no public market for Community Home Mortgage's common stock,
and there can be no assurance that any market will develop in the foreseeable
future. Transfer of Community Home Mortgage's common stock may also be
restricted under the securities or blue sky laws of various states and foreign
jurisdictions. Consequently, investors may not be able to liquidate their
investments and should be prepared to hold the common stock for an indefinite
period of time. Community Home Mortgage's proposed trading symbol does not imply
that a liquid and active market will be developed or sustained for its common
stock.
The market price for Community Home Mortgage's common stock, if
publicly traded, is likely to be highly volatile and subject to wide
fluctuations in response to factors, many of which are beyond its control,
including the following:
o actual or anticipated variations in quarterly operating results;
o changes in financial estimates by securities analysts;
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o announcements by Community Home Mortgage or its competitors of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments;
o additions or departures of key personnel;
o sales or issuances of additional shares of common stock; and
o potential litigation or regulatory matters.
The market prices of the securities of microcap companies have been
especially volatile. Broad market and industry factors may adversely affect the
market price of Community Home Mortgage's common stock, regardless of Community
Home Mortgage's actual operating performance. In the past, following periods of
volatility in the market price of their stock, many companies have been the
subject of securities class action litigation. A stockholder lawsuit could
result in substantial costs and a diversion of management's attention and
resources and would adversely affect Community Home Mortgage's stock price.
The sale or availability for sale of a substantial number of shares of
Community Home Mortgage's common stock in the public market subsequent to the
Distribution, pursuant to Rule 144 under the Securities Act of 1933 or
otherwise, could materially adversely affect the market price of the common
stock and could impair the company's ability to raise additional capital through
the public or private sale of its securities. All of the 5,000,000 shares of
common stock currently held by Community Home Mortgage's management are
"restricted securities," as that term is defined in Rule 144 and may, under
certain circumstances, be sold without registration under the Securities Act of
1933. The availability of Rule 144 to the holders of Community Home Mortgage's
restricted securities would be conditioned on, among other factors, the
availability of certain public information concerning Community Home Mortgage.
Community Home Mortgage has 20,000,000 authorized shares of common
stock. The board of directors, without stockholder approval, could issue up to
13,500,000 shares of common stock upon whatever terms it determines to whomever
it determines, including persons or entities that would help its present
management.
Legal Matters
Community Home Mortgage is not involved in any litigation or legal
proceedings, the outcome of which is expected to have a material adverse effect
on its financial condition or results of operations.
Relationship of eSAFETYWORLD and Community Home Mortgage before and after the
Distribution
eSAFETYWORLD owns approximately 6.8% of the issued and outstanding
common stock of Community Home Mortgage, which it received as consideration for
entering into a consulting agreement to provide Community Home Mortgage with
general business and financial consulting services relating to web-centric
marketing systems and e-commerce applications for a one-year period. After the
Distribution, eSAFETYWORLD will own approximately 140,385 shares representing
2.6% of the outstanding shares of Community Home Mortgage, and Community Home
Mortgage will be a publicly-traded company. After the Distribution, Community
Home Mortgage will not have any ownership interest in eSAFETYWORLD. There are no
overlapping officers or directors.
No ongoing agreements exist between eSAFETYWORLD and Community Home
Mortgage other than an agreement under which eSAFETYWORLD has agreed to provide
Community Home Mortgage
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with general business and financial consulting services through September 2001.
Community Home Mortgage may continue to engage eSAFETYWORLD as a consultant on
certain business matters thereafter.
Dividend Policy
The payment and level of cash dividends by Community Home Mortgage
after the Distribution will be subject to the discretion of the board of
directors of Community Home Mortgage. Community Home Mortgage currently intends
to retain future earnings, if any, for the development of its business and does
not anticipate paying cash dividends in the near future. Future dividend
decisions will be based on, and affected by, a number of factors, including the
operating results and financial requirements of Community Home Mortgage.
Community Home Mortgage's Capitalization
The following table sets forth the unaudited capitalization of
Community Home Mortgage at September 30, 2000, on an historical basis. The
following data is qualified in its entirety by the combined financial statements
of Community Home Mortgage and other information contained elsewhere in this
document. See "Risk Factors."
Warehouse bank loans payable................ $16,700,000
Other notes payable......................... 220,000
----------------
Preferred stock............................. 2,020,000
Common stock................................ 15,000
Additional paid-in capital.................. 505,580
Deficit..................................... (35,000)
----------------
Total................................... 2,505,580
----------------
Total capitalization........................ $19,425,580
================
Capitalization per share.................... $3.53*
================
At September 30, 2000, Community Home Mortgage's tangible net worth was
$2,505,580, or $0.46* per share.
------------------------
* The per share calculations give retroactive effect to the 10,000-for-1
stock split declared on November 3, 2000, and the issuance in November 2000
of 500,000 shares to satisfy obligations to consultants. See "Certain
Transactions" and "Selling Stockholders."
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<PAGE>
Community Home Mortgage Management's Discussion
and Analysis of Financial Condition and Results of Operations
General
Community Home Mortgage's revenues are generated from:
o the fees that it charges borrowers on the origination of mortgage
loans,
o the premiums paid by institutional investors when they purchase the
loans from Community Home Mortgage, as well as servicing released
premiums when the investor also purchases the servicing rights, and
o interest earned during the period that the originated mortgage loan is
held for sale to institutional investors, which is generally less than
30 days.
The fees charged by Community Home Mortgage to its borrowers in connection with
the funding of the loans and the premium on sales of loans to third parties,
less transaction costs associated with origination of the loans, are categorized
as mortgage origination revenue. Community Home Mortgage sells all of its
mortgage loans together with the related servicing rights to institutional
investors, usually on a nonrecourse basis, in most instances within 30 days of
origination. By selling its mortgages to institutional investors on a
"servicing-released" basis, Community Home Mortgage avoids the administrative
and collection expenses of managing a servicing portfolio, and is not faced with
the risks of foreclosures, delinquencies and reacquiring and disposing of
residential real estate. Community Home Mortgage does not sell mortgage loans in
"securitization" transactions, but rather sells loans to financial institutions,
either on a pooled or individual "whole-loan" basis, at fixed prices on a
nonrecourse basis.
Operations
Nine Months Ended September 30, 1999 and 2000
A summary of operating results follows:
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 2000
--------------------------- ----------------------------
Amount Percentage Amount Percentage
------------- ------------- ------------- --------------
Revenue $8,124,355 100.00 8,638,430 100.00
Expenses 7,957,098 94.94 8,535,529 98.81
Pretax income 167,257 2.06 102,901 1.19
Substantially all of the fluctuations relate to the number and mix of
mortgages funded during each period. The nine months ended September 30, 2000,
reflect the continued contribution of home improvement loans. Expenses were
higher as Community Home Mortgage added sales offices and employees to implement
its overall strategy.
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<PAGE>
Years Ended December 31, 1997, 1998 and 1999
A summary of activity follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997 Year Ended Year Ended
-------------------------- December 31, 1998 December 31, 1999
Amount Percentage -------------------------- ----------------------------
-------------------------- Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
Revenue........... $8,778,144 100.00 8,700,504 100.00 10,776,362 100.00
Expenses.......... 8,743,016 99.60 9,007,701 103.53 10,747,247 99.73
Pretax income..... 35,128 0.40 (301,197) (3.46) 29,115 0.27
</TABLE>
The principal differences in operating results are discussed below.
The mix of loans is different between years. Total mortgage loans were
3,197 in 1999, with a total principal amount of $171,137,000, compared with
1,628 loans in 1998 having a total principal balance of $153,884,000. In 1999,
2,247 loans having a total principal balance of $27,214,000 were home
improvement loans. The home improvement loan division was started late in 1998,
when only 575 such loans with a total principal balance of $6,725,000 were
written. Home improvement loans are potentially more profitable than other
mortgages because they generally have higher interest yields which are
attractive to certain investors.
The last quarter of 1999 was adversely impacted because an investor
that had been purchasing home improvement loans from Community Home Mortgage
ceased investing in that paper. As a result, Community Home Mortgage was
required to seek other investors. During the latter three months of 1998,
Community Home Mortgage substantially reduced its funding levels of home
improvement loans while it was seeking new investors. During that period it
continued to incur the fixed costs of maintaining the home improvement
department.
Operating expenses in 1998 include $626,826 of start-up costs relating
to the home improvement division. In 1999, Community Home Mortgage relied more
heavily on brokers as brokers' commissions increased from $1,751,718 in 1998 to
$2,864,194 in 1999. In addition, the costs of maintaining the home improvement
division was incurred for the entire year in 1999, which is the principal reason
that salary costs increased by $581,402, general and administrative costs
increased by $139,031 and occupancy costs increased by $58,355 over
corresponding costs in 1998.
In 1997, Community Home Mortgage funded mortgages having an aggregate
principal balance of $177,234,000, compared with $153,884,000 in 1998. Expenses
in 1998 included $626,826 relating to the start-up of the home improvement
division. There were no other significant fluctuations.
Liquidity and Capital Resources
Community Home Mortgage's primary operating cash requirements include
the funding or payment of loan originations, interest expense incurred on
borrowings under its warehouse facilities, capital expenditures, personnel and
commission costs and other operating and administrative expenses.
Community Home Mortgage generates cash flow from fees received from its
borrowers for mortgage fundings, the sale of mortgage loans into the secondary
market and interest income on loans held for sale.
Community Home Mortgage has three warehouse facilities with commercial
banks for an aggregate of $30.0 million that expire on various dates through
December 2001. These facilities are
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<PAGE>
generally renewable on an annual basis. All borrowings under the warehouse
facilities are secured by the mortgage loans funded and are guaranteed by Ira
Silverman.
Community Home Mortgage's business requires continual access to
short-term sources of funds. While management believes that it has sufficient
funds to finance its operations and that it will be able to refinance or
otherwise repay its debt in the normal course of business, there can be no
assurance that the warehouse facilities will be extended or that funds generated
from operations will be sufficient to satisfy such obligations.
Community Home Mortgage will need to increase the available warehouse
facilities in order to increase the volume of its loan originations and to
expand its home improvement financing products. In addition, it needs to
increase the volume of its loan originations in order to begin securitizing
transactions, because securitization generally involves relatively large pools
of loans. There are no assurances that Community Home Mortgage can or will be
able to increase its available warehousing facilities.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants, the Emerging
Issues Taskforce or the Securities and Exchange Commission is expected to have a
material impact on Community Home Mortgage's financial position or reported
results of operations.
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<PAGE>
Community Home Mortgage's Business
General
Community Home Mortgage was founded in 1988 as Esquire Funding Group,
Inc. and changed its name to Community Home Mortgage Corporation in 1993. It is
engaged primarily in the mortgage banking business. As such, Community Home
Mortgage originates, purchases, sells and services mortgage loans, and offers:
o prime credit quality first-lien mortgage loans secured by one-to-four
family residences (these loans are referred to as "prime credit
quality first mortgages");
o government-insured loans;
o home equity loans, both in conjunction with newly-produced government
insured prime credit quality first mortgages and as a separate
product;
o home improvement loans supported by underlying collateral usually
consisting of a second mortgage; and
o sub-prime credit quality first-lien single-family mortgage loans
(these loans are referred to as "sub-prime loans").
Mortgage Banking Operations
The principal sources of revenue from Community Home Mortgage's
mortgage banking business are:
o loan origination fees;
o gains from the sale of loans;
o interest earned on mortgage loans during the period that they are held
by it pending sale, net of interest paid on funds (Community Home
Mortgage borrows funds to finance those mortgage loans);
o loan servicing fees; and
o interest earned from the custodial balances associated with Community
Home Mortgage's servicing portfolio.
Loan Production Segment
Community Home Mortgage originates and/or purchases conventional
mortgage loans, mortgage loans insured by the Federal Housing Administration,
known as the "FHA," mortgage loans partially guaranteed by the Department of
Veterans Affairs, known as the "VA," home equity loans and sub-prime loans. A
majority of the conventional loans are conforming loans that qualify for
inclusion in guarantee programs sponsored by the Federal National Mortgage
Association, known as "Fannie Mae," or the Federal Home Loan Mortgage
Corporation, known as "Freddie Mac." The remainder of the conventional loans are
nonconforming loans, such as jumbo loans with an original balance in excess of
$252,700, or other loans that do not meet Fannie Mae or Freddie Mac guidelines.
As part of Community Home Mortgage's mortgage banking activities, it can make
conventional loans with original balances of up to $3,000,000.
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<PAGE>
The following table sets forth the number and dollar amount of
Community Home Mortgage's prime credit quality first mortgage, home improvement
and sub-prime loan production for the periods indicated. All dollar amounts are
denominated in thousands.
<TABLE>
<CAPTION>
Through
09/30/00 1999 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Conventional loans:
Number.............................. 225 402 579 640
Amount.............................. $39,629 $64,023 $87,006 $89,586
Government loans:
Number.............................. 255 456 388 665
Amount.............................. $40,199 $66,227 $49,188 $77,182
Sub-prime loans:
Number.............................. 145 92 86 98
Amount.............................. $21,684 $13,673 $10,965 $10,466
Home improvement loans:
Number.............................. 1,187 2,247 575 --
Amount.............................. $14,327 $27,214 $6,725 --
Total:
Number.............................. 1,812 3,197 1,628 1,403
Amount.............................. $115,839 $171,137 $153,884 $177,234
</TABLE>
Community Home Mortgage is licensed or authorized to do business in 42
states as follows:
Arizona Maryland Oregon
California Massachusetts Pennsylvania
Colorado Michigan Rhode Island
Connecticut Minnesota South Carolina
Delaware Mississippi South Dakota
Florida Missouri Tennessee
Georgia Nebraska Texas
Illinois Nevada Utah
Indiana New Jersey Vermont
Iowa New Mexico Virginia
Kansas New York Washington
Kentucky North Carolina West Virginia
Louisiana Ohio Wisconsin
Maine Oklahoma Wyoming
Marketing
Community Home Mortgage's consumer group originates primarily prime
credit quality first mortgage and home equity loans through referrals from real
estate agents and direct contact with consumers through its network of nine
retail branch offices located in:
Bellerose, NY Tarrytown, NY West Orange, NJ
Brooklyn, NY Canonsburgh, PA Woodbridge, NJ
Nanuet, NY Cincinnati, OH Boca Raton, FL
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<PAGE>
The branch offices serve solely as marketing and processing sources.
All credit and underwriting decisions are made at Community Home Mortgage's
corporate office located at 510 Broadhollow Road, Melville, New York 11747.
Business from home improvement companies is solicited through
advertising, participation by branch management in local real estate related
business functions, direct solicitation by sales personnel and extensive use of
direct mailings and faxes directly to independent home improvement contractors
and subcontractors. Community Home Mortgage also is increasing its telemarketing
solicitation efforts and plans on introducing Internet-based loan application
processes and e-mail solicitation programs in 2001. Community Home Mortgage
believes that this is a primary potential growth area for it.
Community Home Mortgage believes that it offers a superior alternative
to its customers through low cost loans, a broad product line which facilitates
one-stop shopping, direct access to the lending decision and timely underwriting
decisions. Community Home Mortgage engages RPI, an outside specialist, to
conduct quality control audits of loans originated to monitor compliance with
its underwriting criteria.
Community Home Mortgage also produces prime credit quality first
mortgage, home equity and sub-prime loans through mortgage loan brokers and
other financial intermediaries. Approximately 10% of Community Home Mortgage's
loans were produced in this manner through the first nine months of 2000. In the
future, Community Home Mortgage intends to expand its relationships with
mortgage brokers and will consider acquiring mortgage brokerage firms if it
identifies appropriate opportunities. No acquisition-related discussions are
currently in progress.
Loan Underwriting
Community Home Mortgage's guidelines for underwriting FHA-insured and
VA-guaranteed loans comply with the criteria established by those entities.
Community Home Mortgage's guidelines for underwriting conventional conforming
loans comply with the underwriting criteria employed by Fannie Mae and/or
Freddie Mac. Community Home Mortgage's underwriting guidelines and property
standards for conventional, nonconforming loans are based on the underwriting
standards employed by investors for such loans. In addition, conventional loans
having a loan-to-value ratio greater than 80% at origination, that are funded by
Community Home Mortgage, are generally covered by primary mortgage insurance.
The insurance may be paid by the borrower or the lender.
In conjunction with fair lending initiatives introduced by both Fannie
Mae and Freddie Mac, Community Home Mortgage has established affordable home
loan programs for low- and moderate-income borrowers. These programs may allow
for more flexible underwriting criteria than historical industry standards.
Prime Loan Underwriting
Community Home Mortgage determines loan approval by using the following
general underwriting criteria to determine if a conventional loan is a prime
credit quality first mortgage loan application. Borrowers who do not qualify for
a prime credit quality first mortgage may qualify for a government insured or
sub-prime loan.
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Employment and Income
Applicants must exhibit the ability to generate income, on a regular
ongoing basis, in an amount sufficient to pay the mortgage payment and any other
debts the applicant may have. Community Home Mortgage considers various sources
of income when determining the applicant's ability, such as:
o salary and wages,
o bonus,
o overtime,
o commissions,
o retirement benefits,
o notes receivable,
o interest,
o dividends,
o unemployment benefits,
o rental income, and
o other verifiable sources of income.
The type and level of income verification and supporting documentation
required may vary based upon the type of loan program selected by the applicant.
For salaried applicants, evidence of employment and income is obtained through
written verification of employment with the current and prior employer(s) or by
obtaining a recent pay stub and W-2 form. Self-employed applicants are generally
required to provide income tax returns, financial statements or other
documentation to verify income.
Debt-to-Income Ratios
Generally, an applicant's monthly housing expense, including loan
payment, real estate taxes, hazard insurance and homeowner association dues, if
applicable, should be an acceptable debt ratio for the targeted investor
program. Total fixed monthly obligations consist of housing expense plus other
obligations such as car loans and credit card payments. Other areas of financial
strength, such as equity in the property, large cash reserves or a history of
meeting home mortgage or rental obligations are considered to be favorable
compensating factors.
Credit History
An applicant's credit history is reviewed for both favorable and
unfavorable occurrences. An applicant who has made payments on outstanding or
previous credit obligations according to the contractual terms may be considered
favorably. Items such as slow payment history, legal actions, judgments,
bankruptcy, liens, foreclosure or garnishments are viewed unfavorably. In some
instances, extenuating circumstances beyond the applicant's control may mitigate
the effect of such unfavorable items on the credit decision.
Property
The property's market value is assessed to ensure that the property
provides adequate collateral for the loan. Generally, properties are appraised
by independent licensed real estate appraisers.
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<PAGE>
Automated or streamlined appraisal systems may also be used to confirm property
values on some loan programs.
Maximum Indebtedness to Appraised Value
Generally, the maximum amount that Community Home Mortgage will lend is
equal to 97% of the property value. For this purpose, property value is defined
as appraised value or purchase price, whichever is less. However, under certain
loan programs this percentage may be exceeded. Loan amounts in excess of 80% of
the appraised value generally require primary mortgage insurance to protect
against foreclosure loss.
Funds for Closing
Generally, applicants are required to have sufficient funds of their
own to meet the down payment requirement. A portion of the funds may come from a
gift or an unsecured loan from a municipality or a nonprofit organization.
Certain programs may require the applicant to also have cash reserves after
closing.
Sub-Prime Loan Underwriting
Generally, the same information is reviewed in the sub-prime
underwriting process as in the prime credit quality first mortgage loan
underwriting process. Borrowers who qualify generally have payment histories and
debt-to-income ratios that would not satisfy Freddie Mac and Fannie Mae
underwriting guidelines and may have a record of major derogatory credit items,
such as outstanding judgments or prior bankruptcies. However, sub-prime credit
borrowers also include individuals whose credit histories are not adverse, but
who are seeking an expedited mortgage process, or persons such as the
self-employed, who have difficulty verifying their income. Community Home
Mortgage's sub-prime mortgage loan underwriting guidelines establish the maximum
permitted loan-to-value ratio for each loan type based upon these and other risk
factors, with more risk factors resulting in lower loan-to-value ratios. On a
case by case basis, it may determine that, based upon compensating factors, a
prospective borrower who does not strictly qualify under the underwriting risk
category guidelines warrants an underwriting exception. Compensating factors may
include:
o low loan-to value ratio,
o low debt-to-income ratios,
o stable employment, and
o length of time in the same residence.
Sale of Loans
As a mortgage banker, Community Home Mortgage customarily sells
substantially all loans that it funds. Community Home Mortgage currently does
not sell mortgage loans in "securitization" transactions, but rather sells loans
either on an individual "whole loan" basis, or pooled in groups, to financial
institutions at fixed prices, usually on a nonrecourse basis for a cash premium.
Community Home Mortgage sells its mortgages to institutional investors on a
"servicing-released" basis, which means that the purchaser assumes the
obligations of servicing the loan. Community Home Mortgage thereby avoids the
administrative expenses of managing a servicing portfolio and the associated
foreclosures, delinquencies and resale of residential real estate. In the
future, as funding volume increases, these loans may be packaged in the form of
"private-label" securities, which may have the benefit of some form of credit
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<PAGE>
enhancement such as insurance, letters of credit, payment guarantees or
senior/subordinated structures.
Home improvement loans are sold to investors in pools. In the future,
if volume increases, Community Home Mortgage will consider packaging these loans
in the form of securities backed by pools of these loans.
In connection with the sale of loans, Community Home Mortgage makes
customary representations and warranties relating, among other things, to
compliance with laws and the underwriting rules of the buyer. In the event of a
breach of such representations and warranties, Community Home Mortgage may be
required to repurchase a mortgage loan and any subsequent foreclosure loss on
the mortgage loan may be borne by it.
The principal investors that purchase Community Home Mortgage's loans
include:
o Freddie Mac,
o Fannie Mae
o Chase Manhattan,
o IMPAC,
o First Nationwide Savings,
o Homeside,
o IndyMac,
o Greenpoint Savings,
o Headlands,
o Fleet Financial,
o Associates Financial Services,
o American General Financial Group, and
o Interfirst.
Loan Servicing
Community Home Mortgage currently is servicing a portfolio consisting
of 126 conventional, fixed-rate, conforming mortgages and 500 home improvement
loans.
Warehouse Credit Facilities
Community Home Mortgage finances the funding of the mortgages that it
holds for sale through lines of credit with three banks. Chinatrust Bank, Summit
Bank and Residential Mortgage Services of Texas, Inc. each provides a
$10,000,000 credit facility for eligible loans. Loans under these lines are
collateralized by the mortgages financed from the proceeds and bear interest at
rates ranging from 2.00 to 2.75 percentage points above the 30-day LIBOR rate.
At September 30, 2000, the LIBOR rate was 6.61%.
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<PAGE>
Seasonality
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general national pattern of sales and resales of homes,
although refinancings tend to be less seasonal and more closely related to
changes in interest rates. Sales and resales of homes typically peak during the
spring and summer seasons and decline to lower levels from mid-November through
February.
Regulation
Community Home Mortgage's mortgage banking business is subject to the
rules and regulations of, and examination by, HUD, FHA, VA, Fannie Mae, Freddie
Mac, Ginnie Mae and state regulatory authorities, with respect to originating,
processing, funding, selling and servicing mortgage loans. Those rules and
regulations, among other things, impose licensing obligations, establish
standards for originating and servicing mortgage loans, prohibit discrimination,
provide for inspections and appraisals of property, require credit reports on
prospective borrowers and fix maximum interest rates, fees and other loan
amounts in some instances.
Moreover, FHA lenders, such as Community Home Mortgage, are required
annually to submit to the Federal Housing Commissioner audited financial
statements, and Ginnie Mae requires the maintenance of specified net worth
levels, which vary depending on the amount of Ginnie Mae securities issued. At
September 30, 2000, Community Home Mortgage met all net worth requirements.
Community Home Mortgage's affairs are also subject to examination by the Federal
Housing Commissioner to assure compliance with the FHA regulations, policies and
procedures. In addition to other federal laws, mortgage origination activities
are subject to the:
o Equal Credit Opportunity Act,
o Federal Truth-in-Lending Act,
o Home Mortgage Disclosure Act, and
o Real Estate Settlement Procedures Act.
These laws and the regulations adopted under them prohibit discrimination in
lending, require the disclosure of certain basic information to mortgagors
concerning credit and settlement costs, limit payment for settlement services to
the reasonable value of the services rendered and require the maintenance and
disclosure of information regarding the disposition of mortgage applications
based on race, gender, geographical distribution and income level.
Although to date, Community Home Mortgage has not reacquired any
properties pursuant to any foreclosure action against any borrowers, it is
possible that it may, in the future, be required to foreclose and reacquire
properties securing mortgage loans. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or chemical releases at such property and may be held liable to
a governmental entity or to third parties for property damage, personal injury
and investigation and clean up costs incurred by such parties in connection with
the contamination. Liability under these laws has been interpreted to be joint
and several, unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. Although Community Home Mortgage has not incurred
losses in any material respect as a result of liabilities under environmental
laws, there can be no assurance that it will not experience these types of
losses in the future.
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<PAGE>
Competition
The mortgage banking industry is highly competitive and fragmented.
Community Home Mortgage competes with other financial intermediaries, such as
mortgage bankers and brokers, commercial banks, savings and loan associations,
credit unions and insurance companies and mortgage banking subsidiaries or
divisions of diversified companies. Generally, Community Home Mortgage competes
by attempting to offer a wide selection of products, provide consistent and
timely service and price its products at competitive rates. Many of Community
Home Mortgage's competitors are larger and have substantially greater financial
resources than it has.
Employees
At September 30, 2000, Community Home Mortgage had 104 employees in the
following categories:
Description Number
------------------------------------------------------------- -----------
Executive and administrative................................. 17
Processing, clerical and sales............................... 87
-----------
Total.................................................... 104
===========
None of these employees is represented by a collective bargaining agent.
Legal Matters
Community Home Mortgage is not a party to any legal or regulatory
matters that it believes will result in a material adverse effect to its
financial condition.
Property
Community Home Mortgage is obligated under various leases covering its
corporate offices and branch offices. These leases, which expire at various
dates through 2002, call for minimum rental payments of $393,000 in 2001 and
$196,000 in 2002.
Information Technology
Community Home Mortgage designs and integrates into its operations the
ability to access critical information for management on a timely basis. It uses
various software programs designed specifically for the mortgage lending
industry. The information system provides detailed information on loans in
process, fees, commissions, closings, detailed monthly financial statements and
all other aspects of running and managing the business. The system is fully
integrated with all loan origination systems using enterprise-wide software.
Community Home Mortgage recently introduced a website at
www.mortgages.cc and is taking steps to have the site receive a high ranking on
many search engines. It currently accepts dealer application on the Internet and
makes preapproval forms available. The plan is to expand the site into a full
service mortgage site in 2001.
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Community Home Mortgage's Management
Community Home Mortgage's directors and management consist of:
Name Age Title
------------------------- ------- ------------------------------------
Ira Silverman.......... 64 Chairman, president
Daniel Silverman....... 36 Executive vice president, director
Richard Balogh......... 40 Chief financial officer, vice
president, director
Ira Silverman has been president of Community Home Mortgage since 1988.
He holds a Bachelor of Science degree from Polytechnic University and a Master
of Science degree from the University of Southern California.
Daniel Silverman has been executive vice president of Community Home
Mortgage since 1988. Mr. Silverman, who is Ira Silverman's son, holds a Bachelor
of Science degree from Columbia University and a Master of Business
Administration degree from Baruch College of the City University of New York.
Richard Balogh is a certified public accountant who became vice
president and chief financial officer of Community Home Mortgage in October
1999. From November 1993 to October 1999, Mr. Balogh held professional
accounting positions with Eichler, Bergsman & Co., LLP, a New York-based public
accounting firm. He holds a Bachelor of Science degree from Texas A&M
University.
Board of Directors
All directors hold office until the completion of their term of office
or until their successors have been elected.
Committees of the Board of Directors
Concurrent with the Distribution, the Community Home Mortgage board of
directors will establish an audit committee and a compensation committee. The
audit committee will review the results and scope of the audit and other
services provided by the independent auditors and review and evaluate the system
of internal controls. The compensation committee will manage the stock option
plan and review and recommend compensation arrangements for the officers.
All directors will be reimbursed by Community Home Mortgage for any
expenses incurred in attending directors' meetings. Community Home Mortgage is
in the process of obtaining officers and directors liability insurance.
No final determination has yet been made as to the memberships of these
committees.
Stock Option Plan
Community Home Mortgage has a stock option plan that expires in 2010
and enables Community Home Mortgage to grant incentive stock options,
nonqualified options and stock appreciation rights for up to an aggregate of
1,000,000 shares of its common stock. Incentive stock options granted under the
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plan must conform to applicable federal income tax regulations and have an
exercise price not less than the fair market value of shares at the date of
grant or 110% of fair market value for owners of ten percent or more of the
common stock. Other options and stock appreciation rights may be granted on
terms determined by the compensation committee of the board of directors.
No options are outstanding.
Executive Compensation
The following table sets forth for each of the last three fiscal years
the annual and long-term compensation earned by, awarded to or paid to each
person who served as a chief executive officer of Community Home Mortgage during
the last fiscal year. No executive officer of Community Home Mortgage received
compensation exceeding $100,000 during the preceding fiscal year:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------------------------- ----------------------- ---------
Other Restricted Securities All Other
Year Annual Stock Underlying LTIP Compen-
Name and Ended Bonus Compen- Award(s) Options/ Payouts sation
Principal Position Dec 31 Salary ($) ($) sation ($) ($) SARs (#) ($) ($)
--------------------- -------- ----------- ----------- ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ira Silverman, 1999 $ - $ - $ - - - - $ -
President and CEO 1998 - - - - - - -
1997 25,000 - - - - - -
</TABLE>
Community Home Mortgage currently pays Mr. Silverman a salary of
$36,000 per annum. Directors Daniel Silverman and Richard Balough receive no
compensation as directors separate from their regular compensation as employees
of Community Home Mortgage at annual salaries of $36,000 and $70,000,
respectively.
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<PAGE>
Description of Community Home Mortgage's Capital Stock
Introduction
Community Home Mortgage is authorized to issue 20,000,000 shares of
Community Home Mortgage common stock and 1,000,000 shares of preferred stock.
All common share amounts give effect to a 10,000-for-1 stock split effective
November 3, 2000.
Preferred Stock
The amended certificate of incorporation authorizes the issuance of
1,000,000 shares of preferred stock with designations, rights and preferences
determined from time to time by its board of directors. The board of directors
is empowered, without stockholder approval, to issue shares of preferred stock
with voting, liquidation, conversion or other rights that could adversely affect
the rights of the holders of common stock. There are two classes of preferred
stock issued and outstanding.
Class A Preferred Stock
There are 102 shares of Class A Preferred Stock issued and outstanding.
This class of preferred stock is redeemable at any time, in whole or in part, at
the option of Community Home Mortgage, at a redemption price of $10,000 per
share. The Class A Preferred Stock also has a liquidation preference of $10,000
per share, or a total of $1,020,000, over the shares of common stock.
Class B Preferred Stock
There are 40 shares of Class B Preferred Stock issued and outstanding.
This class of preferred stock has a liquidation preference of $25,000 per share,
or a total of $1,000,000, over other classes of preferred stock and all shares
of common stock.
Common Stock
There are 5,500,000 shares of common stock issued and outstanding. The
Distribution has no impact on the number of shares issued and outstanding. The
holders of Community Home Mortgage common stock:
o have equal ratable rights to dividends from funds legally
available for payment of dividends when, as and if declared by
the board of directors;
o are entitled to share ratably in all of the assets available
for distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs;
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o are entitled to one noncumulative vote per share on all
matters submitted to stockholders for a vote at any meeting of
stockholders.
Authorized but Unissued Capital Stock
New York law does not require stockholder approval for any issuance of
authorized shares. However, the marketplace rules of the Nasdaq, which would
apply only if the Community Home
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Mortgage common stock were listed on the Nasdaq, require stockholder approval of
certain issuances of common stock equal to or exceeding 20% of the
then-outstanding voting power or then-outstanding number of shares of common
stock, including in connection with a change of control of Community Home
Mortgage, the acquisition of the stock or assets of another company or the sale
or issuance of common stock below the book or market value price of such stock.
These additional shares may be used for a variety of corporate purposes,
including future public offerings to raise additional capital or to facilitate
corporate acquisitions.
One of the effects of the existence of unissued and unreserved common
stock may be to enable the board of directors of Community Home Mortgage to
issue shares to persons friendly to current management, which issuance could
render more difficult or discourage an attempt to obtain control of Community
Home Mortgage by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of Community Home Mortgage's management and
possibly deprive the stockholders of opportunities to sell their shares of
Community Home Mortgage common stock at prices higher than prevailing market
prices.
No Preemptive Rights
No holder of any class of stock of Community Home Mortgage authorized
at the time of the Distribution will have any preemptive right to subscribe to
any securities of Community Home Mortgage of any kind or class.
Indemnification and Limitation of Liability for Directors and Officers
The Community Home Mortgage Certificate of Incorporation, as amended,
provides that Community Home Mortgage shall indemnify directors and officers to
the fullest extent permitted by the laws of the state of New York. The Community
Home Mortgage Certificate of Incorporation, as amended, also provides that a
director of Community Home Mortgage shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent the exemption from liability or limitation
thereof is not permitted under New York Law as the law exists or may be amended
in the future.
Transfer Agent
Standard Registrar & Transfer Company, Inc. has been appointed as the
transfer agent and registrar for Community Home Mortgage's common stock
effective with the Distribution. The transfer agent's address is 12528 South
1840 East, Draper, Utah 84020, and its telephone number is 801-571-8844.
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Securities of Certain Beneficial Owners and Management
The following table sets forth information known to us regarding
beneficial ownership of Community Home Mortgage's common stock as of September
30, 2000, by each person known or believed by us to own, directly or
beneficially, more than 5% of our common stock, each of our directors and all of
our officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of
the common stock listed below, based on information furnished by the owners,
have sole investment and voting power over the shares.
Number of Percent of
Name of Beneficial Owner or Group Shares Owned Shares Owned
---------------------------------------- ---------------- -----------------
Ira Silverman........................... 5,000,000 90.9
EB Consulting........................... 500,000(1) 9.1
eSAFETYWORLD, Inc.(2)................... 375,000(3) 6.8(3)
Daniel Silverman........................ -- --
Richard Balogh.......................... -- --
All Directors and Officers as a Group
(3 people)(4)......................... 5,000,000 90.9
(1) Edward A. Heil and R. Bret Jenkins are equal owners of EB Consulting, which
owns beneficially and of record 125,000 shares, and are deemed to be the
beneficial owners of 375,000 shares owned beneficially and of record by
eSAFETYWORLD, of which Messrs. Heil and Jenkins are controlling
stockholders.
(2) eSAFETYWORLD's address is 80 Orville Drive, Bohemia, NY 11716.
(3) Of the shares owned, eSAFETYWORLD will distribute 234,615 shares to its
stockholders. After the Distribution, eSAFETYWORLD will hold 140,385
shares, which will represent 2.6% of the total Community Home Mortgage
common shares outstanding.
(4) The address for all officers and directors is 510 Broad Hollow Road,
Melville, NY 11747.
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Certain Transactions
Sale of Preferred Stock
Community Home Mortgage sold eight and thirty-six shares of Series A
Preferred Stock in 1998 and 1997, for $80,000 and $360,000, respectively, or
$10,000 per share.
It also sold seven, twenty-five and eight shares of Series B Preferred
Stock in 1999, 1998 and 1997, for $175,000, $625,000 and $200,000, respectively,
or $25,000 per share.
Consulting Arrangements
On September 27, 2000, Community Home Mortgage engaged eSAFETYWORLD and
an affiliated venture, EB Consulting, to provide web-centric marketing systems
and e-commerce applications. In consideration of the services being provided,
Community Home Mortgage agreed to pay eSAFETYWORLD and EB Consulting one-time
fees of $300,000 and $100,000, respectively, payable at the election of
Community Home Mortgage in either cash or 375,000 and 125,000 shares of
Community Home Mortgage common stock, respectively. Community Home Mortgage has
elected to pay both fees in common stock and, in accordance with the provisions
of the consulting agreements, has filed the registration statement, of which
this prospectus is a part, relating to the Distribution of a portion of the
shares issued eSAFETYWORLD to its stockholders and the resale of the remainder
of the shares issued to eSAFETYWORLD but not distributed, as well as the shares
issued to EB Consulting.
Selling Stockholders
This prospectus relates to the resale of 265,385 shares of Community
Home Mortgage common stock by the selling stockholders. The following table
provides certain information concerning the resale of shares of common stock by
the selling stockholders and assumes that all shares offered by the selling
stockholders will be sold. Community Home Mortgage will not receive any proceeds
from the resale of the common stock by the selling stockholders.
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------------------
Beneficially Number Beneficially
Owned Before Offering to be Sold Owned After Offering
--------------------- ---------- --------------------
Selling Stockholder Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
ESAFETYWORLD........................................ 140,385 2.6 140,385 -- --
EB Consulting....................................... 125,000 2.3 125,000 -- --
-------------
Total.......................................... 265,385
=============
</TABLE>
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Plan of Resale
The selling stockholders may from time to time offer any or all of
their shares in one or more of the following transactions (which may include
block transactions):
o in the over-the-counter market;
o through short sales of shares;
o in negotiated transactions other than in such markets;
o by pledge to secure debts and other obligations;
o in connection with the writing of nontraded and
exchange-traded put and call options, in hedge transactions,
in covering previously established short positions and in
settlement of other transactions in standardized or
over-the-counter options; or
o in any combination of any of the above transactions.
The selling stockholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The selling stockholders may
sell their shares directly to purchasers or to or through broker-dealers, which
may act as agents or principals. The selling stockholders may compensate
broker-dealers in the form of commissions, discounts or selling concessions. The
broker-dealers may also receive compensation from any purchaser of the shares
for whom the broker-dealers acts as agent or to whom it sells as a principal.
The selling stockholders may also resell all or a portion of their
shares in open market transactions in reliance on Rule 144 under the Securities
Act, as long as they meet the criteria and comply with the requirements of that
rule.
The selling stockholders have advised Community Home Mortgage that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares, and Community
Home Mortgage does not intend to enter into any arrangement with any underwriter
or coordinating broker-dealer with respect to sales of the shares by the selling
stockholders.
The selling stockholders and any broker-dealers that participate in the
distribution of their shares may be deemed to be "underwriters" within the
meaning of section 2(11) of the Securities Act. Any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
considered underwriting discounts and commissions under the Securities Act. The
selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in sales of the shares against certain liabilities, including
liabilities arising under the Securities Act.
The selling shareholders will be required to comply with the prospectus
delivery requirements of the Securities Act and applicable provisions of and
regulations under the Exchange Act that may limit the timing of sales of shares.
Community Home Mortgage is required to pay all costs, expenses and fees
incident to the registration of the shares, excluding fees and disbursements of
counsel to the selling stockholders, and the selling stockholders are required
to pay any brokerage commissions or similar selling expenses incurred by them in
connection with the sales of their shares.
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As used in this prospectus, "selling stockholders" includes donees,
pledges, transferees or other successors-in-interest who are selling shares they
received after the date of this prospectus from a selling stockholder named in
this prospectus as a gift, pledge, partnership distribution or other
nonsale-related transfer.
Upon being notified by a selling stockholder that the selling
stockholder has entered into a material arrangement with a broker-dealer for the
sale of the selling stockholder's shares through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, we will file a supplement to this prospectus, if required by
Rule 424(b) under the Securities Act, disclosing certain information about the
arrangement and the sale of the shares involved. In addition, upon being
notified by a selling stockholder that a donee, pledgee, transferee or other
successor-in-interest intends to sell more than 500 shares, we will file an
appropriate supplement to this prospectus.
Legal Matters
Howard Sommers, Esq., 444 Madison Avenue, New York, New York, counsel
to Community Home Mortgage, has rendered an opinion that the common stock of
Community Home Mortgage to be distributed to the stockholders of eSAFETYWORLD is
legally issued, fully paid and nonassessable under New York law.
Experts
The financial statements of Community Home Mortgage as of December 31,
1999, and each of the two years in the period then ended have been audited by
Eichler, Bergsman & Co., LLP, Certified Public Accountants, as stated in its
report appearing herein, and have been included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
Available Information
Community Home Mortgage has filed with the SEC a registration statement
on Form SB-2 with respect to the shares of Community Home Mortgage common stock
to be received by the stockholders of eSAFETYWORLD in the Distribution. This
document does not contain all of the information set forth in the registration
statement on Form SB-2 and the exhibits thereof, to which reference is hereby
made. Statements made in this document as to the contents of any contract,
agreement or other documents referred to herein are not necessarily complete.
With respect to each such contract, agreement or other documents filed as an
exhibit to the registration statement, reference is made to that exhibit and
each statement shall be deemed qualified in its entirety by that reference. The
registration statement and the exhibits thereto may be inspected and copied at
the public reference facilities maintained by the SEC as follows:
o at the public reference room of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549;
o at the public reference facilities at the SEC's regional
offices located at Seven World Trade Center, 13th Floor, New
York, NY 10048, or Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661;
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<PAGE>
o by writing to the SEC, Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
o from the Internet site maintained by the SEC at
http://www.sec.gov, which contains reports, proxy documents
and other information regarding issuers that file
electronically with the SEC.
Incorporation of Documents by Reference
Any statement contained in a document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this document to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified will not be deemed to
constitute a part of this document, except as so modified, and any statement so
superseded will not be deemed to constitute a part of this document. Community
Home Mortgage will provide without charge to each person to whom a copy of this
document is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Community Home
Mortgage Corporation, 510 Broad Hollow Road, Melville, New York 11747,
Attention: Vice President - Finance (Telephone: 631-391-9100).
Reports of Community Home Mortgage
After the Distribution, Community Home Mortgage will be required to
comply with the reporting requirements of the Securities Exchange Act of 1934
and, in accordance therewith, to file reports, proxy statements and other
information with the SEC.
After the Distribution, the reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the SEC listed above and obtained by mail from the SEC as described above.
Additionally, Community Home Mortgage will be required to provide
annual reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
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<PAGE>
Index to Financial Statements of
Community Home Mortgage Corporation
Report of Independent Pubic Auditors.................................... F-2
Balance Sheet, December 31, 1999........................................ F-3
Statements of Operations for the Years Ended December 31,
1999 and 1998......................................................... F-5
Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1999 and 1998...................................... F-6
Statements of Cash Flows for the Years Ended December 31,
1999 and 1998......................................................... F-7
Notes to Financial Statements........................................... F-8
Unaudited Financial Statements:
Condensed Balance Sheet, September 30, 2000........................ F-12
Condensed Statements of Operations for the Nine Months
Ended September 30, 2000 and 1999................................ F-14
Condensed Statement of Stockholders' Equity for the Nine
Months Ended September 30, 2000.................................. F-15
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999................................ F-16
Notes to Condensed Financial Statements............................ F-17
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying balance sheet of Community Home Mortgage Corp.
as of December 31, 1999, and the related statements of operations, changes in
shareholders' equity and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Community Home Mortgage Corp.
as at December 31, 1999, and the results of its operations, changes in
stockholders'. equity and its cash flows for the years ended December 31, 1999
and 1998, in conformity with generally accepted accounting principles.
/s/ Eichler, Bergsman & Co., LLP
New York, New York
May 3, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORP.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<S> <C>
Current assets:
Cash (Note 8B) $ 70,388
Mortgage loans - held for sale at lower of cost
or market (Note 3C) 14,830,108
Accrued income (Note 2A) 1,471,463
Prepaid expenses 36,219
----------------
Total current assets 16,408,178
----------------
Furniture and equipment:
Furniture and equipment (Notes 2B, 4B and 5) 1,157,902
Less: accumulated depreciation 845,337
----------------
Total property and equipment 312,565
----------------
Other assets:
Deferred tax benefit (Note 7) 61,600
Mortgage receivable 25,126
Security deposits, licenses, and other receivables 452,826
Due from employee/related parties 63,500
Escrow account deposits - contra (Note 6) 233,913
----------------
Total other assets 836,965
----------------
Total assets $ 17,557,708
================
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORP.
BALANCE SHEET
DECEMBER 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Warehouse bank loans payable (Note 3C) $ 13,891,149
Notes payable - banks (Note 3A and B) 347,072
Accounts payable and accrued expenses 439,038
Loans payable (Note 3D) 110,000
Equipment leases payable - current (Note 4B) 36,000
----------------
Total current liabilities 14,823,259
Long-term liabilities - equipment lease payable (Note 4B) 77,000
Other liabilities:
Escrow account deposits - contra (Note 6) 233,913
----------------
Total liabilities 15,134,172
----------------
Commitments and contingencies (Note 4A and 8) -
Shareholders' equity:
Preferred stock - authorized 200 no par shares
Issued - Series A 116 shares 1,160,000
Issued - Series B 40 shares 1,000,000
Capital stock - authorized 200 no par shares,
issued 100 shares 20,000
Additional paid-in capital 505,580
Deficit (117,044)
----------------
2,568,536
Treasury stock - at cost; Preferred stock Series A
14 shares and Capital stock 50 shares (145,000)
----------------
Total shareholders' equity 2,423,536
----------------
Total liabilities and
shareholders' equity $ 17,557,708
================
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---------------- --------------
<S> <C> <C>
INCOME:
Mortgage banking income (Note 2) $ 10,685,348 $ 8,670,776
Interest income 80,368 13,166
Other income 10,646 16,562
---------------- --------------
Total income 10,776,362 8,700,504
---------------- --------------
EXPENSES:
Payroll, commissions, and payroll taxes 4,122,616 3,541,214
Brokers' commissions 2,492,991 1,751,718
Marketing expense 97,889 99,294
General and administrative 2,864,194 1,725,163
Interest 675,349 827,633
Occupancy costs (Note 3A) 494,208 435,853
Expenses related to start-up of new division - 626,826
---------------- --------------
Total expenses 10,747,247 9,007,701
---------------- --------------
Net income (loss) before income taxes 29,115 (307,197)
Provision (credit) for income taxes (Note 7) 12,000 (111,344)
---------------- --------------
Net income (loss) $ 17,115 $ (195,853)
================ ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORP.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Preferred Stock Preferred Stock
Capital Stock Series A Series B Additional
---------------- ------------------ ------------------ Retained
Paid-In Earnings Treasury
Shares Amount Shares Amount Shares Amount Capital (Deficit) Stock Total
------ ------- ------ ---------- ------ ---------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 100 $20,000 108 $1,080,000 8 $ 200,000 $505,580 $ 61,694 $(145,000) $1,722,274
Additional shares issued - - 8 80,000 25 625,000 - - - 705,000
Net loss - - - - - - - (195,853) - (195,853)
------ ------- ------ ---------- ---- ---------- -------- --------- --------- ----------
Balance, December 31, 1998 100 20,000 116 1,160,000 33 825,000 505,580 (134,159) (145,000) 2,231,421
Additional shares issued - - - - 7 175,000 - - - 175,000
Net income - - - - - - - 17,115 - 17,115
------ ------- ------ ---------- ---- ---------- -------- --------- --------- ----------
Balance, December 31, 1999 100 $20,000 116 $1,160,000 40 $1,000,000 $505,580 $(117,044) $(145,000) $2,423,536
====== ======= ====== ========== ==== ========== ======== ========= ========= ==========
The accompanying notes are an integral part of this statement.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 17,115 $ (195,853)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 124,468 175,868
Changes in assets and liabilities:
Increase in mortgage loans - held for sale (1,297,711) (2,613,376)
Increase in accrued income (284,869) (377,691)
Increase in due from employee/related parties (63,500) -
Decrease (increase) in
stock subscriptions receivable 300,000 (100,000)
Decrease (increase) in deferred tax benefit 12,000 (73,600)
Decrease (increase) in income tax receivable 37,744 (37,744)
(Increase) decrease in prepaid expenses and
other assets (177,364) 16,151
Increase in warehouse bank loan payable 1,045,628 2,305,249
Increase in accounts payable and
accrued expenses 106,873 42,716
------------- ---------------
Total cash flows used by
operating activities (179,616) (858,280)
------------- ---------------
Cash flows used in investing activities:
Purchase of fixed assets (71,527)
Sales in excess of purchases of trading securities - 79,518
------------- ---------------
(71,527) (112,156)
------------- ---------------
Cash flows from financing activities:
(Decrease) increase in loan payable (60,000) 170,000
(Decrease) increase in equipment lease payable (46,510) 159,510
Increase (decrease) in bank loans 32,936 (118,481)
Sale of preferred stock 175,000 705,000
------------- ---------------
Total cash flows provided by
financing activities 101,426 916,029
------------- ---------------
Net cash - decrease (149,717) (54,407)
Cash - beginning of year 220,105 274,512
------------- ---------------
Cash - end of year $ 70,388 $ 220,105
============= ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
COMMUNITY HOME MORTGAGE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION
Community Home Mortgage Corp. (the "Company") was organized on December
12, 1988 in New York. The Company is licensed by various states to
conduct business as a mortgage banker. As such, the Company originates,
sells, and services consumer mortgage loans and home improvement loans
on residential properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Revenue Recognition
Mortgage banking income which includes origination fees, points,
service release income, processing fees, interest and net gains
on sale of mortgages is recognized, net of estimated costs, when
the final commitment is granted to the customer and all
significant services have been performed. In the case of home
improvement loans, net gains are not recognized until a final
commitment from an investor is obtained.
B. Property and Equipment
Depreciation is provided over the estimated useful lives of the
assets utilizing the straight-line and accelerated methods.
Routine maintenance, repairs and replacement costs are charged
against income as incurred.
C. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported.
Actual results may differ from those estimates.
D. Amortization of Investment in Servicing Portfolio
The cost of acquiring a portfolio of mortgage loans to be
serviced is being amortized based on the amount of the aggregate
of principal reduction during the year related to the total of
the principal of the portfolio on the date of acquisition.
F-8
<PAGE>
NOTE 3 - LINES OF CREDIT AND NOTES PAYABLE
A. The Company has a secured line of credit with a New York
bank in the amount of $250,000, with interest charged at prime
plus 1 1/2%. The security for the line is the general assets of
the Company. At December 31, 1999, the Company's borrowings under
this line amounted to $239,056.
B. The Company is obligated under two self-liquidating loans
(aggregating $108,016) that bear interest at prime plus 1%. These
loans are secured by the Company's general assets.
C. The Company has arranged lines of credit with certain banks
in order to warehouse certain eligible mortgage loans. At
December 31, 1999, the lines of credit aggregate $30,000,000 at
rates varying from 30 day LIBOR plus 2% to 30 day LIBOR plus 2
3/4%. The borrowings against these lines are secured by the
mortgage loans held for sale. The principal shareholder of the
Company has guaranteed the borrowings under the warehouse lines
of credit.
D. The Company also has issued three short-term notes totaling
$110,000 that are unsecured at interest rates of 12%.
NOTE 4 - LEASES
A. Operating:
The Company presently occupies office space under a lease
agreement dated July 7, 1997, which expires August 31, 2002. The
Company also has lease agreements for its branch offices, with
varying expiration dates through June 30, 2002. The future
minimum cash rental payments under the above lease agreements are
as follows:
2000 $ 395,000
2001 393,000
2002 196,000
-----------
$ 984,000
===========
F-9
<PAGE>
NOTE 4 - LEASES (Cont'd)
B. Capital:
The Company has leased telephone and computer equipment.
Future minimum lease payments for assets under capital leases are
as follows for the twelve months ended December 31:
2000 $ 45,000
2001 45,000
2002 30,000
2003 12,000
--------------
Total minimum lease payments 132,000
Less amount representing interest 19,000
--------------
Present value of net minimum
lease payments 113,000
Less current maturities 36,000
--------------
Long-term obligation $ 77,000
==============
NOTE 5 - FURNITURE AND EQUIPMENT - AT COST
Furniture and equipment consists of the following:
Computer and telephone equipment
and software $ 969,657
Furniture, fixtures, and
leasehold improvements 188,245
--------------
1,157,902
Less accumulated depreciation 845,337
--------------
Property and equipment - net $ 312,565
==============
Included in equipment is $179,200 of capitalized leases
(see Note 4B).
F-10
<PAGE>
NOTE 6 - ACCOUNTS - CONTRA
The contra accounts include escrow funds held related to the servicing
portfolio.
NOTE 7 - INCOME TAX BENEFITS
As of December 31, 1999, the Company has a net operating loss
carryforward of approximately $110,000 which results in a deferred tax
benefit of $61,600.
The provision (credit) for income taxes consists of the following:
1999 1998
----------- -------------
Current $ - $ (37,774)
Deferred 12,000 (73,600)
----------- -------------
$ 12,000 $ (111,344)
=========== =============
NOTE 8 - CONTINGENCIES
A. There are various claims made against the Company in the
normal course of business that the Company and its counsel
believe lack merit and the Company has valid defenses to these
claims.
The Company believes that the disposition of these matters will
not have a material adverse effect on the financial position of
the Company.
B. The Company places its temporary cash investments with a
higher credit quality financial institution. Such investments are
generally in excess of the FDIC insurance limit. The Company has
not experienced any losses due to the aforementioned cash
investments.
C. The Company has instituted a 401(k) employee benefit plan. The
Company may make matching contributions at its discretion.
F-11
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORPORATION
BALANCE SHEET (UNAUDITED)
September 30, 2000
ASSETS
<S> <C>
CURRENT ASSETS
CASH $ 199,932
MORTGAGE LOANS - HELD FOR SALE 17,357,997
ACCRUED INCOME, NET 1,111,768
PREPAID EXPENSES 55,110
-----------------
TOTAL CURRENT ASSETS $ 18,724,807
PROPERTY AND EQUIPMENT
FURNITURE, FIXTURES & EQUIPMENT 1,241,383
LESS: ACCUMULATED DEPRECIATION 916,454
-----------------
PROPERTY AND EQUIPMENT - net 324,929
OTHER ASSETS
DEFERRED TAX BENEFIT 61,600
SECURITY DEPOSITS, LICENSES, AND
OTHER RECEIVABLES 535,888
DUE FROM EMPLOYEE/RELATED PARTIES 73,540
ESCROW ACCOUNT DEPOSITS 218,447
-----------------
TOTAL OTHER ASSETS 889,475
-----------------
TOTAL ASSETS $ 19,939,211
=================
</TABLE>
See notes to condensed financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORPORATION
BALANCE SHEET (UNAUDITED)
September 30, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
WAREHOUSE BANK LOANS PAYABLE $ 16,676,444
NOTES PAYABLE - BANKS 222,114
ACCRUED EXPENSES 87,769
LOANS PAYABLE 110,000
CAPITAL LEASES PAYABLE 29,400
PROVISION FOR INCOME TAX 21,000
-----------------
TOTAL CURRENT LIABILITES $ 17,146,727
LONG-TERM LIABILITIES
EQUIPMENT LEASE PAYABLE 68,600
OTHER LIABILITIES
ESCROW ACCOUNT DEPOSITS - CONTRA 218,447
-----------------
TOTAL LIABILITIES 17,433,774
SHAREHOLDERS' EQUITY
COMMON STOCK - AUTHORIZED 1000 NO PAR SHARES,
ISSUED 500 SHARES 15,000
PREFERRED STOCK - AUTHORIZED 1000 NO PAR SHARES
ISSUED SERIES A 102 SHARES 1,020,000
ISSUED SERIES B 40 SHARES 1,000,000
ADDITIONAL PAID IN CAPITAL 505,580
RETAINED EARNINGS (35,143)
-----------------
TOTAL SHAREHOLDERS' EQUITY 2,505,437
-----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,939,211
=================
</TABLE>
See notes to condensed financial statements.
F-13
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORPORATION
Statements of Income
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---------- ----------
<S> <C> <C>
INCOME:
Mortgage Banking Income $8,408,556 $7,905,598
Interest income 229,874 218,757
---------- ----------
Total 8,638,430 8,124,355
---------- ----------
EXPENSES:
Payroll, commissions and payroll taxes 3,402,827 3,387,313
Broker commissions 1,793,076 1,915,346
Marketing 75,348 82,364
General and administrative 2,326,953 1,671,694
Interest 462,282 440,680
Occupancy 475,043 459,701
---------- ----------
Total 8,535,529 7,957,098
---------- ----------
INCOME BEFORE TAXES 102,901 167,257
INCOME TAXES (21,000) (45,000)
---------- ----------
NET INCOME $ 81,901 $ 122,257
========== ==========
BASIC EARNINGS PER SHARE $ 0.02 $ 0.02
========== ==========
</TABLE>
Note - Basic earnings per share give retroactive effect to the 10,000 for 1
stock split declared in November 2000.
See notes to condensed financial statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORPORATION
Statement of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 2000
(Unaudited)
Preferred Stock Preferred Stock
Common Stock Series A Series B Retained
-------------- --------------- ---------------- Paid-In Earnings Treasury
Shares Amount Shares Amount Shares Amount Capital (Deficit) Stock Total
------ ------ ------ ------ ------ ------ ------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
beginning of year 100 $20,000 116 $1,160,000 40 $1,000,000 $505,580 ($117,044) ($145,000) $2,423,536
Net effect of
stock split and
retirement of stock 400 (5,000) (14) (140,000) - - - 145,000
Net Income 81,901 81,901
------ ------
Balance at
September 30, 2000 500 $15,000 102 $1,020,000 40 $1,000,000 $505,580 ($35,143) $2,505,437
=== ======= === ========== == ========== ======== ======== ==========
Note - The Company declared a 10,000 for 1 stock split in November 2000.
</TABLE>
See notes to condensed financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY HOME MORTGAGE CORPORATION
Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating Activities
Net income $ 81,901 $ 122,257
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 71,117 83,967
Changes in assets and liabilities
Increase in Mortgage loans - held for sale (2,527,889) 421,007
Decrease in accrued income 359,695 25,170
Increase in other assets (86,867) 386,198
Increase in warehouse bank loan payable 2,785,295 (159,089)
Decrease in accounts payable and accrued expenses (294,038) (146,596)
----------- -----------
Total cash flows used by
Operating activities 389,214 732,914
----------- -----------
Cash flows provided in investing activities
Purchase of fixed assets (83,461) (166,923)
----------- -----------
Cash flows from financing activities
Decrease in bank loans (16,189) (50,920)
Decrease in equipment lease payable (15,000) (48,695)
Retirement of treasury stock (145,000) -
----------- -----------
Total cash flows used by
financing activities (176,189) (99,615)
----------- -----------
Net cash - increase 129,544 467,276
Cash - beginning of period 70,388 220,105
----------- -----------
Cash - end of period $ 199,932 $ 687,381
=========== ===========
</TABLE>
See notes to condensed financial statements.
F-16
<PAGE>
COMMUNITY HOME MORTGAGE CORPORATION
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying interim condensed financial statements for the nine
month periods ended September 30, 2000 and 1999 are unaudited and include all
adjustments considered necessary by Management for a fair presentation. The
results of operations realized during an interim period are not necessarily
indicative of results to be expected for a full year
2. Stock Split
The Company declared and effected a 10,000 for 1 split of its common
stock effective November 3, 2000.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722-725 of the New York Business Corporations Law and the
Registrant's Certificate of Incorporation, as amended, provide for
indemnification of the Registrant's directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
pursuant to the foregoing provisions, Registrant has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
contrary to public policy as expressed in the Securities Act, and therefore, is
unenforceable. (See "Item 28. Undertaking.")
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by
Registrant in connection with the offering:
Nature of Expense Amount
SEC registration fees........................................ $ 62.04
Transfer agent and registrar fees and expenses............... -
Nasdaq OTC:BB fees........................................... -
Accounting fees and expenses.................................
30,000.00
Legal fees and expenses......................................
50,000.00
Printing and engraving expenses..............................
5,000
State securities laws compliance fees and expenses........... -
Miscellaneous................................................
5,000
---------------
Total............................................... $
90,062.04
===============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration
statement, Registrant has issued securities without registration under the
Securities Act on the terms and circumstances described in the following
paragraphs:
1. In 1997, 36 shares of Series A Preferred Stock were issued and sold
for $360,000 in gross proceeds to two accredited investors.
2. In 1997, eight shares of Series B Preferred Stock were issued and
sold for $200,000 in gross proceeds to two accredited investors.
3. In 1998, eight shares of Series A Preferred Stock were issued and
sold for $80,000 in gross proceeds to one accredited investor.
4. In 1998, 25 shares of Series B Preferred Stock were issued and sold
for $625,000 in gross proceeds to 14 accredited investors.
II-1
<PAGE>
5. In 1999, seven shares of Series B Preferred Stock were issued and
sold for $175,000 in gross proceeds to 2 accredited investors.
6. In November 2000, Registrant issued 375,000 and 125,000 shares to
eSAFETYWORLD, Inc. and EB Consulting, respectively, in consideration of
consulting services rendered.
Each transaction with Registrant was negotiated in face-to-face
discussions between executives of Registrant and each investor. Registrant
provided each such investor with business and financial information. Each such
investor had the opportunity to ask questions of and receive answers from
executive officers of Registrant and was provided with access to Registrant's
documents and records in order to verify the information provided. Because of
sophistication, education, business acumen, financial resources and position,
each such investor had an equal or superior bargaining position in its dealings
with Registrant. Each purchaser confirmed in writing that the securities were
being acquired for investment and that the certificates evidencing the
securities would bear a restrictive legend; such certificates do bear a
restrictive legend. No underwriter participated in the foregoing transactions,
and no underwriting discounts or commissions were paid.
The foregoing issuances and sales of securities were effected in
reliance upon the exemption from registration provided by section 4(2) under the
Securities Act of 1933, as amended.
On November 3, 2000, Registrant effected a 10,000-for-1 stock split of
its issued and outstanding common stock, which increased its issued and
outstanding shares from 500 shares to 5,000,000 shares, without the payment of
any commission or other remuneration, in reliance on the exemption from
registration provided in section 3(a)(9) under the Securities Act of 1933, as
amended.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibits
SEC
Exhibit Reference
Number Number Title of Document Location
-------------- ------------ ------------------------------------------------------------------- -------------------
Item 3. Articles of Incorporation and Bylaws
-------------- ------------ ------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
3.01 3 Certificate of Incorporation as filed December 12, 1988 This filing
3.02 3 Amendment to Certificate of Incorporation of January 31, 1993 This filing
3.03 3 Amendment to Certificate of Incorporation of February 11, 1993 This filing
3.04 3 Amendment to Certificate of Incorporation of February 17, 1993 This filing
3.05 3 Amendment to Certificate of Incorporation of March 12, 1993 This filing
3.06 3 Amendment to Certificate of Incorporation of January 7, 1997 This filing
3.07 3 Amendment to Certificate of Incorporation of January 29, 1998 This filing
3.08 3 Amendment to Certificate of Incorporation of March 19, 1999 This filing
3.09 3 Amendment to Certificate of Incorporation of January 20, 2000 This filing
3.10 3 Amendment to Certificate of Incorporation of November 3, 2000 This filing
3.11 3 Amendment to Certificate of Incorporation of November 21, 2000 This filing
3.12 3 Bylaws as amended This filing
Item 4. Instruments Defining the Rights of Holders, Including Indentures
-------------- ------------ ------------------------------------------------------------------- -------------------
4.01 4 Specimen common stock certificate This filing
4.02 4 Specimen preferred stock certificate This filing
Item 5. Opinion re: Legality
-------------- ------------ ------------------------------------------------------------------- -------------------
5.01 5 Opinion of Howard M. Sommers, Esq. To be filed by
amendment
Item 10. Material Contracts
-------------- ------------ ------------------------------------------------------------------- -------------------
10.01 10 Mortgage Loan Warehouse and Security Agreement between Summit This filing
Bank and Registrant, dated November 15, 1999
10.02 10 Mortgage and Co-Op Loan Warehouse and Security Agreement between This filing
Chinatrust Bank (U.S.A.) and Registrant dated January 18, 2000
10.03 10 Mortgages Purchase Agreement between HSA Residential Mortgage This filing
Services of Texas, Inc. and Registrant dated August 11, 1999
10.04 10 Lease Agreement between 510 Joint Venture and Registrant dated This filing
July 7, 1997
10.05 10 Letter of Approval from Federal National Mortgage Association, This filing
known as "Fannie Mae" dated July 17, 1996
10.06 10 Letter of Approval from Federal Home Loan Mortgage Corporation, This filing
known as "Freddie Mac" dated July 17, 1996
10.07 10 Letter of Approval from Department of Veterans Affairs dated June This filing
17, 1993
10.08 10 Letter of Approval from U.S. Department of Housing and Urban This filing
Development "HUD" dated July 24, 1996
10.09 10 Consulting Agreement between Registrant and eSAFETYWORLD, Inc. This filing
dated September 28, 2000
10.10 10 Consulting Agreement between Registrant and EB Consulting, Dated This filing
September 28, 2000
10.11 10 2000 Stock Incentive Plan This filing
Item 23. Consents of Experts and Counsel
-------------- ------------ ------------------------------------------------------------------- -------------------
23.01 23 Consent of Eichler, Bergsman & Co., LLP, Independent Accountants This filing
23.02 23 Consent of Howard M. Sommers, Esq., Registrant's counsel To be filed by
amendment
Item 27. Financial Data Schedule
-------------- ------------ ------------------------------------------------------------------- -------------------
27.01 27 Financial Data Schedule for the year ended December 31, 1999 This filing
27.02 27 Financial Data Schedule for the period ended September 30, 2000 This filing
</TABLE>
II-3
<PAGE>
ITEM 28. UNDERTAKING
Rule 415 Offering (Regulation SB, Item 512(a)):
The Registrant will:
(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;
(ii)Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing,, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b)
(ss.230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
NOTE: Registrants do not need to give the statements in paragraphs
(a)(1)(i) and (a)(1)(ii) of this Item if the registration statement is
on Form S-3 or S-8 (ss.ss.239.13 or 239.16b of this chapter), and the
information required in a post-effective amendment is incorporated by
reference from periodic reports filed by the Registrant under the
Exchange Act
(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.
Indemnification (Regulation SB, Item 512(e)):
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 Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Melville, State of New York, on November 28, 2000.
Community Home Mortgage Corp.
By /s/ Ira Silverman
--------------------------------
Ira Silverman
Its Chairman and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:
/s/ Ira Silverman,
President and Chairman
/s/ Daniel Silverman, Executive Vice
President and Director
/s/ Richard Balogh, Chief Financial
Officer and Director
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