As filed with the Securities and Exchange Commission on July 11, 2003
File No.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1 (Alternative 2)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HERITAGE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Nevada 522200 75-2877108
- ----------------------------- ------------------------- ------------------
(State or jurisdiction of (Primary Industrial I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.
1529 E. Interstate 30, Suite 104, Garland, Texas 75243 (972) 303-0907
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(Address, including the ZIP code & telephone number, including area code of
Registrant's principal executive office)
E. Lee Murdock
1529 E. Interstate 30, Suite 104, Garland, Texas 75243 (972) 303-0907
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(Name, address, including zip code, and telephone number, including area code of
agent for service)
Copies to: Lamberth & Stewart, PLLC
--------- Attorneys at Law
2840 Lincoln Plaza, 500 N. Akard Street
Dallas, Texas 75201
(214) 740-4270
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------
Title of Each Amount Proposed Maximum Proposed Amount of
Class of Securities To be Offering Price Maximum Aggregate Registration
to be Registered Registered Per Share (1) Offering Price (1) Fee
- --------------------------------------------------------------------------------------------
Common stock,
$0.001 par value
Minimum 240,000 $0.25 $ 60,000 $ 17
Maximum 2,000,000 $0.25 $ 500,000 $139
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Total maximum 1,000,000 $0.50 $ 500,000 $269 (2)
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the registration statement
shall hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Represents minimum fee.
INITIAL PUBLIC OFFERING
PROSPECTUS
HERITAGE MANAGEMENT, INC.
Minimum of 240,000 shares of common stock, and a
Maximum of 2,000,000 shares of common stock
$0.25 per share
We are making a best efforts offering to sell common stock in our
company. We provide a full service mortgage service and plan to offer an
automated online mortgage application and approval process that can be accessed
over the internet twenty four hours per day. The common stock will be sold by
our sole officer and director, E. Lee Murdock. The offering price was determined
arbitrarily and we will raise a minimum of $60,000 and a maximum of $500,000.
The funds will be held by the Company, uncashed until the minimum amount is
sold, at which time the funds will be released to the company and stock
certificates issued. The offering will end on December 27, 2003 and should we
not sell the minimum amount, the funds will promptly be returned to the
investors and no interest will be paid on these funds.
The Offering:
Minimum offering Maximum offering
---------------------- ----------------------
Per Share Amount Per Share Amount
--------- -------- --------- --------
Public Offering Price . . . $0.25 $ 60,000 $0.25 $500,000
Offering expenses $0.07 16,769 0.02 33,769
--------- -------- --------- --------
Net proceeds $0.18 $ 43,231 $0.23 $466,231
There is currently no market for our shares and no market may ever develop for
our shares.
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------------
This Prospectus is dated July 11, 2003
1
PROSPECTUS SUMMARY
OUR COMPANY
We were incorporated on June 12, 2000 in the State of Nevada and
started Heritage Funding Corporation in the State of Texas on June 7, 2001. We
are engaged in the processing of mortgage loans. To date we have processed over
$20,000,000 of loans which has generated gross income to us in excess of
$200,000. The funds from this offering will allow us to i) hire salespersons
(ii) develop a website for online loan application (iii) make our advertising
broader (iv) make strategic marketing alliances, and (v) make agreements with
other funding sources in order to increase revenue.
As well as being a newly formed company, we:
o are controlled by one individual;
o rely on our sole officer and director to manage the business, this
offering and continuing operations to see us through to profitability;
o have limited operating history; and
o operate in an industry with low barriers of entry which could add to
our competition, and one in which there are many competitors already,
many of which have much greater resources than we do.
THE OFFERING
Minimum Maximum
--------- ---------
Common shares offered 240,000 2,000,000
Common shares outstanding before this offering 3,350,000 3,350,000
--------- ---------
Total shares outstanding after this offering 3,590,000 5,350,000
Officers, directors and their affiliates will not be able to purchase shares in
this offering.
USE OF PROCEEDS
Most of the money you invest will represent proceeds to the company. We will use
the proceeds from this offering to:
o pay expenses of this offering
o develop our website to offer more products and better service
o marketing and general working capital
2
RISK FACTORS
You should carefully consider the risks described below and all other
information contained in this prospectus before making an investment decision.
WE ARE A RECENTLY FORMED COMPANY, FORMED IN THE STATE OF TEXAS ON JUNE 12, 2000,
WITH LIMITED ACTIVITY AND NEGLIGIBLE INCOME THAT MAY CONTINUE FOR THE
FORESEEABLE FUTURE.
We have not achieved profitability to the extent where there is sufficient
profit to finance our planned growth and expect to have minimal income or incur
net losses for the foreseeable future. We expect to incur significant operating
expenses and, as a result, will need to generate significant revenues over and
above our current revenue to achieve profitability, which may not occur. Even if
we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future. If we are unable to
achieve profitability, your investment in our common stock may decline or become
worthless.
WE RELY ON OUR SOLE OFFICER FOR DECISIONS AND HE WILL RETAIN SUBSTANTIAL CONTROL
OVER OUR BUSINESS AFTER THE OFFERING AND MAY MAKE DECISIONS THAT ARE NOT IN THE
BEST INTEREST OF ALL STOCKHOLDERS.
Upon completion of this offering, our sole officer will, in the aggregate,
beneficially own approximately 83.56% (or 56.07% maximum is sold) of the
outstanding common stock. As a result, our sole officer will have the ability to
control substantially all the matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. He will also
control our management and affairs. Accordingly, this concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
us, impeding a merger, consolidation, takeover or other business combination
involving us or discouraging a potential acquirer from making a tender offer or
otherwise attempting to take control of us, even if the transaction would be
beneficial to other stockholders. This in turn could materially cause the value
of our stock to decline or become worthless.
WE MAY HAVE TO RAISE ADDITIONAL CAPITAL WHICH MAY NOT BE AVAILABLE OR MAY BE TOO
COSTLY.
Our capital requirements are and will continue to be more than our operating
income. We do not have sufficient cash to indefinitely sustain operating losses.
Our potential profitability depends on our ability to generate and sustain
substantially higher net sales while maintaining reasonable expense levels. We
cannot assure you that we will be able to operate on a profitable basis or that
cash flow from operations will be sufficient to pay our operating costs. We
anticipate that the funds raised in this offering will be sufficient to fund our
planned growth for the year after we close on the offering. Thereafter, if we do
not achieve profitability, we will need to raise additional capital to finance
our operations. We anticipate seeking additional financing through debt or
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equity offerings. We cannot assure you that additional financing will be
available to us, or, if available, any financing will be on terms acceptable or
favorable to us. If we need and cannot raise additional funds, further
development of our business, upgrades in our technology, additions to our
product lines may be delayed and we otherwise may not be able to execute our
business plan, all of which may have a material adverse effect on our
operations; if this happens, the value of your investment will decline and may
become worthless.
WE ARE DEPENDENT ON MORTGAGE LENDER RELATIONSHIPS TO APPROVE OUR BORROWERS AND
IF WE LOSE THESE RELATIONSHIPS WITHOUT REPLACING THEM, OUR BUSINESS COULD
DECLINE AND CAUSE YOUR INVESTMENT TO BECOME WORTHLESS.
We are dependent on four mortgage lender relationships to funds on mortgage
loans since we act as a broker. These lenders are under no obligation to
continue their relationships with us or make a loan to any potential borrower we
present to them. Our reliance on this group of lenders makes our origination
volume more susceptible to changes in the rates, services and products such
lenders offer. The loss of our relationship with any of these lenders, or the
failure of these lenders to offer competitive terms, could have a material
adverse impact on our ability to attract borrowers and close loans which could
cause the value of your investment to decline or become worthless.
IF THERE ARE INTERRUPTIONS OR DELAYS IN OBTAINING APPRAISAL, CREDIT REPORTING,
TITLE SEARCHING AND OTHER UNDERWRITING SERVICES FROM THIRD PARTIES, WE MAY
EXPERIENCE CUSTOMER DISSATISFACTION AND DIFFICULTIES CLOSING LOANS WHICH WOULD
AFFECT OUR REVENUE AND THE VALUE OF YOUR INVESTMENT WOULD DECLINE OR BECOME
WORTHLESS.
We rely on other companies to perform certain aspects of the loan underwriting
process, including appraisals, credit reporting and title searches. If the
provision of these ancillary services were interrupted or delayed, it could
cause delays in processing and closing loans for our customers. The value of the
service we offer and the ultimate success of our business are dependent on our
ability to secure the timely provision of these ancillary services by the third
parties with whom we have these relationships. If we are unsuccessful in
securing the timely delivery of these ancillary services we will likely
experience customer dissatisfaction and our revenue would suffer causing the
value of your investment to decline or to become worthless.
IF INTEREST RATES RISE, DEMAND FOR MORTGAGES GENERALLY DECLINES WHICH IN TURN
AFFECTS OUR REVENUE ADVERSELY AND WILL CAUSE YOUR INVESTMENT TO DECLINE IN
VALUE.
The residential mortgage business depends upon the overall levels of sales and
refinancing of residential real estate as well as on mortgage loan interest
rates. An increase in interest rates, which is outside our control, could have a
material adverse impact on our business. Rising interest rates discourage
refinancing activities and generally reduce the number of home sales that occur.
If interest rates should rise, our revenue could be adversely affected and the
value of your investment will decline.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These
forward-looking statements are not historical facts but rather are based our
current expectations, estimates and projections about our industry, our beliefs
and our assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" and elsewhere in this prospectus. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus.
DILUTION
If you purchase common stock in this offering, you will experience an
immediate and substantial dilution in the projected book value of the common
stock from the price you pay in this initial offering.
The book value of our common stock as of June 30, 2003 was $51,268 or
$0.01 per share. Projected book value per share is equal to our total assets,
less total liabilities, divided by the number of shares of common stock
outstanding.
After giving effect to the sale of common stock offered by us in this
offering, and the receipt and application of the estimated net proceeds (at an
initial public offering price of $0.25 per share, after deducting estimated
offering expenses), our projected book value as of June 30, 2003 would be
approximately $94,499 or $0.03 per share, if the minimum is sold, and $517,499
or $0.10 per share, if the maximum is sold.
This means that if you buy stock in this offering at $0.25 per share,
you will pay substantially more than our current shareholders. The following
represents your dilution:
o if the minimum of 240,000 shares are sold, an immediate decrease in
book value to our new shareholders from $0.25 to $0.03 per share and an
immediate increase in book value per common share to our current
stockholders.
o if the maximum of 2,000,000 shares are sold, an immediate decrease in
book value to our new shareholders from $0.25 to $0.10 per share and an
immediate increase in book value per common share to our current
stockholders.
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The following table illustrates this per share dilution:
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Minimum Maximum
Assumed initial public offering price $0.25 $0.25
Book value as of June 30, 2003 $0.01 $0.01
Projected book value after this offering $0.03 $0.10
Increase attributable to new stockholders: $0.02 $0.09
Projected book value
as of June 30, 2003 after this offering $0.03 $0.10
Decrease to new stockholders ($0.22) ($0.40)
Percentage dilution to new stockholders 88 % 60 %
The following table summarizes and shows on a projected basis as of
June 30, 2003, the differences between the number of shares of common stock
purchased, the total consideration paid and the total average price per share
paid by the existing stockholders and the new investors purchasing shares of
common stock in this offering:
MINIMUM OFFERING
- ----------------
Number Percent Average
of shares of shares Amount price per
owned owned paid share
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Current
shareholders 3,350,000 93.3 $ 50,000 $ 0.015
New investors 240,000 6.7 $ 60,000 $ 0.50
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Total 3,590,000 100.0 $ 110,000
MAXIMUM OFFERING
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Number Percent Average
of shares of shares Amount price per
owned owned paid share
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Current
shareholders 3,350,000 62.6 $ 50,000 $ 0.015
New investors 2,000,000 37.4 $ 500,000 $ 0.50
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Total 5,350,000 100.0 $ 550,000
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PLAN OF DISTRIBUTION
The common stock is being sold on our behalf by our sole officer and
director, who will receive no commission on such sales. All sales will be made
by personal contact by our sole officer and director, E. Lee Murdock. We will
not be mailing our prospectus to anyone or soliciting anyone who is not
personally known by Mr. Murdock, or introduced to Mr. Murdock and personally
contacted by him or referred to him.
The money we raise in this offering before the minimum amount is sold
will be held by the Company, uncashed, until the minimum amount is raised. At
such time as the minimum amount is raised, all funds will be refunded
immediately, without interest, if the minimum amount is not sold by December 30,
2003.
Certificates for shares of common stock sold in this offering will be
delivered to the purchasers by Signature Stock Transfer, Inc., the stock
transfer company chosen by the company as soon as the minimum subscription
amount is raised.
USE OF PROCEEDS
The total cost of the offering is estimated to be $16,769 if the
minimum is sold, or $33,769 if the maximum is sold, consisting primarily of
legal, accounting and blue sky fees. We will pay these costs out of the funds we
raise in this offering.
The following table shows how we plan to use the proceeds from selling
common stock in this offering, reflecting the minimum and maximum subscription
amounts:
$60,000 $500,000
minimum maximum
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Legal, accounting & printing expenses 9,500 26,500
Other offering expenses 7,269 7,269
Net proceeds to company 43,231 466,231
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Total $ 60,000 $500,000
The following describes each of the expense categories:
o legal, accounting and printing expense is the estimated costs associated with
this offering; o other offering expenses includes SEC registration fee, blue sky
fees and miscellaneous
expenses with regards to this offering.
The following table shows how we plan to use the net proceeds to the
company:
$60,000 $500,000
minimum maximum
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Development of website $10,000 $ 50,000
Office equipment 4,000 46,000
Internet security -0- 27,000
Salaries for salespersons 19,000 293,000
Expenses in adding new products/services 5,000 30,000
General corporate overhead 5,231 20,231
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Proceeds to company $43,231 $466,231
DESCRIPTION OF BUSINESS
We were incorporated in Nevada June 12, 2000 under the name of Fresh
Air.com, Inc. and subsequently changed our name to Heritage Management, Inc. Our
founder, E. Lee Murdock is our sole director, officer and employee and holds
3,000,000 shares of common stock which we issued to him for $12,500, composed of
$250 cash and $12,250 of his services.
We are an independent mortgage banking company that primarily originates and
sells residential mortgage loans. We originate loans through retail operations.
We offer a broad and competitive range of residential mortgage products that
seek to meet the needs of all borrowers, both high and low credit-quality,
through a variety of loan products. Our product line includes Fannie Mae-
eligible loans, jumbo loans, adjustable rate mortgages, FHA-insured and VA-
guaranteed loans, alternate "A" loans, non-prime loans, home equity and second
mortgage loans. Our network of loan buyers allows us to identify a loan buyer
who will purchase loans with specific features and to select a buyer who will
accept the lowest yield for loans with those features. As a result, we are able
to offer a wide range of products we believe are well priced and that have many
different features to suit a customer's needs.
We place particular emphasis on marketing our loan products to home buyers but
despite our emphasis on the home buyer market, we are able to benefit from
expansions in refinancing activity. Currently, we concentrate our marketing,
advertising and personnel resources on the home buyer mortgage market and are
employing state-of-the-art technology to increase our operating efficiency and
mortgage closure rate.
The proceeds from this offering will allow us to do the following:
* Place more emphasis on marketing to generate additional business while further
streamlining our operations by purchasing software specific to the mortgage
processing industry. The purchase of the software will allow us to handle the
additional sales through increased efficiency, without much increased
infrastructure.
* Allow us to develop a website that will be almost fully automated for home
buyers or refinancing with a high credit rating. This website will allow us to
process loans for high credit borrowers with a minimal increase in overhead,
therefore allowing us to use our current infrastructure to process the loans for
all other borrowers which take more time and from which we also make more
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revenue.
* In addition, we plan to grow our business to the point where we can originate
and fund the loans by setting up a line of credit with a bank. By doing this, we
would originate and package the loans in large blocks according to certain
guidelines. Assuming we can do this, we would sell the loans we originate,
typically within 45 days of origination. The loans would be sold to Fannie Mae,
large national banks, thrifts and smaller banks, securities dealers, real estate
investment trusts and other institutional loan buyers. This would allow us to
make additional revenue on the loans we originate.
Principal Products or Services and Their Markets.
We offer a broad and competitive range of mortgage products that seek to meet
the mortgage needs of all types of borrowers. Our product line includes Fannie
Mae-eligible loans, jumbo loans, adjustable rate mortgages, FHA-insured and
VA-guaranteed loans, alternate "A" loans, non-prime loans, home equity and
second mortgage loans.
Conforming and Government-Insured Fixed Rate Loans. These mortgage loans conform
to the underwriting standards established by Fannie Mae or Freddie Mac and may
qualify for insurance from the FHA or a guarantee from the VA. We have been
designated by the U.S. Department of Housing and Urban Development (HUD) as a
direct endorser of loans insured by the FHA and as an automatic endorser of
loans partially guaranteed by the VA, allowing us to offer so-called FHA or VA
mortgages to qualified borrowers. FHA and VA mortgages must be underwritten
within specific governmental guidelines, which include standards for borrowers'
income, assets, credit worthiness, property value and property condition.
Adjustable Rate Mortgages (ARM). The ARM's defining feature is a variable
interest rate that fluctuates over the life of the loan, usually 30 years.
Interest rate fluctuations are based on an index that is related to Treasury
bill rates, regional or national average cost of funds of savings and loan
associations, or another widely published rate, such as LIBOR. The period
between the rate changes is called an adjustment period and may change every six
months, one year, three years, five years or ten years. Some of our ARMs may
include payment caps, which limit the interest rate increase for each adjustment
period.
Jumbo Loans. Jumbo loans are considered non-conforming mortgage loans because
they have a principal loan amount in excess of the loan limits set by Fannie Mae
and Freddie Mac (currently $322,700 for single-family, one-unit mortgage loans
in the continental United States). We offer jumbo loans with creative financing
features, such as the pledging of security portfolios.
Alternate "A" Loans. From a credit risk standpoint, alternate "A" loan borrowers
present a risk profile comparable to that of conforming loan borrowers, but
entail special underwriting considerations, such as a higher loan to value ratio
or limited income verification.
Home Equity and Second Mortgage Loans. These loans are generally secured by
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second liens on the related property. Home equity mortgage loans can take the
form of a home equity line of credit, which generally bears an adjustable
interest rate, while second mortgage loans are closed- end loans with fixed
interest rates. Both types of loans are designed for borrowers with high
credit-quality profiles. Many of the home equity and second mortgage loans we
make are closed in conjunction with a first mortgage. By taking a first and
second mortgage to purchase a home, a customer can avoid paying mortgage
insurance and may be able to qualify for a conforming loan as opposed to a jumbo
loan.
Non-Prime Mortgage Loans. The non-prime mortgage loan focuses on customers whose
borrowing needs are not served by traditional financial institutions. Borrowers
of non-prime mortgage loans may have impaired or limited credit profiles, high
levels of debt service to income, or other factors that disqualify them for
conforming loans. Offering this category of mortgage loans on a limited basis
allows us to provide loan products to borrowers with a variety of differing
credit profiles.
Loan Underwriting
Our primary goal in making a decision whether to extend a loan is whether that
loan conforms to the expectations and underwriting standards of the institutions
that buy that type of loan. Typically, these buyers focus on a potential
borrower's credit history, often as summarized by credit scores, income and
stability of income, liquid assets and net worth and the value and the condition
of the property securing the loan. Whenever possible, we use "artificial
intelligence" underwriting systems to determine whether a particular loan meets
those standards and expectations. In those cases where "artificial intelligence"
is not available, we rely on our staff of credit officers to make the
determination.
Sale of Loans
Currently, we only act as a loan broker for approximately twenty lender
relationships that we have. One of our objectives with the funds we raise in
this offering, is to grow our business to the stage where we can warehouse loans
we originate, package the loans, and then sell those packages in the secondary
market.
Typically, we would sell or swap loans with limited recourse to us. This means
that, with some exceptions, we would reduce our exposure to default risk at the
time we sell the loan, except that we may be required to repurchase the loan if
we breach the representations or warranties we make in connection with the sale
of the loan, in the event of an early payment default, or if the loan does not
comply with the underwriting standards or other requirements of the ultimate
investor.
We sell loans to the institutions described above, many of whom compete directly
with us for mortgage originations. Our sales are governed by agreements that do
not generally have a limitation as to the value of loans we sell and establish
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an ongoing sale program under which these institutions stand ready to buy as
long as the loans we offer for sale meet their underwriting standards.
COMPETITION:
Competition in the mortgage banking industry is based on many factors, including
convenience in obtaining a loan, customer service, marketing and distribution
channels, amount and term of the loan and interest rates. A large number of
mortgage companies transact business through retail offices and other
traditional channels. Our competitors include other mortgage bankers and
brokers, state and national commercial banks, savings and loan associations,
credit unions, insurance companies and other finance companies. Many of these
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than we do.
No single lender or group of lenders has, on a national level, achieved a
dominant share of the market with respect to loan originations for first
mortgages. We believe that our product offerings, competitive pricing, advanced
technology and business strategies enable us to compete effectively with these
entities.
Mortgage banking on the Internet is highly competitive. A large number of banks,
non-bank mortgage lenders, and mortgage brokers offer mortgage loans. Many of
these competing mortgage originators share a business strategy and capability
similar to ours and many of them are larger than us, with substantially more
capital, and greater marketing and technical resources than we have.
THE INDUSTRY:
The mortgage banking industry is the largest consumer debt-related sector in the
United States. This industry involves primarily two businesses: origination and
servicing. In 2000, the Mortgage Bankers Association of America (the "MBA")
estimated that the mortgage loan origination volume in the United States was
$1.0 trillion, compared to approximately $600 billion in 1995, a compounded
annual growth rate of 13.3%.
According to an April 2003 Mortgage Bankers Association of America Mortgage
Finance Forecast, total mortgage originations in 2001 for 1 to 4 family
dwellings were $2.1 trillion with refinance mortgages representing 57% of this
amount. In 2002, mortgage originations totaled $2.5 trillion with 59%
represented by refinance mortgages. The MBA projects total mortgage originations
for 2003 to be $2.6 trillion with 60% represented by refinance mortgages.
Consequently, we believe the residential mortgage market remains robust.
Method of distribution of products and services.
Growth Objectives
We seek to grow our business through i) strategic marketing; ii) building an
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Internet business by offering loan applications on the Internet; and iii) by
growing to the point where we can warehouse, package and sell loans.
Organic Growth. We intend to continue our expansion by adding additional loan
officer originators and by increasing loan origination volume with our existing
loan officers. To enhance our existing business we will continue to refine our
operating mix including our pricing, product offerings, promotional strategy,
compensation plans, service levels and use of technology. We intend to increase
the market share of our existing community loan offices by hiring additional
loan originators and production personnel. We also intend to continue using new
and innovative methods to market our mortgage products, including joint ventures
with realtors and home builders and corporate affinity lending.
Internet. We believe the Internet will continue to grow as a medium where
consumers will obtain mortgage loans. Depending on the funds raised in this
offering, we intend to establish our Internet mortgage origination volume
through a company Web site. We believe, with the advent of on-line and
e-commerce technologies, loan originations can be made electronically, resulting
in cost and time savings to consumers and the mortgage brokers who assist those
customers. Although the on-line mortgage industry is still relatively new, it is
expected to grow rapidly. According to Forrester Research the market for on-line
mortgage originations is expected to grow from an estimated $18 billion in 1999
to over $91 billion in 2003, representing an increase in on-line mortgage
originations from 1.4% of the existing market in 1999 to 10% of the projected
market in 2003.
Operating Strategies
We focus on the following elements in operating our business:
Lending to Home buyers. We focus on making loans to home buyers, rather than to
homeowners seeking to refinance their mortgages. We believe this makes our
business less susceptible to interest rate increases because in a rising
interest rate environment home purchase volume tends to be more stable than
mortgage refinancing volume. Mortgage refinancing volume tends to decrease
dramatically in response to rising interest rates. While the expansion of the
refinancing market has been incrementally additive to our recent growth, it has
not been, nor is it expected to be, a major component of either our ongoing
business strategy or our expected continued growth.
Offering a Broad Product Line. We offer a broad product line that includes most
types of mortgage products. Our product line enables us to leverage our
marketing efforts by selling to more of the potential customers our marketing
efforts reach. It also enables us to better serve the customers of the realtors,
home builders and Web sites that refer business to us.
Using the Internet to Market our Products. Depending on the funds raised in this
offering, we seek to provide consumers the ability to apply on-line through a
Web site we will develop. Our Web site will enable customers to gain information
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about interest rates, file applications, lock-in interest rates, check the
status of applications in process, access analytical tools, have desired rates
tracked electronically, access home buyer services, obtain free school reports,
obtain consumer credit reports and learn about the home buying process.
Underwriting Loans to the Standards of Loan Buyers who Purchase our Loans. Our
underwriting process is designed to ensure that each loan we originate is in a
standardized form and can be sold to a third-party buyer by conforming the loan
to the underwriting and credit standards of that buyer. Whenever possible, we
use "artificial intelligence" underwriting systems, including Fannie Mae's
Desktop Underwriter(R) and Freddie Mac's Loan Prospector(R), to ensure
consistency with our buyers' predetermined standards. These systems interface
with our customized computer software. In addition, we have a series of internal
and external quality control procedures in place to ensure compliance with our
underwriting standards.
Cross Selling and One-Stop Shopping. We have begun researching offering title
insurance, abstract services and home equity lines of credit to our mortgage
customers. We believe we can enhance the revenues we earn through the
cross-selling of these and other products and services, and thereby leverage our
origination network without significant additional capital investments.
Maintaining a Sales-Oriented Culture. Our loan originators are primarily
compensated through commissions in order to encourage responsiveness to our
customers. In addition, we foster a consultative sales strategy that emphasizes
proactive and frequent customer assistance. Our loan originators actively guide
customers through the loan application process, keeping customers informed about
rate changes and market conditions.
Status of product or services based on public information requiring an
- --------------------------------------------------------------------------------
investment or material assets of the issuer:
- --------------------------------------------
As we are a new company, we do not have any information that has been made
public or that will require an investment or material asset of ours.
Dependence on One or a Few Major Customers:
- -------------------------------------------
We are not dependent on any one or a few major customers.
Need for Governmental Approval of Principal Products or Services:
- -----------------------------------------------------------------
Our business is subject to extensive and complex rules and regulations of, and
examinations by, various federal, state and local government authorities and
government sponsored enterprises, including without limitation HUD, the FHA, the
VA, Fannie Mae, Freddie Mac and Ginnie Mae. These rules and regulations impose
obligations and restrictions on our loan origination and credit activities,
including without limitation the processing, underwriting, making, selling,
securitizing and servicing of mortgage loans.
Our lending activities also are subject to various federal laws, including the
Federal Truth-in-Lending Act and Regulation Z thereunder, the Homeownership and
Equity Protection Act of 1994, the Federal Equal Credit Opportunity Act and
13
Regulation B thereunder, the Fair Credit Reporting Act of 1970, the Real Estate
Settlement Procedures Act of 1974 and Regulation X thereunder, the Fair Housing
Act, the Home Mortgage Disclosure Act and Regulation C thereunder and the
Federal Debt Collection Practices Act, as well as other federal statutes and
regulations affecting its activities. Our loan origination activities also are
subject to the laws and regulations of each of the states in which we conduct
our activities.
These laws, rules, regulations and guidelines limit mortgage loan amounts and
the interest rates, finance charges and other fees we may assess, mandate
extensive disclosure and notice to our customers, prohibit discrimination,
impose qualification and licensing obligations on us, establish eligibility
criteria for mortgage loans, provide for inspections and appraisals of
properties, require credit reports on prospective borrowers, regulate payment
features, and prohibit kickbacks and referral fees, among other things. These
rules and requirements also impose certain reporting and net worth requirements
on us. Failure to comply with these requirements can lead to, among other
things, loss of approved status, termination of contractual rights without
compensation, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.
We are subject to audits by the regulators in the states where we operate. To
date, the audits have not found any material violations. In addition, our
customized computer software assists us in complying with government regulations
by automatically selecting the requisite loan disclosure documents, calculating
permissible fees and charges and assuring that products offered to a particular
borrower meet the requirements of that borrower's state. Our legal compliance is
reviewed as part of our quality control process, which is performed by an
independent contractor with expertise in these matters.
Although we believe that we have systems and procedures in place to ensure
compliance with these requirements and believe that we are currently in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations, that more restrictive laws, rules and
regulations will not be adopted in the future, or that existing laws, rules and
regulations or the mortgage loan documents with borrowers will not be
interpreted in a different or more restrictive manner. The occurrence of any
such event could make compliance substantially more difficult or expensive,
restrict our ability to originate, purchase, sell or service mortgage loans,
further limit or restrict the amount of interest and other fees and charges
earned from mortgage loans that we originate, purchase or service, expose us to
claims by borrowers and administrative enforcement actions, or otherwise
materially and adversely affect our business, financial condition and results of
operations.
Members of Congress, government officials and political candidates have from
time to time suggested the elimination of the mortgage interest deduction for
federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of our loans are made to
borrowers for the purpose of purchasing a home, the competitive advantage of tax
14
deductible interest, when compared with alternative sources of financing, could
be eliminated or seriously impaired by this type of governmental action.
Accordingly, the reduction or elimination of these tax benefits could have a
material adverse effect on the demand for the kind of mortgage loans we offer.
We also perform various mortgage-related operations on the Internet. The
Internet, and the laws, rules and regulations related to it, are new and still
evolving. As such, there exist many opportunities for our business operations on
the Internet to be challenged or to become subject to legislation, any of which
may materially and adversely affect our business, financial condition and
results of operations.
Under the Gramm-Leach-Bliley Act (the "GLB Act"), federal banking regulators are
required to adopt rules that will limit the ability of banks and other financial
institutions to disclose non- public information about consumers to
nonaffiliated third parties. These limitations will require disclosure of
privacy policies to consumers and, in some circumstances, will allow consumers
to prevent disclosure of certain personal information to a nonaffiliated third
party. The rules are effective November 13, 2000, but compliance was optional
until July 1, 2001 when it became mandatory. The privacy provisions of the GLB
Act will affect how consumer information is transmitted through diversified
financial companies and conveyed to outside vendors. Furthermore, Federal law
does not preempt state financial privacy laws that are stricter than the federal
provisions. We may be required to amend our privacy policies and consumer
disclosures to comply with the GLB Act and its implementing regulations.
Additionally, pending legislation at the state and federal levels may further
restrict our information gathering and disclosure practices.
Additional information:
- -----------------------
We have made no public announcements to date and have no additional or new
products or services. In addition, we don't intend to spend funds in the field
of research and development; no money has been spent or is contemplated to be
spent on customer sponsored research activities relating to the development of
new products, services or techniques; and we don't anticipate spending funds on
improvement of existing products, services or techniques.
PLAN OF OPERATIONS
Following is our plan of operations based upon the amount of capital we raise in
this offering.
The following table sets forth how we anticipate using the net proceeds from our
offering:
Amount Raised $50,000 $500,000
Minimum Maximum
- --------------------------------------------------------------------------------
Development of website $10,000 50,000
Office equipment 4,000 46,000
Internet security -0- 27,000
15
Salaries for salespersons 19,000 293,000
Expenses in adding new products/services 5,000 30,000
General corporate overhead 5,231 20,231
- --------------------------------------------------------------------------------
Proceeds to company $43,231 $466,231
Following is a discussion of each anticipated/proposed expense identified above:
o If the minimum amount is raised, we will dedicate 20% of the proceeds to
develop our website. Again, if the maximum be raised, we will dedicate 10%
of the proceeds for this purpose. The reason for the greater percentage
investment if a lower amount is raised is due to our belief that we can
substantially increase our revenue with little ongoing costs once our
website is operational. Our website will allow good credit individuals to
apply and be approved online which will significantly t and as such requires
full operational functionality immediately for us to be competitive.
Consequently, as time unfolds, we will invest less in our website both
monetarily and as a percentage of revenues as the major investment would
already have been made.
o Office equipment, although needful, will be scrutinized based on functional
need and business application. Obviously, the more money we have the more
flexibility we will have in purchasing office equipment.
o Salaries will be paid to hire salespersons.
o Internet security is needful and demanded by consumers. Such security
relates to confidentiality with respect to credit information, securing
credit card transactions, and maintaining absolute privacy in the mortgage
application process.
o Typically, in the world of e-commerce, advertising on the "web" and in trade
publications is the medium by which we can raise awareness of our company
and our website. Consequently, advertising on the Internet and in trade
publications is extremely critical to our success and future growth. As a
result, we plan to dedicate significant resources to accomplish brand
awareness.
o New products and services will expand proportionate to our free cash flow.
Obviously, the more we raise in the initial offering the more investment we
can make in product offerings.
o General corporate overhead relates to rent and lease expense, utilities, and
basic facility needs.
Generating Sufficient Revenue:
The Company plans to generate sufficient revenue by leveraging its existing
customer base, expanding and developing its product line, and increasing market
penetration.
Financing Needs:
As noted above, the Company's initial financing needs can and will be met even
if the minimum offering amount is raised. Since we are an operating company with
a positive cash flow, the variable factor as to how fast the Company believes it
can grow is dependent on the initial amount of capital raised and the success of
our growth plans. We believe that future funding requirements will thus be met
through Company generated cash flow.
16
o On-going cash requirements will consist of compensation for salespersons,
utilities, and normal corporate overhead requirements
o Compensation for salespersons, the largest of the costs, is variable and can
be "turned on" or "turned off" as needed.
o As there are no carrying costs due to the fact no inventory is carried in
stock, the Company essentially operates on a "margin" basis. Consequently,
as no product will ever be sold at a loss (all prices are over the
negotiated from vendor cost), every sale contributes to on-going cash flow.
As presented, the net proceeds total $43,231 if the minimum offering amount is
raised. If the minimum offering amount is raised, we believe it can institute
its growth objectives. If the maximum is raised, with net proceeds of $466,231,
we believe that this would give us the ability, not only to institute these
growth objectives, but to institute them simultaneously to effect the greatest
income growth.
DESCRIPTION OF PROPERTY
Our corporate facilities are located at 1529 E. Interstate 30, Suite
104, Garland, Texas 75243 on a month to month sublease for $400 per month.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The directors and officers of the company, their ages and principal
positions are as follows:
Name Age Position
- --------------------------------------------------------------------------------
E. Lee Murdock 53 President; Secretary and Director
Background of Directors and Executive Officers:
E. LEE MURDOCK. Mr. Murdock, a 53 year old native Texan, formed the company and
at this time is its only officer and director. He served in the U.S. Army from
1969 to 1971 and from 1971 to 1974 he attended the Devry Institute of
Technology, where he earned a Bachelors Degree in Electronics Engineering
Technology. From 1975 to 1988, he worked in computer and service positions until
1988 when he co-founded Golden Eagle Filtration Systems which was he sold in
1995. From 1997 to the present time, he has been the General Manager of a
commercial and residential environmental service company, as well as starting
and developing Heritage Management, Inc.
17
Initially, Mr. Murdock will split his time between the activities of
the company and his activities as general manager of the environmental service
company. In addition, the company's activities need very little time since most
steps in the business of the company are handled by commissioned people or are
automated. Mr. Murdock will devote more and more time to the activities of the
company as time goes on since he can delegate many of his responsibilities at
the environmental service company. Mr. Murdock is prepared to devote himself
full time to the success of the company.
REMUNERATION OF DIRECTORS AND OFFICERS
Our sole officer and director has received no compensation other than
the 2,940,000 shares of common stock he received for services on June 12, 2000
and has no employment contract with the company.
Name of Person Capacity in which he served Aggregate
Receiving compensation to receive remuneration remuneration
- --------------------------------------------------------------------------------
E. Lee Murdock President, Secretary 2,940,000 shares
and Treasurer of common stock
Mr. Murdock received the common stock upon formation of the company and
it is impracticable to determine the cash value. Since the common stock was
issued upon forming of our company for services performed which we cannot
estimate the value since that work continues through the filing and
effectiveness of this registration statement, with no other compensation to be
granted for the work done on this filing.
As of the date of this offering, we have no plans to pay any
remuneration to anyone in or associated with our company. When we have funds
and/or revenue, our board of directors will determine any remuneration at that
time.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In June 2000, the president of the company received 3,000,000 shares of
common stock which we issued to him for $12,500, composed of $250 cash and
$12,250 of his services.
In December 2000, we entered into an agreement with a company to
develop and link a website for which we issued the company a total of 50,000
shares valued at $0.125 per share for a total of $12,500.
In June 2001, we issued 300,000 shares in exchange for the $25,000
capitalization of our wholly owned subsidiary, Heritage Funding Corporation,
valued at $0.08333 per share.
18
As of the date of this filing, there are no agreements or proposed
transactions, whether direct or indirect, with anyone, but more particularly
with any of the following:
o a director or officer of the issuer;
o any principal security holder;
o any promoter of the issuer;
o any relative or spouse, or relative of such spouse, of the above
referenced persons.
PRINCIPAL SHAREHOLDERS
The following table lists the officers, directors and stockholders who,
at the date hereof, own of record or beneficially, directly or indirectly, more
than 10% of the outstanding common stock, and all officers and directors of the
company:
Name and Address Amount owned
Title of Owner before offering Percent
- --------------------------------------------------------------------------------
President, Secretary E. Lee Murdock 3,000,000 89.55%
And Director 750 I-30 East, Suite 170
Rockwall, Texas 75087
---------- ------
Total 3,000,000 89.55%
After offering: Minimum 3,000,000 83.56%
- --------------
Maximum 3,000,000 56.07%
SECURITIES BEING OFFERED
We are offering for sale common stock in our company at a price of
$0.25 per share. We are offering a minimum of 240,000 shares and a maximum of
2,000,000 shares. The authorized capital in our company consists of 25,000,000
shares of common stock, $0.001 par value per share. As of June 30, 2003, we had
3,350,000 shares of common stock issued and outstanding.
Every investor who purchases our common stock is entitled to one vote
at meetings of our shareholders and to participate equally and ratably in any
dividends declared by us and in any property or assets that may be distributed
by us to the holders of common stock in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the company.
The existing stockholders have no preemptive rights to purchase common
stock offered for sale by us, and no right to cumulative voting in the election
of our directors.
19
RELATIONSHIP WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT
The experts named in this registration statement were not hired on a
contingent basis and have no direct or indirect interest in our company. Our
attorney may purchase shares in this offering. Our certified public accountant
may not purchase shares in this offering.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings at this time.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We have retained the same accountant, Malone & Bailey, PLLC as our
independent certified public accountant. We have had no disagreements with them
on accounting and disclosure issues.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation provides that the liability of our
officers and directors for monetary damages shall be eliminated to the fullest
extent permissible under Texas law, which includes elimination of liability for
monetary damages for defense of civil or criminal actions. The provision does
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
We have no underwriting agreement and therefore no provision for
indemnification of officers and directors is made in an underwriting by a broker
dealer.
LEGAL MATTERS
Our attorney has passed upon the legality of the common stock issued
before this offering and passed upon the common stock offered for sale in this
offering. Our attorney is Lamberth & Stewart, PLLC, 2840 Lincoln Plaza, 500 N.
Akard Street, Dallas, Texas 75201.
20
EXPERTS
The financial statements as of December 31, 2002, and for the twelve
months ended December 31, 2002 of the company included in this prospectus have
been audited by Malone & Bailey, PLLC, independent certified public accountant,
as set forth in his report. The financial statements have been included in
reliance upon the authority of him as an expert in accounting and auditing.
The financial statements as of June 30, 2003, and for the three and six
months months ended June 30, 2003 of the company included in this prospectus
have been reviewed in accordance with FAS 100 by Malone & Bailey, PLLC,
independent certified public accountant, as set forth in his report. The
financial statements have been included in reliance upon the authority of him as
an expert in accounting and auditing.
SUMMARY FINANCIAL DATA
The following table sets forth certain of our summary financial
information. This information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this prospectus.
Audited Unaudited
Balance Sheet: December 31, 2002 June 30, 2003
-------------------- -------------------- -------------
Working Capital $38,672 $11,625
Total Assets $54,248 $80,744
Total Liabilities $14,316 $29,476
Stockholders' Equity $39,932 $51,268
Twelve months Six months
Statement of Operations: Ended Dec 31, 2002 June 30, 2003
------------------------ ------------------ -------------
Revenue $220,163 $110,452
Operating Expense $217,468 $ 99,115
Net Income (Loss) $ 2,695 $ 11,337
DIVIDEND POLICY
To date, we have not declared or paid any dividends on our common
stock. We do not intend to declare or pay any dividends on our common stock in
the foreseeable future, but rather to retain any earnings to finance the growth
of our business. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend on our results of
operations, financial condition, contractual and legal restrictions and other
factors it deems relevant.
21
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2003.
Our capitalization is presented on:
o an actual basis;
o a pro forma basis to give effect to net proceeds from the sale of the
minimum number of shares (240,000) we plan to sell in this offering;
and
o a pro forma basis to give effect to the net proceeds from the sale of
the maximum number of shares (2,000,000) we plan to sell in this
offering.
After After
Actual Minimum Maximum
Jun 30, 2003 Offering Offering
------------ ---------- ----------
Stockholders' equity
Common Stock, $0.001 par value;
25,000,000 shares authorized; 3,350 3,590 5,390
Additional Paid In Capital 46,650 89,641 510,881
Retained deficit 1,268 1,268 1,268
Total Stockholders' Equity 51,268 94,499 517,499
Total Capitalization 51,268 94,499 517,499
Number of shares outstanding 3,350,000 3,590,000 5,390,000
The company has only one class of stock outstanding. The common stock
sold in this offering will be fully paid and non assessable, having voting
rights of one vote per share, have no preemptive or conversion rights, and
liquidation rights as is common to a sole class of common stock. The company has
no sinking fund or redemption provisions on any of the currently outstanding
stock and will have none on the stock sold in this offering.
TRANSFER AGENT
We will serve as our own transfer agent and registrar for the common
stock until such time as this registration is effective and we sell the minimum
offering, then we intend to retain Signature Stock Transfer, Inc., 14675 Midway
Road, Suite 221, Dallas, Texas 75244.
22
No dealer, salesman or any other person has been authorized to give any
quotation or to make any representations in connection with the offering
described herein, other than those contained in this Prospectus. If given or
made, such other information or representation'; must not he relied upon as
having been authorized by the Company or by any Underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an otter to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
Prospectus Summary 2
Corporate Information 2
Risk Factors 3
Forward Looking Statements 5
Dilution 5
Plan of Distribution 7
Use of Proceeds 7
Description of Business 8
Plan of Operations 15
Description of Property 17
Director's, Executive Officers and Significant Employees 17
Remuneration of Officers and Directors 18
Interest of Management and Others in Certain Transactions 18
Principal Shareholders 19
Securities Being Offered 19
Relationship with Issuer of Experts Named in Registration Statement 20
Legal Proceedings 20
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 20
Disclosure of Commission Position of Indemnification for
Securities Act Liabilities 20
Legal Matters 20
Experts 21
Summary Financial Data 21
Dividend Policy 21
Capitalization 22
Transfer Agent 22
Financial Statements F-1
Until the (90th day after the later of (1) the effective date of the
registration statement or (2) the first date on which the securities are offered
publicly), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Heritage Management, Inc.
Rockwall, Texas
We have audited the accompanying consolidated balance sheet of Heritage
Management, Inc. as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years then ended. These consolidated 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heritage Management, Inc. as of December 31, 2002, and the results of its
operations and its cash flows for each of the two years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Malone & Bailey, PLLC
- --------------------------
Malone & Bailey, PLLC
Houston, Texas
www.malone-bailey.com
June 30, 2003
HERITAGE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2002
ASSETS
Current assets:
Note receivable $ 11,121
Advances 27,551
---------------
Total current assets 38,672
Property and equipment, net 1,576
Mortgage receivable 14,000
---------------
$ 54,248
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 14,316
---------------
Total current liabilities 14,316
Commitments
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 25,000,000 shares authorized,
3,350,000 shares issued and outstanding 3,350
Additional paid in capital 46,650
Accumulated deficit (10,068)
---------------
Total Stockholders' Equity 39,932
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 54,248
===============
See accompanying summary of accounting policies
and notes to financial statements.
HERITAGE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002 and 2001
2002 2001
------------------- -------------------
Revenue $ 219,163 $ 6,884
Operating expenses:
Consulting 39,000 -
Commissions 142,689 -
Processing expense 22,750 -
Office and equipment rent - -
Other general and administrative 12,634 7,614
------------------ ------------------
217,073 7,614
------------------ ------------------
Income (loss) from operations 2,090 (730)
Other income
Interest income 1,000 238
Other Expense 395 411
Gain on sale of asset - 1,319
------------------ ------------------
1,395 1,968
------------------ ------------------
Net income $ 2,695 $ 416
================== ==================
Net income per share:
Basic and diluted $ 0.00 $ 0.00
================== ==================
Weighted average shares outstanding:
Basic and diluted 3,350,000 3,350,000
================== ==================
See accompanying summary of accounting policies
and notes to financial statements.
HERITAGE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2002
Additional
Common stock paid in Accumulated
capital deficit Total
------------------------------ -------------- ---------------- ---------------
Shares Amount
------------ ------------ -------------- ---------------- ---------------
Balance,
December 31, 2000 3,050,000 $ 3,050 $ 21,950 $ (13,179) $ 11,821
Common stock issued from the
sale of common stock 132,000 132 10,868 - 11,000
Common stock issued for a
mortgage note receivable 168,000 168 13,832 - 14,000
Net income - - - 416 416
------------ ------------ -------------- ---------------- ---------------
Balance,
December 31, 2001 3,350,000 3,350 46,650 (12,763) 37,237
Net income - - - 2,695 2,695
------------ ------------ -------------- ---------------- ---------------
Balance,
December 31, 2002 3,350,000 $ 3,350 $ 46,650 $ (10,068) $ 39,932
============ ============ ============== ================ ===============
See accompanying summary of accounting policies
and notes to financial statements.
HERITAGE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002 and 2001
2002 2001
------------------ ----------------
Cash flows from operating activities:
Net income $ 2,695 $ 416
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 1,146 1,958
Gain on sale of assets - 1,319
Changes in assets and liabilities:
Note receivable (1,000) (10,000)
Advances (16,401) (11,150)
Accounts payable and accrued expenses 13,165 780
Federal income tax payable 395 411
----------------- ---------------
Net cash used in operating activities (356) (15,934)
----------------- ---------------
Cash flows from investing activities:
Capital expenditures - (2,858)
Proceeds from sale of asset - 8,680
----------------- ---------------
Net cash provided by investing activities - 5,822
----------------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock, net - 11,000
----------------- ---------------
Net cash provided by financing activities - 11,000
----------------- ---------------
Net increase (decrease) in cash -0- -0-
Cash, beginning of period -0- -
----------------- ---------------
Cash, end of period $ - $ 356
================= ===============
Supplemental information:
Income taxes paid $ - $ -
Interest paid $ - $ -
Non-cash Transactions:
Common stock for mortgage note receivable $ - $ 14,000
See accompanying summary of accounting policies
and notes to financial statements.
HERITAGE MANAGEMENT, INC.
NOTES TO CONSOLIDTAED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of business. On June 12, 2000 Heritage Management, Inc. ("Heritage") was
incorporated under the laws of the State of Nevada, is engaged in assisting
residential borrowers in obtaining mortgage loans.
Principles of Consolidation
The December 31, 2002 consolidated financial statements include the accounts of
Heritage's wholly owned subsidiary. All significant intercompany transactions
and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less.
Revenue Recognition
Heritage recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable.
Revenue earned from services, which primarily include the closing of a mortgage
loans are recognized as the loans are closed.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising expenses
for 2002 and 2001 were $8,220 and $0, respectively.
Basic Loss Per Share
Basic loss per share has been calculated based on the weighted average number of
shares of common stock outstanding during the period.
Recent Accounting Pronouncements
Heritage does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Online's results of
operations, financial position or cash flow.
NOTE 2 - NOTE RECEIVABLE
Heritage has a $10,000 unsecured note receivable with an Internet company, due
November 16, 2003 and bearing interest rate of 10%.
NOTE 3 - ADVANCES
Heritage has advances due from a mortgage broker that are due upon request.
NOTE 4 - MORTGAGE NOTE RECEIVABLE
Heritage has a $14,000 mortgage note receivable with an individual, secured by a
second lien on real estate, due June 1, 2031, bearing interest at a rate of 10%.
NOTE 5 - INCOME TAXES
Heritage has not yet realized income as of the date of this report, no provision
for income taxes has been made. At December 31, 2002 a deferred tax asset has
not been recorded due to Heritage's limited history to provide income to use the
net operating loss carryover of $9,000 that expires in years 2020 through 2022.
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock:
Heritage is authorized to issue 25,000,000 common shares of stock at a par value
of $0.001 per share. These shares have full voting rights. Heritage has not paid
a dividend to its shareholders.
Heritage issued 3,000,000 shares of common stock to its founder for $250 in cash
and $12,250 in services.
In June 2001, Heritage issued 300,000 shares of common stock for a mortgage note
receivable of $14,000 and cash of $11,000.
In December 2000, Heritage issued 50,000 shares of common stock for a web site
for $12,500 or $0.25 per share.
NOTE 7 - COMMITMENTS
Heritage leases its office under a month to month agreement. The lease provides
for monthly payments of rent of $150.
Rent expense was $1,800 for the years ending December 31, 2002 and 2001,
respectively.
HERITAGE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2003
(Unaudited)
ASSETS
Current assets:
Note receivable $ 11,625
Advances 24,532
---------------
Total current assets 36,157
Property and equipment, net 30,587
Mortgage receivable 14,000
$ 80,744
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,209
Accrued expenses 9,311
Current maturities of note payable 3,092
---------------
Total current liabilities 16,612
---------------
Note payable 12,864
Commitments
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 25,000,000 shares authorized,
3,350,000 shares issued and outstanding 3,350
Additional paid in capital 46,650
Retained earnings 1,268
---------------
Total Stockholders' Equity 51,268
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 80,744
===============
HERITAGE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2003
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
2003 2002 2003 2002
---------------- ---------------- ----------------- -----------------
Revenue $ 58,610 $ 87,137 $ 109,948 $ 105,773
Operating expenses:
Consulting - - 3,250 -
Commissions 59,204 62,702 71,469 62,702
Other general and administrative 17,927 2,834 21,665 5,211
--------------- --------------- --------------- ---------------
77,131 65,536 96,384 67,913
--------------- --------------- --------------- ---------------
Income (loss) from operations (18,521) 21,601 13,564 37,860
Other income
Interest income 254 249 504 496
Interest expense (179) - (179) -
--------------- --------------- --------------- ---------------
75 249 325 496
--------------- --------------- --------------- ---------------
Net income (loss) before provision
for income tax (18,446) 21,850 13,889 38,356
Provision (benefit) for income tax (2,968) - 2,553 -
--------------- --------------- --------------- ---------------
Net income (loss) $ (15,478) $ 21,850 $ 11,336 $ 38,356
=============== =============== =============== ===============
Net income per share:
Basic and diluted $ 0.00 $ 0.01 $ 0.00 $ 0.01
=============== =============== =============== ===============
Weighted average shares outstanding:
Basic and diluted 3,350,000 3,350,000 3,350,000 3,350,000
=============== =============== =============== ===============
HERITAGE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2003
(Unaudited)
2003 2002
------------------ -----------------
Cash flows from operating activities:
Net income $ 11,336 $ 38,356
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 1,864 560
Changes in assets and liabilities:
Note receivable (504) (496)
Advances 3,019 (29,260)
Accounts payable and accrued expenses (796) 874
----------------- ---------------
Net cash provided by operating activities 14,919 10,034
----------------- ---------------
Cash flows from investing activities:
Capital expenditures (30,875) -
----------------- ---------------
Cash flows from financing activities:
Payments on note payable (503) -
Proceeds from note payable 16,459 -
----------------- ---------------
Net cash provided by financing activities 15,956 -
----------------- ---------------
Net increase in cash - 10,034
Cash, beginning of period - -
----------------- ---------------
Cash, end of period $ - $ 10,034
================= ===============
Supplemental information:
Income taxes paid $ 475 $ -
Interest paid $ - $ -
HERITAGE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Presentation
The balance sheet of the Company as of June 30, 2003, the related statements of
operations for the three and six months ended June 30, 2003 and 2002 and the
statements of cash flows for the six months ended June 30, 2003 and 2002
included in the financial statements have been prepared by the Company without
audit. In the opinion of management, the accompanying condensed financial
statements include all adjustments (consisting of normal, recurring adjustments)
necessary to summarize fairly the Company's financial position and results of
operations. The results of operations for the three and six months ended June
30, 2003 are not necessarily indicative of the results of operations for the
full year or any other interim period. The information included herein should be
read in conjunction with Management's Discussion and Analysis and Financial
Statements and notes thereto included in the Company's December 31, 2002 Form
SB-1.
Note 2: Note Payable
Heritage has a note payable to a financial institution secured by a truck,
bearing interest at 4.34%, due in monthly payments of $310 maturing March 2008.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Our Articles of Incorporation and our Bylaws limit the liability of
directors to the maximum extent permitted by Texas law. We carry no director or
executive liability insurance.
Item 2. Other Expenses of Issuance and Distribution
All expenses, including all allocated general administrative and
overhead expenses, related to the offering or the organization of the Company
will be borne by the Company.
The following table sets forth a reasonable itemized statement of all
anticipated out-of-pocket and overhead expenses (subject to future
contingencies) to be incurred in connection with the distribution of the
securities being registered, reflecting the minimum and maximum subscription
amounts.
Minimum Maximum
-------------------------
SEC Registration Fee $ 269 $ 269
Printing and Engraving Expenses 2,000 19,000
Legal Fees and Expenses 5,000 5,000
Edgar Fees 1,800 1,800
Accounting Fees and Expenses 2,500 2,500
Blue Sky Fees and Expenses 5,000 5,000
Miscellaneous 200 200
-------- --------
TOTAL $ 16,769 $ 33,769
Item 3. Undertakings
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act; and
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
11.1
Item 4. Unregistered Securities Issued or Sold Within One Year
The Company sold on June 12, 2000 to its founder 3,000,000 shares of
common stock which was issued to him for $12,500, composed of $250 cash and
$12,250 of his services. This stock was issued under the exemption under the
Securities Act of 1933, section 4(2); this section states that transactions by
an issuer not involving any public offering is an exempted transaction. The
company relied upon this exemption because in a private transaction during July
1999, the founder, sole officer and director purchased stock for a combination
of $250 cash and $12,250 of services.
The Company issued 50,000 shares on December 10, 2000 to an unrelated
company in consideration for building and developing a website for the company.
This stock was valued at $12,500 or $0.50 per share. This stock was issued under
the exemption under the Securities Act of 1933, section 4(2); this section
states that transactions by an issuer not involving any public offering is an
exempted transaction. The company relied upon this exemption because in a
private transaction on December 10, 2000, the company developed the web site in
exchange for 50,000 shares of common stock valued at $0.50 per share or a total
of $12,500. The purchasers were sophisticated investors who purchased the stock
for their own account and not with a view toward distribution to the public. The
certificates evidencing the securities bear legends stating that the shares may
not be offered, sold or otherwise transferred other than pursuant to an
effective registration statement under the Securities Act, or an exemption from
such registration requirements.
The Company issued 300,000 shares on June 7, 2001 to an unrelated
individual in consideration for funding our new subsidiary, Heritage Funding
Corporation, with $25,000. This stock was issued under the exemption under the
Securities Act of 1933, section 4(2); this section states that transactions by
an issuer not involving any public offering is an exempted transaction. The
company relied upon this exemption because in a private transaction on June 7,
2001, the individual funded our subsidiary with $25,000 in exchange for 300,000
shares of common stock. The purchasers were sophisticated investors who
purchased the stock for their own account and not with a view toward
distribution to the public. The certificates evidencing the securities bear
legends stating that the shares may not be offered, sold or otherwise
transferred other than pursuant to an effective registration statement under the
Securities Act, or an exemption from such registration requirements.
11.2
Item 5. Exhibits
The following Exhibits are filed as part of the Registration Statement:
Exhibit No. Identification of Exhibit
3.1 - Articles of Incorporation
3.2 - Amended Articles of Incorporation
3.3 - By Laws
4.2 - Specimen Stock Certificate
10.6 - Form of Subscription Agreement
23.1 - Opinion of Lamberth & Stewart, PLLC, Attorneys at Law
23.2 - Consent of Malone & Bailey, PLLC
23.3 - Consent of Lamberth & Stewart, PLLC, Attorneys at Law
11.3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form SB-1 and authorizes this Registration Statement
to be signed on its behalf by the undersigned, being duly authorized, in the
City of Garland, State of Texas, on the date indicated below.
Heritage Management, Inc.
By: /s/ E. Lee Murdock
-----------------------------
E. Lee Murdock, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following person in the capacity and on
the date indicated:
Signature Title Date
- ------------------------ ---------------------- -------------
/s/ E. Lee Murdock President, Secretary, July 10, 2003
- ------------------------ Treasurer; Director
E. Lee Murdock
11.4