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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------
FORM 10-K
(Mark One)
|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from July 1, 2001 to December 31, 2001
Commission file number 0-23835
HomeSeekers.com, Incorporated
(Exact name of registrant as specified in its Charter)
Nevada 87-0397464
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2800 Saturn Street, Suite 200, Brea, CA 92821
(Address of Principal Executive Offices) (Zip Code)
(714) 927-2200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
State the aggregate market value of the voting and non-voting equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days: $6,853,639 (based on the average
bid and asked prices of the common stock on the Over-the-Counter Bulletin Board
on March 20, 2002).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 20, 2002: 48,954,561.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement (to be filed) accompanying the notice of annual meeting
of HomeSeekers.com, Incorporated's stockholders (Part III hereof).
PART I
Item 1. Description Of Business.
General
HomeSeekers.com, Incorporated (d/b/a Realigent, Inc.) is a provider of
real estate information and technology targeted for use by real estate
professionals, consumers and other parties who have an interest in the real
estate industry. One of the Company's major objectives is to enable
professionals, through the use of technology, to be better equipped to engage in
real estate transactions with consumers, who, through the use of our products
and services, can be better educated and prepared for such transactions. Unless
otherwise indicated in this Form 10-K, references to "the Company," "we" or
"our" mean HomeSeekers.com, Incorporated.
The products and services offered by the Company can generally be
classified as technology services for real estate professionals, real estate
professional productivity tools or other products and services. The Company has
determined that during the six-months ended December 31, 2001, it operated in
one business segment. Current products and services are described below under
the heading "Products and Services."
The Company is a Nevada corporation that is the successor to a Utah
corporation originally organized in 1983. It has been engaged in the business of
marketing technology-based products to real estate professionals since 1987. The
Company operated as "NDS Software, Inc." prior to July 1998 when it changed its
name to "HomeSeekers.com, Incorporated." In March, 2002 the Company began doing
business as "Realigent, Inc." The Company's sole office is located at 2800
Saturn Street, Suite 200, Brea, California 92821, telephone (714) 993-4295.
Background
The Company has developed its product and service offerings through a
series of business acquisitions, asset purchases and strategic alliances. The
following is a summary description of significant acquisition transactions
completed in recent years:
o In August 1998 - the customer list and certain other assets of
Genstar Media, a company engaged in the development and sale
of Websites to real estate agents.
o In September 1999 - TDT, LLC ("Terradatum"), a provider of
technology-based solutions for the Multiple Listing Service
("MLS") market. Multiple Listing Services are aggregators of
real estate data for geographic areas.
o In September 1999 - Information Management Company, LLC
("IMCO"), an operator of MLSs in several states.
o In April 2000 - ISG Inc., an electronic forms and systems
integration company operating under the name of Formulator.
o In July 2000 - IRIS LLC, a provider of productivity software
to real estate professionals including the Lightning Software
Suite consisting of the Lightning 2000 MLS access connectivity
product, Lightning Flyers and Lightning Comparative Market
Analysis (CMA) Plus.
In December, 2001 the Company sold substantially all of the assets of
its MLS operating division (composed of the former Terradatum LLC and
Information Management Company, LLC) to Fidelity National Information Solutions,
Inc. ("FNIS"). See "Fidelity Transactions" below.
Products and Services
The Company provides a range of products and services that are designed
for consumers as well as real estate professionals. The Company generates
revenues from the following products and services:
Real Estate Portal. Our consumer-based products are offered free to
users and enable potential buyers and sellers to browse our searchable database
of homes. We provide consumers with properties that are typically updated on a
daily basis and are available for viewing in several languages.
2
Our Website provides prospective homebuyers with access to listings of
homes for sale in a subscribing MLS geographical region. These products employ a
search engine with numerous searchable fields to allow both broadly and narrowly
defined searches. The systems will search, find and display listings that match
a prospective buyer's criteria, including a preferred location within a city or
state, number of bedrooms and baths and other desired features. Users are also
able to enter a search, save it and automatically search for updated inventory.
Internet Solutions for Real Estate Professionals. We provide Web-based
technologies for brokers, agents and other real estate professionals. These
customizable Web-based technologies are designed to enable real estate
professionals to reach their target audience and to increase the visibility of
their inventory of real estate listings.
Lightning Desktop Products. These software products are targeted at the
broker and agent market, with the objective being to deliver technologies to
provide products ranging from better communication, presentation and marketing
to improved efficiency in handling data in the transaction process.
Consulting and Development Services. We provide technical design and
support, on a project basis, to clients in need of technological services. These
services include Website development and hosting and other Internet/Intranet
solutions, including designing Internet strategies, architecture and planning.
Discontinued Businesses. Throughout the year ended June 30, 2001 and
continuing into the six-months ended December 31, 2001, the Company discontinued
a number of its businesses including its publishing businesses whereby it
published several magazines, principally in the Midwest, the Northwest and
Florida, under the HomeSeekers.com brand. Such publishing businesses were
acquired in May 1999 and February 2000.
Sales and Marketing
The Company sells its products to the real estate industry through
distributor networks, trade shows, direct sales and telemarketing efforts. In
the case of Website sales, these efforts are targeted at real estate industry
professionals interested in marketing their services through the Internet.
Marketing efforts are targeted to real estate professionals, consumers and other
real estate related service providers. The Company's sales force plays an
important role in the marketing strategy. Our direct sales staff and
telemarketing personnel focus on maintaining contact with our targeted customer
pool to maintain the database that is used for additional marketing follow-up.
Product Development
The Company believes that it is critical to continually enhance the
performance and features of its Website and desktop software product offerings.
The development organization focuses on developing products and services for
consumers and real estate professionals aimed at differentiating us from our
competitors. The Company seeks to enhance its market position by building
proprietary systems and features, such as search engines for real estate
listings and the technologies used to aggregate real estate content.
Trademarks, Copyrights and Proprietary Rights
The Company has not sought patent protection for its proprietary
software systems and software products, although may apply for patents in the
future. The Company seeks to maintain its proprietary rights by trade secret
protection, copyright notices, non-competition and non-disclosure agreements
with its employees and, as appropriate, with its vendors. The Company will seek
formal copyright and/or patent protection for certain software program
applications and obtain patents where feasible. There can be no assurance that
meaningful proprietary protection can be attained as a result of any such
filing, and any proprietary rights that we might choose to protect through legal
action may involve substantial costs.
The Company believes that the technology edge it currently enjoys will
likely lessen over time and in order to be competitive, it must provide a high
quality, continually improving, complete solution to consumers, real estate
agents and other industry providers. The Company believes that its core
technical competence and knowledge of the real estate market will allow it to
maintain leading edge products and services that will have value in the
marketplace.
3
Employees
As of March 20, 2002, the Company had a total of 82 employees. Of this
total, 13 were in sales and marketing, 27 in product development and data
aggregation, 29 in technical services and customer support, and 13 in finance
and administration.
Fidelity Transactions
On October 25, 2001, Fidelity National Financial, Inc. ("Fidelity")
agreed to loan the Company up to $4,000,000, which was consummated on November
5, 2001. The purpose of the Fidelity loan to the Company was to enable the
Company to pay off certain existing debt so as to release lenders' liens on
certain assets being purchased by FNIS as described above. Fidelity and the
Company entered into a Credit Agreement, pursuant to which Fidelity eventually
loaned the Company $3,000,000 for the purpose of paying off and canceling its
loan agreements with E-Home.com, Inc. d/b/a HomeMark ("HomeMark"), the repayment
of an earlier secured promissory note of $400,000, and for general working
capital purposes.
In return, Fidelity accepted (i) a revolving promissory note with
stated interest at prime plus 2% convertible into shares of the Company's common
stock at $0.10 per share (the "Note") and (ii) a stock purchase warrant (the
"Warrant"). The Note is convertible into 30,000,000 shares of the Company's
common stock; however, the aggregate potential equity represented in the Note
and the Warrant is 25% of the Company's outstanding Common Stock. To the extent
the Note is not converted to a number of shares of common Stock representing a
25% equity stake in the Company, the Warrant is exercisable to bring Fidelity's
beneficial ownership to as much as 25% of the outstanding shares of Common
Stock. Both the Note and the Warrant were filed as exhibits to a Form 8-K filed
on November 20, 2001.
On November 1, 2001 the Company entered into a Business Separation and
Settlement Agreement with HomeMark and HomeSeekers Management, Inc., which was
consummated on November 5, 2001. In accordance with the terms of the agreement,
the companies terminated, and released any and all obligations under, all
agreements between the parties including a Loan Agreement, Security Agreement
and Financing Statement, and the Securities Purchase Agreement dated June 6,
2001; the Security Agreement and Financing Statement dated June 19, 2001, the
Intercorporate Services Agreement dated July 1, 2001; the Loan Agreement,
Security Agreement and Financing Statement dated July 17, 2001; all promissory
notes including, without limitation, those issued in connection with the June
Loan Agreements and the June Security Agreement. In connection with the
settlement, and in addition to other terms and conditions, the Company paid
HomeMark $1,875,000 and assigned to HomeMark its Loan Agreement and the Security
Agreement and Financing Agreement dated July 16, 2001 between EntrePort
Corporation and the Company in the total principal amount of $500,000.
As an inducement to make the loan, Fidelity agreed to accept equity in
the Company in the form of the Note and Warrant described above. FNIS has no
rights to receive or control disposition of any of the shares of Common Stock.
Fidelity and the Company also executed a Security Agreement securing the
Company's obligations to Fidelity. The Security Agreement was filed as an
exhibit to the Form 8-K filed on November 20, 2001.
On October 25, 2001, FNIS and the Company entered into an agreement
whereby FNIS would purchase certain assets of the Company representing
substantially all of the Company's MLS operations, such assets amounting to less
than twenty percent (20%) of the Company's total assets. FNIS and the Company
also entered into an agreement (the "Management Agreement") pursuant to which
FNIS would provide management services to the Company until the earlier to occur
between the close or the termination of the Asset Purchase Agreement. The Asset
Purchase Agreement and the Management Agreement were filed as exhibits on Form
8-K as filed on November 20, 2001.
On December 3, 2001, the agreement was consummated and FNIS acquired
substantially all of the assets, including corporate and trade names and
goodwill associated with the business, of the Company's XMLSweb(tm) division
(formerly Terradatum LLC and Information Management Company, LLC). The total
consideration paid was $2,000,000, of which $500,000 was advanced in November
and $1,275,000 was paid in December 2001. An additional amount of $225,000 was
withheld pending the resolution of licensing obligations of the Company which
had not been resolved as of April 23, 2002.
Item 2. Description Of Property.
The Company has no owned real property either for its own use or for
investment purposes. The Company has moved all of its operations into one office
facility in Brea, California consisting of approximately 25,000 square feet. In
connection with the purchase of the Company's MLS operations, the original lease
was assumed by FNIS and the Company is subleasing the premises on a
month-to-month basis.
4
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings arising out of its
operations in the ordinary course of its business, including various claims that
have been asserted or complaints that have been filed alleging patent and
copyright infringement, breach of employment and separation agreements, and
non-payment under various agreements. In addition, various claims have been made
against the Company in connection with certain of its acquisitions, including
breach of registration rights agreements. Management intends to contest each
case and in certain instances may attempt to reach a settlement of the issues
claimed. The Company does not believe that these proceedings will have a
material adverse effect on its business, financial condition, or result of
operations beyond the amounts recorded in the accompanying consolidated
financial statements for the estimated settlement of specific actions. However,
if settlement is not reached and the matters proceed to trial, an unfavorable
outcome could have a material adverse effect on the Company's financial position
and results of operations.
The Company has commitments to issue common stock in the form of
options, warrants and other agreements, that, if fulfilled, will cause the
Company to exceed its authorized number of shares of common stock. The Company
has begun preparation of a proxy statement in contemplation of a Meeting of
Stockholders to be held between June and July, 2002 to, among other matters,
approve an amendment to the Company's Articles of Incorporation increasing the
number of authorized shares of common stock in an amount necessary to
accommodate these agreements, options and warrant exercises. The Company has
entered into business purchase agreements that include requirements to register
the shares of the Company's common stock issued in connection with the purchase.
The Company's ability to register these shares is in question subject to the
approval of the increase in the authorized number of shares. Accordingly, the
Company is currently in violation of these registration rights agreements.
Item 4. Submission Of Matters To A Vote Of Security Holders.
None.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
The Company's common stock was traded on the Nasdaq SmallCap Market for
the period from September 16, 1999 through July 16, 2001 under the symbol
"HMSK." Effective July 17, 2001, the common stock was delisted from the Nasdaq
SmallCap Market due to a failure to maintain a minimum bid price of $1.00 per
share and trading commenced on the Over-the-Counter (OTC) Bulletin Board market.
The following table sets forth the high and low bid quotations for the common
stock for the periods indicated. The quotations subsequent to July 16, 2001, as
reported by North American Quotations, reflect prices between dealers, do not
include retail mark-ups, markdowns, commissions and may not necessarily
represent actual transactions.
Period High Low
------ ---- ---
First Quarter (ended March 31, 2000).................... $25.50 $11.56
Second Quarter (ended June 30, 2000).................... $14.88 $2.06
Third Quarter (ended September 30, 2000)................ $3.41 $2.00
Fourth Quarter (ended December 31, 2000)................ $2.59 $0.47
First Quarter (ended March 31, 2001).................... $0.66 $0.13
Second Quarter (ended June 30, 2001).................... $1.04 $0.13
Third Quarter (ended September 30, 2001)................ $0.69 $0.25
Fourth Quarter (ended December 31, 2001)................ $0.26 $0.03
As of December 31, 2001, there were approximately 500 holders of record
and approximately 5,500 beneficial holders of the 48,954,561 shares of common
stock that were issued and outstanding. The transfer agent for the shares is
Atlas Stock Transfer Co., 5899 South State Street, Salt Lake City, Utah 84107,
telephone (801) 266-7151.
The Company has never paid cash dividends on its common stock and does
not anticipate that any cash dividends will be paid in the foreseeable future.
The future dividend policy will depend on the Company's operating results,
capital requirements, expansion plans, financial condition and other relevant
factors.
5
Sales of Unregistered Securities
On July 21, 2000, the Company acquired IRIS, a provider of productivity
software to real estate professionals and issued 500,000 shares of its common
stock, along with $25,000 in cash at that time. The Company then issued 400,000
shares of its common stock on January 9, 2001 and 2,500,000 shares of common
stock on February 28, 2001 to complete the acquisition. The shares of common
stock were valued at $2.6 million. The owners of IRIS were accredited investors
or otherwise had such experience in financial and business matters so that they
were able to evaluate the risks and merits of an investment in the Company, and
had access to or otherwise were provided with financial and other information
concerning the Company. In addition, the certificates representing the shares
issued to them contained a legend relating to restrictions on transferability
under the Securities Act. Accordingly, this transaction was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 506 of the rules and regulations thereunder.
In October 2000, the Company issued 199,203 shares of its common stock
to the prior owners of IMCO. This consideration was payable pursuant to the
purchase agreement on the one-year anniversary of the acquisition of IMCO. In
November 2000, the Company issued 700,000 shares of common stock to the prior
owners of Terradatum as required by the purchase agreement for the acquisition
of Terradatum. The Company also issued in November 2000 and January 2001, a
total of 1,284,146 shares of common stock to a corporation in payment of
$1,000,000 of a liability incurred pursuant to the Terradatum purchase
agreement. In December 2000, the Company issued 106,948 shares of common stock
to the prior owners of Connect2Call as required by the purchase agreement for
the acquisition of Connect2Call. In February 2001, the Company issued 2,200,000
shares of its common stock to the prior owners of ISG pursuant to an amendment
to the original purchase agreement, representing a settlement of total shares to
be issued under the purchase agreement. The individuals and companies were
accredited investors or otherwise had such experience in financial and business
matters so that they were able to evaluate the risks and merits of an investment
in the Company, and had access to or otherwise were provided with financial and
other information concerning the Company. In addition, the certificates
representing the shares issued to them contained a legend relating to
restrictions on transferability under the Securities Act. Accordingly, these
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof or Rule 506 of the rules and regulations
thereunder.
During the year ended June 30, 2001, the Company issued an additional
94,699 shares of its common stock valued at approximately $189,000 to vendors
and employees for goods and services. The individuals and companies were
accredited investors or otherwise had such experience in financial and business
matters so that they were able to evaluate the risks and merits of an investment
in us, and had access to or otherwise were provided with financial and other
information concerning us. In addition, the certificates representing the shares
issued to them contained a legend relating to restrictions on transferability
under the Securities Act. Accordingly, these transactions were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 506 of the rules and regulations thereunder.
During the year ended June 30, 2001, the Company issued warrants to
purchase a total of 375,106 shares of common stock to individuals and companies
for services valued at $496,000, at exercise prices ranging from $.40 to $3.00
per share. The Company also issued warrants to purchase a total of 1,925,000
shares of common stock to individuals for interest expense, debt extension and
penalty fees valued at $765,000, at exercise prices ranging from $.19 to $.80
per share. In addition, the Company issued warrants to purchase a total of
1,200,000 shares of common stock to eBay Inc. in connection with an operating
agreement with that company, at an exercise price of $1.50 per share. The
Company issued warrants to purchase a total of 930,000 shares of common stock to
individuals and companies in equity fund raising activities, at exercise prices
ranging from $.19 to $.40 per share. The Company issued warrants to purchase a
total of 200,000 shares of common stock to members of our Board of Directors at
an exercise price of $.59 per share. The individuals and companies were
accredited investors or otherwise had such experience in financial and business
matters so that they were able to evaluate the risks and merits of an investment
in us, and had access to or otherwise were provided with financial and other
information concerning us. In addition, the certificates representing the shares
issued to them contained a legend relating to restrictions on transferability
under the Securities Act. Accordingly, these transactions were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
or Rule 506 of the rules and regulations thereunder.
On October 25, 2001, the Company entered into the following
transactions with Fidelity: (i) a revolving promissory note of $3,000,000,
convertible into shares of the Company's common stock at $0.10 per share and
(ii) a stock purchase warrant. The note is currently convertible into 30,000,000
shares of the Company's common stock; however, the aggregate potential equity
represented in the Note and the Warrant is 25% of the Company's outstanding
Common Stock. To the extent the Note is not converted to a number of shares of
common Stock representing a 25% equity stake in the Company, the Warrant is
exercisable to bring Fidelity's beneficial ownership to as much as 25% of the
outstanding shares of Common Stock. These transactions were exempt from
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
6
Item 6. Selected Financial Data.
(Amounts in thousands, Six-months Ended -----------------Year Ended June 30-----------------
except per share data) December 31, 2001 2001 2000 1999 1998
------------------------------- ----------------- ---------- ---------- ---------- ----------
Revenues $6,035 $17,392 $11,090 $3,419 $1,666
------------------------------- ----------------- ---------- ---------- ---------- ----------
Net loss (11,966) (51,627) (25,034) (4,842) (2,796)
------------------------------- ----------------- ---------- ---------- ---------- ----------
Basic and diluted net
loss per common share (0.25) (1.66) (1.47) (0.53) (0.50)
------------------------------- ----------------- ---------- ---------- ---------- ----------
Total assets 2,879 8,723 40,026 16,889 1,898
------------------------------- ----------------- ---------- ---------- ---------- ----------
Long-term liabilities 3,671 1,758 1,015 383 140
------------------------------- ----------------- ---------- ---------- ---------- ----------
Cash dividends declared None None None None None
------------------------------- ----------------- ---------- ---------- ---------- ----------
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations.
The following discussion of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report. This Form 10-K
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that involves risks and uncertainties,
such as statements of the Company's plans, objectives, expectations and
intentions. When used in this Form 10-K, the words "expects," "anticipates,"
"intends" and "plans" and similar expressions are intended to identify
forward-looking statements. The cautionary statements made in this Form 10-K
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. Actual results could differ materially
from those discussed in or implied by this Form 10-K. The Company does not
intend to update any of the forward-looking statements after the date of this
filing to conform those statements to actual results. Factors that could cause
or contribute to such differences include those discussed below.
Overview
On February 13, 2002, the Company announced a change in its fiscal year
end from June 30 to December 31. The change was effective for the six-month
period ended December 31, 2001. The Company had previously released results for
the three months ended September 30, 2001. The comparisons in this transition
report will be for the six-month period ended December 31, 2001 and the
twelve-month periods ended June 30, 2001 and 2000.
As discussed elsewhere in this Form 10-K, the Company has experienced
recurring losses from operations and has an accumulated deficit of approximately
$104.5 million at December 31, 2001. Similarly, the Company has a significant
working capital deficit and limited cash reserves. Because of these factors, the
reports of the independent auditors on our consolidated financial statements for
the six-months ending December 31, 2001 and the year ended June 30, 2001
includes an explanatory paragraph indicating there is substantial doubt about
the Company's ability to continue as a going concern.
In October, 2001 the Company borrowed $3.0 million to pay off certain
existing debt and for working capital needs. In December 2001 the Company sold
its MLS operating division generating net cash available for working capital
purposes of approximately $1.7 million. Since November 2001, the Company has
moved quickly to reduce its fixed operating expenses and consolidate its
operations into one location. In a press release dated March 12, 2002, the
Company announced that, for the first time in its history, it was generating
revenues and cash flows sufficient to cover current operating needs. However, as
noted above, the Company continues to maintain a significant working capital
deficit from its prior activities and has inadequate cash reserves to fully
satisfy its existing trade debts. The Company is continuing in its efforts to
further increase sales revenues, reduce operating expenses, and develop methods
for reducing its existing trade debts and liabilities. See "Liquidity and
Capital Resources." The Company may consider obtaining additional debt or equity
financing. Similarly, the Company may consider entering into other arrangements
or business combinations that would provide the Company with incremental working
capital, increased sales opportunities, or redundant cost savings.
The Company is operating with a new management team and has undertaken
a significant restructuring of its operations. There can be no assurances that
the Company will be able to sustain profitable operations or that the Company
can develop a plan that will adequately satisfy its trade creditors and debt
holders. If the Company is unable to achieve these results or otherwise cannot
obtain additional financing on acceptable terms, it is likely that the Company
would cease operations. See "Risk Factors and Cautionary Statement Regarding
Forward-Looking Information."
7
Results of Operations
Business acquisitions and comparability
During the three years ended June 30, 2001, the Company developed its
family of products and services through a series of business acquisitions, asset
purchases and strategic alliances. Many of these transactions were accomplished
through the issuance of equity securities beginning late in during the fiscal
year ended June 30, 1999, continuing through fiscal 2000, and into the first
quarter of the year ended June 30, 2001. During the year ended June 30, 2001,
the Company expended efforts and financial resources to combine and restructure
the operations of its business acquisitions and its ongoing businesses including
the sale or closing of all publishing operations during the latter part of the
year. Similarly, during the six-months ended December 31, 2001, the Company sold
its MLS operating division, and revenues and expenses recognized from that
division do not extend across the entire six-month period. Also, certain
categories of revenue and expense may be dissimilar between periods due to
differing accounting systems between entities. Accordingly, the operating
results for each of the fiscal years ended June 30, 2001 and 2000 and the
six-months ended December 31, 2001 are not comparable.
Revenues
For the six-months ended December 31, 2001, software sales and license
revenues were $3.1 million or 51.8% of total revenues. Website hosting and web
page development revenues were $2.1 million or 34.4% of total revenue.
Programming, custom development, and portal revenues were $655,000 or 10.9% of
total revenues. The Company attributes an overall decrease in revenues to the
Company's lack of capital resources and minimal marketing efforts during the
period. The Company anticipates that revenues attributable to programming,
custom development and network hosting activities may increase in the
foreseeable future due to new initiatives and expanded efforts for those
products and services.
Revenues increased from $11.1 million in fiscal 2000 to $17.4 million
in fiscal 2001. Growth in revenues resulted from significant increases in two
areas: (1) programming and licensing and (2) Web page development and
Website-related revenues. Programming and licensing revenues increased from $3.1
million in fiscal 2000 to $7.5 million in fiscal 2001, principally due to the
acquisitions of ISG in April 2000 and IRIS in July 2000. Also contributing to
this increase in fiscal 2001 was approximately $371,000 in additional revenues
recognized from XMLS Web contracts. Web page development and Website-related
revenues increased from $4.6 million in fiscal 2000 to $5.7 million in fiscal
2001 primarily due to continued growth of our telemarketing and field sales
programs. We also experienced an increase in publishing revenues of
approximately $702,000 in fiscal 2001, primarily due to inclusion in operations
of HomeSeekers Magazines, Inc., which was acquired in February 2000, for most of
fiscal 2001. However, all publishing operations were sold or closed during the
latter part of fiscal 2001, and no publishing revenues are anticipated in the
future.
Cost of revenues
Cost of revenues decreased from $13.6 million during the year ended
June 30, 2001 to $2.9 million during the six-months ended December 31, 2001 as
the Company ceased or was unable to allocate financial resources to its sales
efforts. Similarly, the Company discontinued its printing operations between
periods which had a significantly higher cost of sale. Cost of revenues
increased from $9.4 million in fiscal 2000 to $13.6 million in fiscal 2001, due
primarily to the increase in business in fiscal 2001.
Operating expenses
Operating expenses during the six-months ended December 31, 2001
totaled $14.7 million. In general, operating expenses were on a steep decline at
the end of the period as the Company further reduced its employee base and fixed
operating costs. Included in operating expenses was approximately $5.2 million
attributable to separation and settlement agreements with three of the Company's
former officers and directors and an additional $1 million attributable to the
further write-down of intangible assets.
Operating expenses increased from $27.2 million in fiscal 2000 to $53.1
million in fiscal 2001 in part because of additional operating expenses
associated with acquisitions completed near the end of fiscal 2000 and the first
month of fiscal 2001. In addition, the Company was involved in restructuring
activities during the third and fourth quarters of fiscal 2001 including the
discontinuance of its publishing operations, the closing of certain operating
locations and consolidation of operating divisions.
The Company recorded a $20.1 million write-down of investments and
purchased intangible assets during fiscal year 2001. After careful assessment of
various factors relating to its intangible assets, including the Company's
decision to discontinue its publishing operations in the third quarter and
consolidation and restructuring of other acquired businesses primarily in the
fourth quarter, management determined it was appropriate to write down the value
of these assets. Accordingly, such assets were written down by a total of $13.3
million for the year to estimated fair value based on estimated discounted net
cash flows for the operating entities that had separately identifiable cash
flows in accordance with SFAS No. 121. The cash flow periods used were 3 years
with a discount rate of 15 percent which are assumptions that reflect
management's best estimates. The Company wrote off its remaining investment in
its foreign affiliate during the third and fourth quarters of fiscal 2001 as a
result of its affiliate's inability to raise capital or generate profitable
operations. The Company also wrote off the remaining $1.7 million of its
investment in the common stock of BuySellBid.com during fiscal 2001 due to its
continuing losses and the uncertainty of further recovery on the investment.
8
For the six-months ended December 31, 2001, compensation and related
costs totaled $7.4 million. Compensation expense and related costs increased
from $9.6 million in fiscal 2000 to $15.9 million in fiscal 2001, primarily
because of the additional personnel associated with the acquisitions completed
near the end of fiscal 2000 and during the first month of fiscal 2001. Employee
headcount included in operating expenses was approximately 231 at the beginning
of fiscal 2001. Restructuring efforts during 2001 and into 2002 included
headcount reductions as facilities were closed and divisions combined. As a
result of these efforts, employee headcount included in operating expenses was
82 as of March 20, 2002. In connection with these headcount reductions,
significant severance and employee termination costs were incurred during fiscal
2001 and the Company recognized a non-cash expense of $2.3 million in the fourth
quarter of fiscal 2001 due to the repricing of employee stock options.
For the six-months ended December 31, 2001 facilities expenses totaled
$583,000. Facilities expenses increased from $1.8 million in 2000 to $2.7
million in 2001 because of acquisitions between periods. Travel, trade shows and
related expenses decreased from $4.1 million in 2000 to $1.6 million in 2001 and
promotion and marketing expenses decreased from $2.9 million in 2000 to $2.1
million in 2001 primarily due to the limited operating funds available for these
activities. For the six-months ended December 31, 2001, expenses attributable to
these activities were less than $500,000.
Depreciation and amortization expense increased from $2.4 million in
fiscal 2000 to $5.4 million in fiscal 2001 because of the property and equipment
and purchased intangible assets acquired late in fiscal 2000 and early fiscal
2001. A substantial portion of the assets attributable to these acquisitions
were disposed of or written down during 2001. Accordingly, depreciation and
amortization expense was $1.7 million for the six-months ended December 31,
2001.
Liquidity and Capital Resources
The Company has limited cash reserves and a working capital deficit of
over $11.4 million at December 31, 2001. The Company stated in its Annual Report
on Form 10-K for the year ended June 30, 2001, and as filed on October 12, 2001,
that it had run out of cash, was unable to fully-fund its payroll on October 10,
2001, and would have to consider curtailing or ceasing its operations including
the possibility of filing bankruptcy. The Company further noted that in the
event outside financing in the form of debt or equity was not obtained within
the next several weeks, it might be required to curtail or cease operations.
On October 25, 2001, the Company entered into a loan agreement with
Fidelity which ultimately totaled $3,000,000. The loan enabled the Company to
pay off certain existing debt so as to release lenders' liens on certain assets
being purchased by FNIS and provided the Company with a limited amount of
working capital which was quickly absorbed in operations. Similarly, on October
25, 2001 the Company entered into an agreement with FNIS whereby FNIS would
acquire certain assets of the Company representing its MLS operations for a
total purchase price of $2,000,000. The purchase was consummated on December 3,
2001 generating net cash available for working capital purposes of approximately
$1.7 million.
Since November, 2001, the Company has moved quickly to reduce its fixed
operating expenses and consolidate its operations into one facility in Brea,
California. In a press release dated March 12, 2002, the Company announced that,
for the first time in its history, it was generating revenues and cash flows
sufficient to cover current operating needs. However, the Company continues to
maintain a significant working capital deficit from its prior activities and has
inadequate cash reserves to fully satisfy its existing trade debts.
Accordingly, because of the Company's significant net losses, working
capital deficit, accumulated deficit and uncertainty as to its ability to secure
additional financing, the report of the independent auditors on the consolidated
financial statements contains an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern.
This uncertainty is further discussed in Note 2 of the notes to the consolidated
financial statements.
During the year ended June 30, 2001 and through the six-months ended
December 31, 2001, the operations of the Company were partly funded through the
issuance of equity securities. As a result of these issuances, the stockholders
experienced significant dilution. The Company's note agreement with Fidelity
contains conversion features that, if converted, would significantly reduce the
percentage ownership of the current stockholders. Similarly, the agreement with
Fidelity includes a purchase warrant such that the aggregate potential equity
represented in the note and the warrant is 25% of the Company's outstanding
common stock. To the extent the note is not converted to a number of shares of
common stock representing a 25% equity stake in the Company, the warrant is
exercisable to bring Fidelity's beneficial ownership to as much as 25% of the
outstanding shares of common stock. Fidelity has the sole right to receive or
the power to direct the receipt of dividends from, or proceeds from the sale of,
the shares of the Company's common stock issuable upon the exercise of the note
and the warrant. If additional funds are raised through the issuance of equity
or convertible securities, the percentage ownership of the stockholders will
continue to be reduced, the stockholders will experience additional material
dilution and such securities may have rights, preferences or privileges senior
to those of the existing stockholders. It is also likely that the Company may be
required to issue warrants for the purchase of common stock in any such
financing, which may result in additional dilution. Furthermore, there can be no
assurance that additional financing will be available when needed or that, if
available, such financing will include terms favorable to the Company or its
stockholders. If such financing is not available when required or is not
available on acceptable terms, the Company may not be able to meet its operating
obligations and the Company may be forced to cease operations. See "Risk Factors
and Cautionary Statement Regarding Forward-Looking Information" below.
9
At December 31, 2001 the Company's cash balance was $1.2 million
compared to $1.4 million at June 30, 2001, a decrease in cash of $200,000. Also
at December 31, 2001, the Company had an accumulated deficit of approximately
$104.5 million, current liabilities exceeded current assets by $11.4 million,
and total liabilities exceeded total assets by $13.7 million. Included in
current liabilities at December 31, 2001 are significant amounts of past due
accounts payable and short-term debt. The Company is currently in default under
a $500,000 note payable to one of its former officers that became due in April
2001. Pursuant to the note, the Company is obligated to issue warrants to
purchase 100,000 shares of common stock each week until all principal and
interest is repaid. Long-term liabilities at December 31, 2001 included
$3,000,000 for a note payable to Fidelity which matures on April 24, 2003. At
June 30, 2001, long-term liabilities were primarily comprised of deferred
revenues.
The Company has experienced negative cash flows from operations from
inception. Net cash used in operating activities during the six-months ended
December 31, 2001 was $3.7 million compared to $10.3 million in fiscal 2001 and
$12.5 million in fiscal 2000. As shown in the consolidated statement of cash
flows for the six-months ended December 31, 2001 and for the year ended June 30,
2001, a significant portion of operating expenses were non-cash, including write
downs of assets, compensation expense from option repricings and common stock
and warrants issued for services and interest.
Net cash provided from investing activities during the six-months ended
December 31, 2001 was $1.7 million of which virtually all of this was from the
sales of the Company's MLS operation to FNIS. Net cash provided from investing
activities during fiscal 2001 was $786,000, with $1.3 million provided by the
sale of investments, $354,000 from the sale of intangible assets, $157,000 from
payments on notes receivable, and $200,000 received from our foreign affiliate,
net of $1.0 million used to acquire property and equipment and $212,000 used to
acquire technology and other intangible assets.
The Company generated net cash provided by financing activities of $1.8
million during the six-months ended December 31, 2001, of which all but $10,000
was from debt offerings. Operations were partially funded in fiscal 2001 from
the net proceeds of $7.5 million from the sale of common stock and warrants and
the exercise of options and warrants and from proceeds of debt of approximately
$2.0 million. The Company repaid debt of $569,000 during fiscal 2001, much of
which was assumed from business acquisitions.
Risk Factors and Cautionary Statement Regarding Forward-Looking Information
Investors are cautioned that this Form 10-K contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties, including the following: (1) the
Company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of management and the Board of
Directors; (2) the Company's plans and results of operations will be affected by
its ability to manage any growth and working capital and its ability to finance
future operations, none of which is assured; and (3) the Company's business is
highly competitive and the success of existing or new competitors in the markets
in which the Company competes could adversely affect the Company's plans and
results of operations. In addition, the Company identifies the risk factors
discussed below that may affect the Company's actual results and may cause
actual results to differ materially from that expressed in or implied by any
forward-looking statement. The factors represented below are not represented to
be an exhaustive list. Additional factors are discussed from time to time in the
Company's filings with the Securities and Exchange Commission.
10
The report of our independent auditors expresses substantial doubt
about the Company's ability to continue as a going concern, and indicates the
Company may have to consider curtailing or ceasing operations, including the
possibility of filing bankruptcy.
The Company stated in its Annual Report on Form 10-K for the year ended
June 30, 2001, and as filed on October 12, 2001, that it had run out of cash,
was unable to fully-fund its payroll on October 10, 2001, and would have to
consider curtailing or ceasing its operations including the possibility of
filing bankruptcy. The Company further noted that in the event outside financing
in the form of debt or equity was not obtained within the next several weeks, it
might be required to curtail or cease operations.
On October 25, 2001 the Company entered into a loan agreement with
Fidelity which ultimately totaled $3,000,000. The loan enabled the Company to
pay off existing debt so as to release lenders' liens on certain assets being
purchased by FNIS and provided the Company with a limited amount of working
capital which was quickly absorbed in operations. Similarly, on October 25, 2001
the Company entered into an agreement with FNIS whereby FNIS would acquire
certain assets of the Company representing its MLS operations for a total
purchase price of $2,000,000. The purchase was consummated on December 3, 2001
generating net cash available for working capital purposes of approximately $1.7
million.
Since November, 2001, the Company has moved quickly to reduce its fixed
operating expenses and consolidate its operations into one facility in Brea,
California. In a press release dated March 12, 2002, the Company announced that,
for the first time in its history, it was generating revenues and cash flows
sufficient to cover current operating needs. However, the Company continues to
maintain a significant working capital deficit from its prior activities and has
inadequate cash reserves to fully satisfy its existing trade debts.
Accordingly, because of the Company's significant net losses, working
capital deficit, accumulated deficit and uncertainty as to its ability to secure
additional financing, the report of the independent auditors on the consolidated
financial statements contains an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern.
This uncertainty is further discussed in Note 2 of the notes to the consolidated
financial statements.
The Company may not be able to obtain additional financing for its
current and future operating and capital needs.
Historic operations have consumed substantial amounts of capital. The
business is capital intensive, particularly with respect to product development
costs associated with the design and creation of software and web based
products. Public or private financing may not be available when needed or may
not be available on terms favorable or acceptable to us, if at all. If the
Company is unable to obtain financing in the near future, or it is not available
on acceptable terms, we will be limited in our ability to implement our
operating plans and meet operating obligations. Should this occur, it is
possible that we would cease operations.
The stockholders have experienced and may continue to experience
significant dilution.
In order to fund its operations, the Company has issued a substantial
number of equity securities. Coupled with a decreasing stock price, these
issuances have had a substantial dilutive effect on the stockholders. Any future
issuances would continue to reduce the percentage ownership of the stockholders
and the stockholders will experience material dilution.
Sales of a substantial number of shares of common stock into the public
market, or the perception that those sales could occur, could adversely affect
the Company's stock price or could impair its ability to obtain capital through
an offering of equity securities. Any decline in stock price could force us to
issue even more securities to raise capital or to fund our business, resulting
in even greater dilution to our stockholders.
The number of authorized shares of common stock is not sufficient to
meet outstanding obligations to issue common stock and does not permit the
Company to raise additional capital through the issuance of common stock.
As of March 20, 2002 the Company had 48,954,561 shares of common stock
outstanding. In addition, as of that date there were options to purchase
3,004,493 shares of common stock and warrants to purchase 16,745,556 shares of
common stock outstanding. Similarly, in connection with the loan from Fidelity,
the Company issued a note payable to Fidelity that is convertible into
30,000,000 shares of the Company's common stock. The aggregate potential equity
represented in the note and related warrant is 25% of the Company's outstanding
common stock. To the extent the Note is not converted to a number of shares of
common Stock representing a 25% equity stake in the Company, the warrant is
exercisable to bring Fidelity's beneficial ownership to as much as 25% of the
outstanding shares of common stock. The Company also has a number of other
commitments to issue common stock and securities convertible into common stock
in the future. The Company's Articles of Incorporation currently authorize the
issuance of 50,000,000 shares of common stock. Therefore, before it can issue
common stock upon the exercise of options or warrants or in accordance with
other obligations, the Company must increase the number of authorized shares of
common stock.
11
Any increase in the authorized capital requires an amendment to the
Articles of Incorporation, which must be approved by the stockholders. The
Company has begun preparation of a proxy statement for a meeting of the
stockholders that could be held at the earliest in June or July 2002, at which
the Company will seek approval to increase the authorized number of shares of
common stock in an amount necessary to meet the existing obligations. If the
Company does not timely receive approval of this increase, it may be forced to
default on some of its obligations. The Company relied heavily on the issuance
of common stock in the past funding of its operations. If it does not increase
the number of shares available for issuance, the Company will not be able to
issue stock to fund its business operations. Additionally, it will not be able
to issue common stock to raise capital in the future until an increase is
approved and effected.
The Company is not profitable and may continue to record losses for the
foreseeable future.
The Company recorded a net loss of $12.0 million for the six-months
ended December 31, 2001, a net loss of $51.6 million for the year ended June 30,
2001 and had an accumulated deficit as of December 31, 2001 of $104.5 million.
Although it has significantly reduced its fixed operating expenses and is
generating positive cash flows, the Company may record net losses in the future
due to non-cash expenditures or unexpected shortfalls in sales activity. By
necessity, future expenses will include additional product development expenses,
sales and marketing costs, general and administrative expenses. The Company may
incur additional acquisition costs and additional restructuring costs. There can
be no assurance that the Company will maintain sufficient revenues to offset
anticipated operating and acquisition costs. The Company may not achieve
sustained profitability. If it fails to sustain or increase profitability, our
business, operating results and financial condition will be materially harmed
and we could be forced to cease operations.
Market competition among existing and potential competitors may
adversely affect our business.
The market for on-line real estate content and e-commerce providers is
rapidly evolving and highly competitive, and competition is expected to
intensify in the future. Our failure to maintain and enhance our competitive
position could seriously harm our business. The technological and other
requirements to remain competitive are changing continually, and we must be able
to respond to changes in the industry in order to remain competitive. Our
competitors vary in size and in the scope and breadth of products and services
they offer.
Our principal competitors for real estate professionals, homebuyers,
sellers and renters and related content include:
Websites offering real estate listings together with other
related services, such as Homestore.com, Homes.com,
Apartments.com, CyberHomes, HomeHunter.com, iOwn, LoopNet,
Microsoft's HomeAdvisor, NewHomeNetwork.com and RentNet;
Websites offering real estate related content and services such
as mortgage calculators and information on the home buying,
selling and renting processes;
General-purpose consumer Websites such as AltaVista and Yahoo!
that also offer real estate-related content on their site; and
Traditional print media such as newspapers and magazines.
Our principal competitors for advertising revenues include:
Web portals and other general purpose consumer Websites such as
AltaVista, America Online, Excite, Lycos, Netscape's Netcenter
and Yahoo!;
Online ventures of traditional media and classified advertising
services offered through daily and other newspapers' Websites;
and
Traditional media such as newspapers, magazines and television.
12
The barriers to entry for Web-based services and businesses are low,
making it possible for new competitors to proliferate rapidly. In addition,
parties with whom we have listing and marketing agreements could choose to
develop their own Internet strategies or competing real estate sites upon the
termination of their agreements with us. Many of our existing and potential
competitors have longer operating histories in the Internet market, greater name
recognition, larger consumer bases and significantly greater financial,
technical and marketing resources than we do, and thus could respond more
quickly to changing opportunities, technology and consumer demands. Also, some
of our current and potential competitors have better name recognition and more
extensive customer bases that may allow them to gain additional market share to
our detriment. These competitors may be able to undertake more extensive
promotional activities and adopt more competitive pricing policies for
advertising and goods and services than we can. In addition, our competitors,
especially those with greater resources than we have, could significantly
enhance their product offerings by developing improved technology solutions or
offering daily updates of listings. This could significantly reduce or eliminate
any competitive advantage we currently might have and, accordingly, could
significantly harm our business.
Competitive pressures may make it difficult for us to acquire market
share.
We cannot be certain that we will be able to compete successfully with
existing or new competitors. If we fail to compete successfully against current
and future competitors, our business and prospects will be seriously harmed.
We must continue to obtain listings from real estate agents, brokers,
homebuilders, multiple listing services and property owners.
We believe that our success depends in large part on the number of real
estate listings received from agents, brokers, homebuilders, MLSs and
residential, rental and commercial property owners. Many of the original
agreements with the MLSs, brokers and agents to display their property listings
had fixed fees per listing and fixed terms, typically 12 to 30 months. The
Company is currently delinquent on payments to many of these providers and they
may choose not to continue to provide the listing information to us. The Company
is in the process of developing and entering into new agreements with these
providers that are intended to satisfy past claims, provide more flexibility in
the payment terms, and deliver more value to the providers for the listing data.
However, there can be no assurance that the Company will be successful in these
efforts or that the listing data providers will accept the new terms and
provisions of these agreements. Accordingly, our business would be harmed.
In addition, some providers of listing data may choose to provide their
listings to one or more competitors on an exclusive basis. In particular, at
least one competitor has entered into exclusive listing arrangements with a
significant number of MLSs and, in order for us to display listings covered by
this arrangement, we must seek the consent of the individual broker who provided
these listings to the MLS. These listings can be more difficult to obtain and
involve more recruiting costs to acquire them and our use of these listings
could potentially subject us to claims by the parties to these exclusive listing
arrangements. If our competitors are successful in increasing the number of
exclusive listing arrangements with MLSs or large groups of brokers, we may be
limited in the number of listings we are able to display on our Website and our
business may be harmed. We have expended significant amounts to secure
agreements for listings of real estate for sale and may be required to spend
additional large amounts or offer other incentives in order to renew these
agreements. If owners of large numbers of property listings, such as large
brokers, MLSs, or property owners in key real estate markets choose not to renew
their relationship with us, our Website could become less attractive to other
real estate industry participants or consumers.
Quarterly financial results are subject to significant fluctuations.
Our results of operations could vary significantly from quarter to
quarter. The Company is substantially dependent on sales of its software and
website products and services. We also expect to incur significant sales and
marketing expenses to promote our brand and services. Therefore, our quarterly
revenues and operating results are likely to be particularly affected by the
number of customers purchasing our products and services as well as sales and
marketing expenses for a particular period. If revenues fall below our
expectations, we may not be able to reduce our spending rapidly in response to
the shortfall.
Other factors that could affect our quarterly operating results include
the following:
the amount of advertising sold on our Website and the timing of
payments for this advertising;
the level of renewals for our products and services by real
estate agents and brokers;
the amount and timing of our operating expenses and capital
expenditures;
costs related to acquisitions of businesses or technologies;
changes in the mix of products and services we sell; and
increased sales, marketing, administrative and research and
development expenses.
13
Accordingly, we believe that period-to-period comparisons of our
operating results may not be meaningful, and you should not rely on these
comparisons as an indication of our future performance.
Our success will depend on the continuing contribution of key
management personnel and the attraction and retention of qualified employees.
Our operations depend on the continuing contribution of key personnel.
Our future success and continued viability depends on the continued services of
our senior strategic, technical and operations personnel. Their near-term
departure could have a significant adverse effect on our business, financial
condition and results of operations.
The Company must attract and retain personnel while competition for
personnel in the industry is intense. Given our financial condition, we may be
unable to retain our key employees or to attract, assimilate or retain other
highly qualified employees. If we do not increase the number of authorized and
issuable shares to accommodate employee incentive stock options, we may have
significant difficulty in attracting and retaining highly qualified employees
and executive officers. We have from time to time in the past experienced, and
we expect in the future to again experience, difficulty in hiring and retaining
highly skilled employees with appropriate qualifications as a result of growth
and expansion. Attracting and retaining qualified personnel with experience in
the real estate industry, a complex industry that requires a unique knowledge
base, is an additional challenge for us. If we do not succeed in retaining and
motivating our current personnel, our business, financial condition and results
of operations will be adversely affected.
The Company may not be able to adapt to evolving technologies and
customer demands, which could cause our business to suffer.
The Company maintains and operates complex network data and hosting
systems which the Company believes are technologically superior to its
competition. The Company must continually upgrade and enhance these systems
while continuing to develop its real estate portal content and desktop product
and service offerings. To remain competitive, the Company must expend necessary
capital on development efforts which may require us to develop internally or to
license increasingly complex technologies. In addition, many companies are
continually introducing new Internet-related products, services and
technologies, which will require us to update or modify our technology.
Developing and integrating new products, services or technologies into our
business could be expensive and time consuming. Any new features, functions or
services so developed may not achieve market acceptance or enhance our brand
loyalty. If we fail to develop and introduce or acquire new features, functions
or services effectively and on a timely basis, we may not continue to attract
new customers and may be unable to retain our existing users. Furthermore, we
may not succeed in incorporating new technologies into our products and services
even though, in order to do so, we may incur substantial expenses.
Our prior business acquisitions and any future acquisitions may not
result in achieving the desired benefits of the transactions.
A significant part of the Company's business strategy from 1999 and
into the earlier part of 2001 was the acquisition of businesses and
technologies. A number of these acquisitions were not successful for various
reasons. The success of acquisitions is subject to many risks, and the reasons
for failure include:
The inability to assimilate the operations of the acquired
businesses;
The disruption of the existing businesses;
The addition of significant additional expenses;
The assumption of unknown liabilities and litigation;
The inability to integrate, train, retain and motivate personnel
of the acquired businesses;
The diversion of existing management from day-to-day operations;
The inability to incorporate acquired products, services and
technologies successfully into existing product lines;
The difficulty in identifying good acquisitions;
The potential impairment of relationships with employees,
customers and strategic partners; and
The inability to maintain uniform standards, controls procedures
and policies.
14
The Company's inability to successfully address these risks adversely
affected its business, financial condition and results of operations. During the
year ended June 30, 2001 and again during the six-months ended December 31,
2001, the Company incurred significant expenses relating to the discontinuance
of various operations, the impairment and write-down of intangible assets, and
the restructuring and consolidation of other operating divisions.
The Company depends upon a number of third-party relationships, many of
which are short-term or terminable, to provide the Company with content to
generate revenue.
The Company depends on a number of third-party relationships to provide
content and increase traffic on HomeSeekers.com and ultimately generate
revenues. Outside parties include unrelated Website operators that provide links
to HomeSeekers.com and providers of real estate content. Many relationships with
third-party Websites and other third-party service providers are not exclusive
and are short-term or may be terminated at the convenience of either party. The
Company is not assured that third parties regard the relationship with them as
important to their respective businesses and operations. They may reassess their
commitment at any time in the future and may develop competitive services or
products.
The Company cannot assure that it will be able to maintain
relationships with third parties that supply content, related products, or
services that are crucial to our success, or that such content, products or
services will be able to sustain any third-party claims or rights against their
use. The Company is currently in default of many of its contracts with third
parties that are considered crucial to its business. Also, the Company cannot
assure that the content, products or services of those companies that provide
access or links to our Website will achieve market acceptance or commercial
success. Accordingly, there is no assurance that existing relationships will
result in sustained business partnerships, successful product or service
offerings or the generation of revenues.
There are substantial risks associated with the protection of our
intellectual property and the infringement of the intellectual property rights
of third parties.
Our success is dependent upon the intellectual property that we use in
our business. We regard our Internet domain name, copyrights, service marks,
trademarks, trade secrets and similar intellectual property that we use in our
business as critical to our success. We rely on a combination of copyright,
trademark and trade secret laws, confidentiality procedures, contractual
provisions and license and other agreements with employees, customers and others
to protect our intellectual property rights. In addition, we may also rely on
the third party owners of the intellectual property rights we license to protect
those rights. Effective Internet domain name, copyright, service mark, trademark
and trade secret protection may not be available in every country in which our
products and services are made available online. The steps taken by us and other
third parties to protect our intellectual property rights may not be adequate,
and third parties may infringe upon or misappropriate the intellectual property
and similar proprietary rights used in our business, which could have an adverse
effect on our business, financial condition and results of operations.
We are also subject to the risk of adverse claims and litigation
alleging infringement of the intellectual property rights we use. The resolution
of any infringement claims may result in lengthy and costly litigation.
Moreover, resolution of a claim may require us to obtain a license to use those
intellectual property rights or possibly to cease using those rights altogether.
Any of those events could have a material adverse effect on our business,
financial condition and results of operations.
Our ability to operate in international markets may be adversely
affected by foreign political and economic conditions.
Our international business is subject to a number of risks associated
with doing business abroad. Although we have to date marketed our products and
services to brokers, agents, and other real estate professionals located outside
of North America on a limited basis, we may market our Website and products and
services on a more extensive global basis. Expansion into new international
markets may present competitive challenges different from those we currently
face. There can be no assurance that we will expand internationally or that any
such expansion will result in profitable operations.
15
Our business is dependent on the strength of the real estate industry,
which is both cyclical and seasonal.
The real estate industry traditionally has been cyclical. Economic
swings in the real estate industry may be caused by various factors. When
interest rates are high or general national and global economic conditions are
or are perceived to be weak, there typically is less sales activity in real
estate. Recent reports indicate that the real estate industry may be adversely
affected by a general economic decline and a concern regarding terrorism in the
United States. Purchases of real property and related products and services are
particularly affected by negative trends in the general economy. A decrease in
the current level of sales of real estate and products and services related to
real estate will adversely affect our business, financial condition and results
of operations.
Additionally, the Company has experienced seasonality in its business.
The real estate industry generally experiences a decrease in activity during the
winter. However, it is difficult for us to fully assess the impact of seasonal
factors on our business. If we are unable to effectively manage our resources in
anticipation of any seasonality of revenues and the increased costs we may incur
during periods of lower revenues, our business will be harmed.
The success of our operations depends to a significant extent upon a
number of factors relating to discretionary consumer and business spending and
the overall economy, as well as regional and local economic conditions in
markets where we operate, including perceived and actual economic conditions;
interest rates; taxation policies; availability of credit; employment levels;
and wage and salary levels.
In addition, because a consumer's purchase of real property and related
products and services is a significant investment and is relatively
discretionary, any reduction in disposable income in general may affect us more
significantly than companies in other industries.
Regulations and laws applicable to the real estate industry could have
an adverse impact on our business.
We have risks associated with changing legislation in the real estate
industry. Real estate is a heavily regulated industry in the U.S. These
regulations include the Fair Housing Act, the Real Estate Settlement Procedures
Act and state advertising laws. In addition, states could enact legislation or
regulatory policies in the future that could require us to expend significant
resources to comply. These laws and related regulations may limit or restrict
our activities. As the real estate industry evolves in the Internet environment,
legislators, regulators and industry participants may advocate additional
legislative or regulatory initiatives. Should existing laws or regulations be
amended or new laws or regulations be adopted, we may need to comply with
additional legal requirements and incur resulting costs, or we may be precluded
from certain activities. To date, we have not spent significant resources on
lobbying or related government issues. Any need to significantly increase our
lobbying or related activities could substantially increase our operating costs.
We depend on increased use of the Internet to expand our real estate
related advertising products and services.
If the Internet fails to become a viable marketplace for real estate
content, information and e-commerce, our real estate portal business will not
grow. Broad acceptance and adoption of the Internet by consumers and businesses
when searching for real estate and related products and services will only occur
if the Internet provides them with greater efficiencies and improved access to
information. Internet usage and growth in the real estate industry may be
inhibited for a number of reasons, including: inadequate network infrastructure;
security concerns; uncertainty of legal and regulatory issues concerning the use
of the Internet; inconsistent quality of service; lack of availability of
cost-effective, reliable, high-speed service; and failure of Internet use to
expand internationally.
We depend on continued improvements to our computer network and the
infrastructure of the Internet.
In order to further assure the dependability and rapid response times
of its networks, in March 2002 the Company migrated its systems to a hosting
facility designed and maintained by Qwest Communications International, Inc.
("Qwest"). Although the hosting facility further assures the integrity and
availability of the Company's systems, there can be no guarantees against
failure and any failure of our computer systems that cause interruption or
slower response times on our Website or hosting systems could result in a loss
of Website users and real estate professional customers. If sustained or
repeated, these performance issues could reduce the attractiveness of our
Website to consumers, advertisers, real estate professionals, and other
providers of real estate related products and services. Increases in the volume
of our Website traffic could also strain the capacity of our existing computer
systems, which could lead to slower response times or system failures. This
would cause the number of real property search inquiries, advertising
impressions, other revenue producing offerings and our informational offerings
to decline, any of which could hurt our revenue growth and our brand loyalty.
The Company anticipates incurring additional costs to upgrade its computer
systems in order to accommodate increased demand.
16
To a certain extent, our ability to increase the speed with which we
provide services to consumers and to increase the scope of these services is
limited by and dependent upon the speed and reliability of the Internet.
Consequently, the emergence and growth of the market for our services is
dependent on the performance of and future improvements to the Internet. Our
internal network infrastructure could be disrupted.
We could experience system failures and security breaches that could
harm our business and reputation.
Our operations depend upon our ability to maintain and protect our
computer systems, most of which are now located at the Qwest CyberCenter
facilities in Burbank, California. Our systems are vulnerable to damage from
break-ins, unauthorized access, terrorism, vandalism, fire, floods, earthquakes,
power loss, telecommunications failures and similar events. Although we maintain
insurance against fires and general business interruptions, the amount of
coverage may not be adequate in any particular case.
Experienced computer programmers, or hackers, may attempt to penetrate
our network security from time to time. Although we have not experienced any
material security breaches to date, a hacker who penetrates our network security
could misappropriate proprietary information or cause interruptions in our
services. We might be required to expend significant capital and resources to
protect against, or to alleviate, problems caused by hackers. We also may not
have a timely remedy against a hacker who is able to penetrate our network
security. In addition to purposeful security breaches, the inadvertent
transmission of computer viruses could expose us to litigation or to a material
risk of loss.
We could face liability for information on our Website and for products
and services sold over the Internet.
We provide third-party content on our Website, particularly real estate
listings. We could be exposed to liability with respect to this third-party
information. Persons might assert, among other things, that, by directly or
indirectly providing links to Websites operated by third parties, we should be
liable for copyright or trademark infringement or other wrongful actions by the
third parties operating those Websites. They could also assert that our third
party information contains errors or omissions, and consumers could seek damages
for losses incurred if they rely upon incorrect information.
We enter into agreements with other companies under which we share with
these other companies' revenues resulting from advertising or the purchase of
services through direct links to or from our Website. These arrangements may
expose us to additional legal risks and uncertainties, including local, state,
federal and foreign government regulation and potential liabilities to consumers
of these services, even if we do not provide the services ourselves. There can
be no assurance that any indemnification provided to us in our agreements with
these parties, if available, will be adequate.
Even if these claims do not result in liability to us, we could incur
significant costs in investigating and defending against these claims. Our
general liability insurance may not cover all potential claims to which we are
exposed and may not be adequate to indemnify us for all liability that may be
imposed.
Our common stock has been delisted from the Nasdaq National Market.
In July 2001, our common stock was delisted from trading on the Nasdaq
National Market because our common stock did not meet the requirements for
continued listing. Delisting may negatively impact the value of our common stock
as securities trading on the over the counter market are typically less liquid
and trade with larger variations between the bid and ask price.
The market price for our common stock has been adversely affected by
the general depression of stock prices of Internet-related companies.
The trading prices of many technology and Internet-related companies'
stocks are currently at historical lows. A rise in the market price of our
common stock is partially dependent upon a recovery in the markets for
technology companies. If stock prices for technology companies do not generally
increase, it is likely that our stock price will remain at low levels. During
the same period, these companies' stocks also have recorded lows well below
historical highs. There can be no assurance that our stock will trade at the
same levels of other Internet stocks or that we can sustain our common stock's
trading price.
17
Many of the factors that might cause volatility in the market price of
our common stock are beyond our control. These factors may materially and
adversely affect the market price of our common stock, regardless of how we
operate.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
As of December 31, 2001 the Company was not a party to any significant
financing arrangements that are subject to significant interest rate risk. In
addition, the Company had no material investments as of December 31, 2001, and
therefore was not subject to significant market risks.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Form 10-K appear herein
commencing on page F-1.
Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosures.
(a) Previous independent auditors
(1) On October 16, 2001, Ernst & Young LLP resigned as
independent auditors for HomeSeekers.com, Incorporated.
(2) The reports of Ernst & Young LLP for both the fiscal year
ended June 30, 2000 and 2001 contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to audit scope or accounting
principle. However, both reports contained a paragraph expressing substantial
doubt about the Registrant's ability to continue as a going concern.
(3) Not applicable.
(4) In connection with its audits for the two most recent
fiscal years and through October 16, 2001 there have been no disagreements with
Ernst & Young LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope and procedure, which disagreements if
not resolved to the satisfaction of Ernst & Young LLP, would have caused them to
make reference thereto in their report on the financial statements for such
years.
(5) During the two most recent fiscal years and through
October 16, 2001 there have been no reportable events (as defined in Regulation
S-K Item 304 (a)(1)(v)).
(6) Ernst & Young LLP furnished us with a letter addressed to
the SEC stating whether or not it agrees with the above statements. A copy of
such letter was filed as Exhibit 16.2 to a Form 8-K filed on October 24, 2001.
(b) New independent auditors
(1) The Company engaged Corbin & Wertz as its new independent
auditors as of February 12, 2002. During the two most recent fiscal years and
through February 12, 2002, the Company did not consult with Corbin & Wertz on
items regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion which
might be rendered on the Registrant's financial statements.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors and executive officers of the Company
will be set forth under the captions "Executive Officers" and "Election of
Directors" in the Company's proxy statement related to the Company's annual
meeting of stockholders for the fiscal year ended December 31, 2001 (the "Proxy
Statement") and is incorporated herein by reference. Information required by
Item 405 of Regulation S-K will be set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement and is
incorporated herein by reference.
18
Item 11. Executive Compensation.
Information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this item will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information required by this item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) and (2) All required financial statements and financial
statement schedules appear herein commencing on page F-1.
(3) See Exhibit Index following the signature page of this Form
10-K.
(b) Reports on Form 8-K:
(1) The Company filed a Current Report on Form 8-K on October
23, 2001 reporting the resignations of three of its members
of the board of directors including its Chairman, Joseph
Harker.
(2) The Company filed a Current Report on Form 8-K on October
24, 2001 reporting a change in its certifying accountants
due to the resignation of Ernst & Young LLP effective
October 16, 2001.
(3) The Company filed a Current Report on Form 8-K on November
20, 2001 reporting a change of control and a disposition of
assets attributable to a Note and Warrant agreement with
Fidelity National Financial, Inc. and an Asset Purchase
Agreement with Fidelity National Information Solutions, Inc.
of which all documents were included as exhibits thereto.
19
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Corbin & Wertz, Independent Auditors...................... F-1
Report of Ernst & Young LLP, Independent Auditors................... F-2
Consolidated Balance Sheets at December 31, 2001 and
June 30, 2001..................................................... F-3
Consolidated Statements of Operations for the Six-months
Ended December 31, 2001 and Years Ended June 30, 2001 and 2000.... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Six-months Ended December 31, 2001 and Years Ended
June 30, 2001 and 2000............................................ F-5
Consolidated Statements of Cash Flows for the Six-months Ended
December 31, 2001 and Years Ended June 30, 2001 and 2000.......... F-8
Notes to Consolidated Financial Statements.......................... F-10
20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
HomeSeekers.com, Incorporated
We have audited the accompanying consolidated balance sheet of HomeSeekers.com,
Incorporated (the "Company") as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the six-months then ended. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 2001, and the consolidated results of its operations and its cash
flows for the six-months then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred significant operating losses, has
significant negative cash flows from operations for the six-months ended
December 31, 2001, and has working capital deficit of $11,450,000 and
stockholders' accumulated deficit of $104,553,000 at December 31, 2001. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's current plans and actions in regards
to these matters are discussed in Note 2. The financial statements do not
include any adjustments relating to the recoverability and classification of
assets carrying amounts or the amounts and classification of liabilities that
might result should the Company be unable to continue as a going concern.
CORBIN & WERTZ
Irvine, California
March 20, 2002, except for Notes 3 and 14, as to which the date is April 23,
2002
F-1
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders
HomeSeekers.com, Incorporated
We have audited the accompanying consolidated balance sheet of HomeSeekers.com,
Incorporated as of June 30, 2001, and the consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 2001
and 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 consolidated financial position of HomeSeekers.com,
Incorporated as of June 30, 2001, and the consolidated results of its operations
and its cash flows for the years ended June 30, 2001 and 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming
HomeSeekers.com, Incorporated will continue as a going concern. As discussed in
Note 2, the Company's significant net losses, working capital deficit,
accumulated deficit and uncertainty as to the Company's ability to secure
additional financing raise substantial doubt about the Company's ability to
continue as a going concern, and indicates the Company may have to consider
curtailing or ceasing operations, including the possibility of filing
bankruptcy. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Reno, Nevada
September 19, 2001
F-2
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND JUNE 30, 2001
(Amounts in thousands, except share and per share data)
December 31, June 30,
2001 2001
------------ --------
ASSETS
Current assets
Cash and cash equivalents............................................................................ $ 1,232 $ 1,433
Accounts receivable, net of allowance for uncollectible accounts of $190 and $288, respectively...... 57 513
Accounts and notes receivable, related parties....................................................... 92 179
Other assets......................................................................................... 86 511
--------- --------
Total current assets.............................................................................. 1,467 2,636
Investments, net of valuation allowance of $180 and $170, respectively.................................. 20 30
Property and equipment, net............................................................................. 1,337 2,561
Purchased intangible assets, net of accumulated amortization of $5 and $1,281, respectively............. 5 3,262
Other assets............................................................................................ 50 234
--------- --------
$ 2,879 $ 8,723
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable..................................................................................... $ 3,945 $ 3,114
Accrued payroll and other liabilities................................................................ 4,704 2,631
Liability under purchase agreement................................................................... 500 500
Long-term obligations, current portion............................................................... 1,046 2,249
Deferred revenue, current portion.................................................................... 2,722 3,887
--------- --------
Total current liabilities......................................................................... 12,917 12,381
Long-term liabilities
Long-term obligations................................................................................ 3,088 125
Deferred revenue..................................................................................... 583 1.633
--------- --------
Total long-term liabilities....................................................................... 3,671 1,758
Commitments and contingencies
Stockholders' equity (deficit)
Common stock; $.001 par, 50,000,000 shares authorized; 48,954,561 shares and 47,091,597
shares issued and outstanding at December 31, 2001 and June 30, 2001, respectively............... 49 47
Additional paid-in capital........................................................................... 90,975 87,302
Accumulated other comprehensive loss................................................................. (180) (170)
Accumulated deficit................................................................................ (104,553) (92,587)
Note receivable from officer......................................................................... - (8)
--------- --------
Total stockholders' equity (deficit).............................................................. (13,709) (5,416)
--------- --------
$ 2,879 $ 8,723
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND THE YEARS
ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands, except share and per share data)
December 31, June 30, June 30,
2001 2001 2000
------------ ----------- -----------
Revenues......................................................... $ 6,035 $ 17,392 $ 11,090
Cost of revenues................................................. 2,850 13,559 9,404
------------ ----------- -----------
Gross profit.................................................. 3,185 3,833 1,686
------------ ----------- -----------
Operating expenses:
Operating expenses........................................... 12,031 27,520 22,002
Depreciation and amortization................................ 1,658 5,442 2,403
Write down of investments and intangible assets.............. 1,034 20,130 2,793
------------ ----------- -----------
14,723 53,092 27,198
------------ ----------- -----------
Loss from operations............................................. (11,538) (49,259) (25,512)
Other income (expense)
Interest expense.............................................. (1,029) (944) (77)
Interest income............................................... 3 74 290
Other, net.................................................... 598 (1,498) 265
------------ ----------- -----------
(428) (2,368) 478
------------ ----------- -----------
Net loss......................................................... (11,966) (51,627) (25,034)
Other comprehensive income (loss)................................ (10) 483 (653)
------------ ----------- -----------
Total comprehensive loss......................................... $ (11,976) $ (51,144) $ (25,687)
============ =========== ===========
Net loss......................................................... $ (11,966) $ (51,627) $ (25,034)
============ =========== ===========
Basic and diluted net loss per common share...................... $ (0.25) $ (1.66) $ (1.47)
============ =========== ===========
Shares used in computing basic and diluted share data............ 48,622,383 31,145,564 17,031,852
============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND THE YEARS
ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands, except share data)
Accumu-
lated
Invest- Other Note Stock-
Additional ment Compre- Accumu- Receivable holders'
Common Stock Paid In in hensive lated from Equity
Shares Amount Capital LLC Loss Deficit Officer (Deficit)
---------- ------ ---------- ------- ------- --------- ---------- ---------
Balance at June 30, 1999 14,946,283 $ 15 $29,051 $(450) $ - $(15,926) $ - $12,690
Securities acquired in settlement
of investment in LLC............. - - 793 450 - - - 1,243
Shares issued for services.......... 277,969 - 3,282 - - - - 3,282
Warrants issued for services........ - - 463 - - - - 463
Exercises of stock options.......... 677,497 - 1,495 - - - - 1,495
Exercises of warrants............... 1,026,039 1 3,033 - - - - 3,034
Shares issued for cash.............. 917,407 1 5,436 - - - - 5,437
Shares issued for asset and
investment purchases............. 341,077 - 3,838 - - - - 3,838
Compensation charge for option
exercise......................... - - 156 - - - - 156
Shares issued in business
acquisitions..................... 1,608,188 2 16,846 - - - - 16,848
Shares and warrants issued for
investment in foreign affiliate.. 1,638,750 2 7,720 - - - - 7,722
Issuance of note receivable to
officer for option exercise...... - - - - - - (320) (320)
Net loss............................ - - - - - (25,034) - (25,034)
Net unrealized loss on investments.. - - - - (653) - - (653)
---------- ------ ---------- ------- ------- --------- ---------- ---------
Balance at June 30, 2000 21,433,210 $ 21 $ 72,113 $ - $ (653) $(40,960) $ (320) $ 30,201
========== ====== ========== ======= ======= ========= ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND THE YEARS
ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands, except share data)
Accumulated Note
Additional Other Receivable Stockholders'
Common Stock Paid In Comprehensive Accumulated from Equity
Shares Amount Capital Loss Deficit Officer (Deficit)
---------- ------ ---------- ------------- ----------- ---------- ------------
Balance at June 30, 2000 21,433,210 $ 21 $ 72,113 $ (653) $(40,960) $(320) $30,201
Shares issued for services.......... 2,977,960 3 838 - - - 841
Shares issued for interest expense.. 75,000 - 38 - - - 38
Warrants issued for services........ - - 563 - - - 563
Warrants issued for interest expense - - 765 - - - 765
Exercises of stock options.......... 3,334 - 2 - - - 2
Compensation expense from option
repricings....................... - - 2,270 - - - 2,270
Exercises of warrants............... 200,000 1 37 - - - 38
Shares issued for cash.............. 14,378,746 14 7,466 - - - 7,480
Shares issued in payment of
liabilities...................... 1,417,196 1 1,032 - - - 1,033
Shares issued in business
acquisitions..................... 6,606,151 7 2,178 - - - 2,185
Reduction of note receivable from
officer......................... - - - - - 312 312
Net loss............................ - - - - (51,627) - (51,627)
Net unrealized gain on investments.. - - - 483 - - 483
---------- ------ ---------- ------- ----------- ---------- ---------
Balance at June 30, 2001 47,091,597 $ 47 $ 87,302 $ (170) $(92,587) $ (8) $(5,416)
========== ====== ========== ======= =========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND THE YEARS
ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands, except share data)
Accumulated Note
Additional Other Receivable Stockholders'
Common Stock Paid In Comprehensive Accumulated from Equity
Shares Amount Capital Loss Deficit Officer (Deficit)
---------- ------ ---------- ------------- ----------- ---------- ------------
Balance at June 30, 2001 47,091,597 $ 47 $ 87,302 $(170) $ (92,587) $ (8) $ (5,416)
Shares issued for notes receivable..... 1,020,834 1 499 500
Exercises of stock options............. 54,000 - 10 - - - 10
Shares issued for separation agreements 788,130 1 403 - - - 404
Warrants issued for services........... - - 44 - - - 44
Warrants issued for interest expense... - - 872 - - - 872
Warrants issued under separation and
settlement agreements............... - - 1,845 - - - 1,845
Reduction of note receivable from
officer............................. - - - - - 8 8
Net loss............................... - - - - (11,966) - (11,966)
Net unrealized loss on investments..... - - - (10) - - (10)
---------- ------ ---------- ------------- ----------- ---------- ------------
Balance at December 31, 2001 48,954,561 $ 49 $ 90,975 $ (180) $(104,553) $ - $(13,709)
========== ====== ========== ============= =========== ========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND YEARS
ENDED JUNE 30, 2001 AND 2000
(Amounts in thousands)
December 31, June 30, June 30,
2001 2001 2000
----------- ---------- ----------
Cash flows from operating activities
Net loss....................................................................... $ (11,966) $ (51,627) $ (25,034)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation................................................................ 685 1,670 793
Amortization................................................................ 973 9,670 4,519
Write down of investments and intangible assets............................. 1,034 20,130 2,793
Equity in loss in foreign affiliate......................................... - 283 81
Compensation expense from option repricings................................. - 2,270 -
(Gain) loss on sale of investments.......................................... - 974 (46)
Gain on sale of assets...................................................... (524) - -
Other....................................................................... (52) 405 (39)
Common stock and warrants issued for services............................... 2,293 1,404 653
Common stock and warrants issued for interest............................... 872 803 -
Changes in assets and liabilities net of effect from acquisitions
Accounts receivable......................................................... 143 735 1,090
Prepaid expenses............................................................ 516 626 (550)
Other assets................................................................ 164 (111) (86)
Accounts payable............................................................ 1,328 1,279 383
Accrued payroll and other liabilities....................................... 2,095 661 1,090
Deferred revenue............................................................ (1,241) 496 1,864
----------- ---------- ----------
Net cash used in operating activities.................................. (3,680) (10,332) (12,489)
----------- ---------- ----------
Cash flows from investing activities
Purchase of property and equipment............................................. (54) (1,008) (2,238)
Purchase of intangible assets.................................................. - (212) (1,114)
Issuance of notes receivable................................................... - - (440)
Payments on notes receivable................................................... 8 157 190
Business acquisitions, net of cash............................................. - - (1,441)
Proceeds from sales of securities.............................................. - 1,291 101
Proceeds from sales of property and equipment.................................. - 4 343
Proceeds from sales of intangibles............................................. - 354 -
Payment from foreign affiliate................................................. - 200 200
Proceeds from sale of business entities........................................ 1,725 - -
Net change in other assets..................................................... - - -
Investment in foreign affiliate................................................ - - (387)
----------- ---------- ----------
Net cash provided by (used in) investing activities.................... 1,679 786 (4,786)
----------- ---------- ----------
Cash flows from financing activities
Proceeds from notes payable-related parties.................................... 1,035 - -
Payments on notes payable-related parties...................................... (2,085) - -
Proceeds from notes payable.................................................... 3,000 1,950 -
Repayments of debt............................................................. (160) (569) (1,232)
Net proceeds from sale/exercise of common stock, options, and warrants......... 10 7,520 9,968
----------- ---------- ----------
Net cash provided by financing activities.............................. 1,800 8,901 8,736
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.............................. (201) (645) (8,539)
Cash and cash equivalents at beginning of year.................................... 1,433 2,078 10,617
----------- ---------- ----------
Cash and cash equivalents at end of year.......................................... $ 1,232 $ 1,433 $ 2,078
=========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
December 31, June 30, June 30,
2001 2001 2000
------------ --------- ---------
Cash paid for interest................................................................. $ 25 $ 69 $ 77
Cash paid for income taxes............................................................. $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
December 31, June 30, June 30,
2001 2001 2000
------------ --------- ---------
Common stock issued for advertising/exclusive provider arrangement..................... $ - $ - $ 3,091
Common stock issued for investment..................................................... - - 3,000
Investment acquired for advertising arrangement........................................ - - 2,000
Investment acquired as settlement of investment in LLC................................. - - 1,243
Property and equipment acquired by capital lease obligations........................... - 141 -
Net change in investments and accumulated other comprehensive loss..................... (10) 483 (653)
Common stock and warrants issued for investment in foreign affiliate................... - - 7,722
Common stock issued for purchased intangible assets.................................... - - 838
Investment acquired through reduction of accounts and notes receivable, related party.. - - 208
Common stock issued for payment of liabilities......................................... - 1,033 -
Note receivable issued for common stock................................................ (500) - -
Other.................................................................................. - 348 -
BUSINESS ACQUISITIONS AND DISPOSITIONS
Shares issued in business acquisitions................................................ $ - $(2,185) $(16,848)
Cash paid............................................................................. - - (1,441)
Liability under purchase agreement.................................................... - - (1,500)
Accounts receivable, net.............................................................. (400) 145 550
Prepaid expenses...................................................................... 91 30 37
Property and equipment................................................................ (362) 298 1,932
Intangible assets..................................................................... (1,252) 2,907 19,727
Other assets.......................................................................... (20) - -
Note receivable....................................................................... (500) - -
------------ --------- ---------
Liabilities assumed (assets sold)..................................................... $ (2,443) $ 1,195 $ 2,457
============ ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTHS ENDED DECEMBER 31, 2001 AND YEARS ENDED JUNE 30, 2001 AND 2000
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
HomeSeekers.com, Incorporated (the "Company"), a successor to various
companies through mergers, was originally incorporated under the laws of Utah on
January 31, 1983. The Company is a provider of web-based and other information
and technology targeted for use by professionals, consumers, and other parties
involved in the real estate industry.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
HomeSeekers.com, Incorporated and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year consolidated financial
statements to conform to the current year's presentation and had no impact on
loss from operations or net loss.
Segment Reporting
The Company has determined that for the six-months ended December 31,
2001 and for the years ended June 30, 2001 and 2000, it operated in one business
segment, real estate technology and information. In addition, through December
31, 2001, the Company's operations were conducted primarily in the United
States.
Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). The Company adopted SAB 101 during the fourth quarter of fiscal year 2001
and such adoption did not have a material impact on its consolidated financial
statements.
The Company has also derived revenue from technology services provided
and productivity and information tools sold to real estate professionals and
consumers and from the sale of software licenses. The Company recognizes such
revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", as amended. Revenue from license fees is recognized when
persuasive evidence of an agreement exists, delivery of the product has
occurred, the fee is fixed or determinable and collectibility is probable. If
collectibility is not considered probable, revenue is recognized when the fee is
collected. The Company recognizes revenue allocated to maintenance fees for
ongoing customer support and product updates ratably over the period of the
maintenance contract. Payments for maintenance fees are generally made in
advance, are non-refundable and have terms of one to two years.
The Company also sells banner advertising pursuant to contracts with
terms varying from 3 to 5 years, which may include the guarantee of a minimum
number of click-throughs or links by the users of the Company's online
properties. Arrangements where the Company receives up front fees associated
with advertising services are deferred and recognized as revenue on the
straight-line method over the terms of the respective contracts. The Company
also sells leads, referrals and data matching services pursuant to certain
contracts. Revenue from leads, referrals, data matching services and other
performance-based arrangements is recognized as such services are delivered or
other performance criteria are met, provided that no significant Company
obligations remain and collection of the related receivable is probable.
Revenues from the sale of advertising placed in real estate
publications are recognized upon the distribution of real estate publications in
their individual market areas. Advance payments received for real estate
publications advertising are shown as deferred revenues in the accompanying
balance sheets. Direct expenses related to the production and distribution of
real estate publications (including listings, production, printing and
distribution costs) are recognized concurrently with the related revenues upon
real estate publications distribution.
F-10
Product Development Costs
The Company has adopted the Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"). Costs incurred by the
Company to enhance, manage, monitor and operate the Company's web site are
expensed as incurred. The Company accounts for the costs of developing software
products to be sold in accordance with Statement of Financial Accounting
Standards No. 86 ("SFAS No. 86"), "Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed", which requires the capitalization of
costs only during the period from the establishment of technological feasibility
to the time at which the product is available for general release to customers.
The costs incurred by the Company that should have been capitalized in
accordance with EITF 00-2 and SFAS No. 86 were not material and were expensed as
incurred.
The Company has adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 establishes the
accounting practice for capitalization of certain costs incurred in connection
with the acquisition or development of computer software to be used for internal
purposes, including internal costs. The adoption of SOP 98-1 did not have a
material effect on the Company's consolidated financial statements or cause the
Company to capitalize any material costs associated with the acquisition or
development of computer software to be used by the Company for internal
purposes.
In addition, the Company is involved in activities to continually
improve existing products. These costs have been charged to operating expenses
in the accompanying consolidated statements of operations in the amounts of $0,
$1,389,930 and $1,413,186 for the six-months ended December 31, 2001 and years
ended June 30, 2001 and 2000, respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and instruments with
maturities of three months or less at the time of purchase.
Concentrations
Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to credit risk consist primarily of cash in bank, trade
receivables, and receivables from related parties. At December 31, 2001 and June
30, 2001, substantially all trade receivables are due from customers within the
real estate and related industries.
Concentrations of Operations -- All of the Company's current products
are designed for operation in the national and international real estate
markets. Any recessionary pressures or other disturbances in those markets could
have an adverse effect on the Company's operations.
For the six-months ended December 31, 2001 and years ended June 30,
2001 and 2000, no single customer accounted for over 10% of the Company's
revenues.
Fair Value of Financial Instruments
The Company's financial instruments include capital lease obligations,
long-term debt, cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities. The carrying amounts of capital lease obligations
approximate their fair values, which have been determined by the use of
discounted cash flow analyses. The carrying values of the Company's long-term
debt approximated their fair values, based on current incremental borrowing
rates for similar types of borrowing arrangements. The carrying amounts of cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value, based upon their short-term nature. The fair
value of accounts and notes receivable from related parties are not determinable
as these transactions are with related parties.
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 and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by management
are, among others, the realizability of property and equipment, and valuation
allowance on deferred tax assets. Actual results could differ from these
estimates.
Investments
At December 31, 2001 and June 30, 2001, the Company's entire portfolio
of marketable securities is classified as available-for-sale. These securities
are stated at fair market value, determined based on quoted market prices, with
the unrealized gains and losses reported in a separate component of
stockholders' equity (deficit). Realized gains or losses are included in other
income (expense) in the statement of operations. The cost of securities sold is
based on the specific identification method.
F-11
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is calculated using the straight-line method over estimated useful
lives of 3 to 5 years, or the lease term, whichever is shorter.
Purchased Intangible Assets
The Company's intangible assets, primarily purchased in business
acquisitions, are stated at cost and are amortized on a straight-line basis over
periods ranging from 3 to 15 years.
Asset Impairment
The Company reviews its purchased intangible and other long-lived
assets periodically in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
When impairment indicators exist the Company determines potential impairment by
comparing the carrying value of the assets with estimated undiscounted future
cash flows expected to result from the use of the assets, including cash flows
from disposition. Based on this analysis, if the sum of the expected future
undiscounted net cash flow is less than its carrying value, the Company would
determine whether an impairment loss should be recognized. As discussed in Note
7, the Company recorded significant impairment losses during the six-months
ended December 31, 2001 and the year ended June 30, 2001.
Income Taxes
The Company accounts for income taxes by the asset/liability approach
in accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes." Under this pronouncement, deferred income taxes, if any, reflect the
estimated future tax consequences when reported amounts of assets and
liabilities are recovered or paid. Deferred income tax assets and liabilities
are determined based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that are scheduled to be in effect when the differences are expected to
reverse. The provision for income taxes, if any, represents the total income
taxes paid or payable for the current year, plus the change in deferred taxes
during the year. The tax benefits related to operating loss carry forwards are
recognized if management believes, based on available evidence, that it is more
likely than not that they will be realized.
Advertising
The Company accounts for advertising costs as expenses in the period in
which they are incurred. Total advertising costs for the six-months ended
December 31, 2001 and years ended June 30, 2001 and 2000 were $70,444,
$2,097,361 and $1,854,212, respectively.
Net Loss Per Share
Basic and diluted net loss per share are presented in conformity with
SFAS No. 128, "Earnings per Share."
Basic net loss per share has been determined using net loss divided by
the weighted average shares outstanding during the period. Diluted net loss per
share is computed by dividing net loss by the weighted average shares
outstanding, assuming all dilutive potential common shares were issued. Since
the Company incurred losses for the six-months ended December 31, 2001 and years
ended June 30, 2001 and 2000, basic and diluted net losses per share are the
same for these periods. Accordingly, options to purchase common stock
outstanding at the end of the six-months ended December 31, 2001 and years ended
June 30, 2001 and 2000, of 3,004,493 shares, 6,853,580 shares and 7,068,446
shares, respectively, and warrants to purchase common stock in the six-months
ended December 31, 2001 and years ended June 30, 2001 and 2000 of 16,745,556
shares, 8,624,685 shares and 2,557,088 shares, respectively, were not included
in the calculation of diluted loss per share.
Stock Options
The Company accounts for employee stock options under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has disclosed the proforma net loss and net loss per
share effect in Note 10, as if the Company had used the fair value based method
prescribed under SFAS No. 123, "Accounting for Stock Based Compensation."
F-12
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." Under the new standards, goodwill and intangible assets with
indefinite lives will no longer be amortized but will be reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their estimated useful lives.
The new standards generally will be effective for the Company in the first
quarter of fiscal 2002 and for business combinations consummated after June 30,
2001. The Company believes the financial impact of adopting SFAS No. 141 and No.
142 will be immaterial to the consolidated financial statements as substantially
all of the Company's purchased intangibles have been impaired or written off as
of December 31, 2001.
NOTE 2--BASIS OF PRESENTATION
The Company incurred net losses of approximately $11,966,000
$51,627,000 and $25,034,000 during the six-months ended December 31, 2001 and
years ended June 30, 2001 and 2000, respectively, and at December 31, 2001 had a
working capital deficit of approximately $11,450,000, an accumulated deficit of
approximately $104,553,000 and a stockholders' deficit of approximately
$13,709,000. In addition, the Company used cash of approximately $3,680,000 to
fund operations during the most recent six-month period. The reports of
independent auditors on the Company's December 31, 2001 and June 30, 2001
financial statements include an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern. In
October 2001, the Company borrowed $3.0 million to pay off existing debt and for
working capital needs. In December 2001, the Company sold an operating division,
generating net cash of approximately $1.7 million. The Company has reduced its
fixed operating expenses and has consolidated its operations into one location.
The Company continues to maintain a significant working capital deficit and has
inadequate cash reserves to fully satisfy its existing trade debts. The Company
is continuing in its efforts to further increase sales revenues, reduce
operating expenses, and develop methods for reducing its existing trade debts
and liabilities. The Company may consider obtaining additional debt or equity
financing. Similarly, the Company may consider entering into other arrangements
or business combinations that would provide the Company with incremental working
capital, increased sales opportunities, or redundant cost savings. The Company
is operating with a new management team and has undertaken a significant
restructuring of its operations. There can be no assurances that the Company
will be able to sustain profitable operations or that the Company can develop a
plan that will adequately satisfy its trade creditors and debt holders. The
accompanying financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
On February 13, 2002, the Company announced a change in its fiscal year
end from June 30 to December 31. The change was effective for the six-months
ended December 31, 2001. The Company had previously released results for the
three months ended September 30, 2001.
NOTE 3--BUSINESS ACQUISITIONS AND DISPOSITIONS
The Company has completed the asset and business acquisitions discussed
below, all of which were accounted for by the purchase method of accounting.
Accordingly, results of operations for the acquired businesses have been
included in the consolidated statements of operations from their respective
dates of acquisition. The purchase price of each acquisition has been allocated
to the assets acquired and the liabilities assumed based on the estimated fair
market value at the date of acquisition.
Genstar Media
On August 4, 1998, the Company purchased substantially all of the
assets of Genstar Media, a sole proprietorship engaged in the business of
offering websites and e-mail to realtors. These assets included the customer
base, computers and other media equipment, and the business name. The purchase
price consisted of 50,000 shares of the Company's common stock issued to the
seller. The Company valued the securities issued at approximately $225,000 based
on the fair market value of the common stock on the date of acquisition. In
addition, the Company committed to the contingent issuance of common stock
having an aggregate value of $400,000 if certain revenue thresholds were met.
During the years ended June 30, 2000 and 1999, the revenue levels were met and
the additional common stock was issued and the Company allocated the additional
$400,000 to the customer base. During the year ended June 30, 2000, the net
remaining unamortized balance of the customer base relating to these increases
of approximately $267,000 was written off (see Note 7).
Holloway Publications, Inc. ("HPI")
During the year ended June 30, 2001, the Company discontinued the
operations of HPI and accordingly wrote off the $1,145,000 net remaining
unamortized balance of this intangible asset. Revenues recognized during the
years ended June 30, 2001 and 2000 totaled $1,437,000 and $1,540,000,
respectively.
F-13
TDT, LLC ("Terradatum")
On September 30, 1999, the Company acquired all of the issued and
outstanding common stock of Terradatum, a developer, marketer, and licensor of
Internet-based multiple listing service systems. Consideration consisted of
640,000 shares of the Company's common stock valued at approximately $7,960,000
based on the fair market value of the Company's common stock at the date of
acquisition and $200,000 in cash. The acquisition agreement called for the
issuance of additional shares of the Company's common stock and additional cash
consideration of $1,500,000 if the market price of the Company's common stock
was below certain levels prior to the first anniversary of the closing date. The
Company recorded $1,500,000 as a current liability as of June 30, 2000 because
the market price of the Company's common stock was projected to be below the
stipulated level. The purchase price, including the additional payment, was
allocated primarily to purchased technology in the approximate amount of
$7,966,000, which was being amortized over 3 years. The market price of the
Company's common stock was below the levels stipulated by the acquisition
agreement, and during the year ended June 30, 2001, the Company issued a total
of 1,984,146 shares of the Company's common stock for the fair market value
adjustment and in payment of $1,000,000 of the liability, with no further value
recorded to the purchased technology for the issuance of these shares. During
the latter part of the year ended June 30, 2001, the Company restructured the
operations of this entity and recorded an impairment charge of approximately
$2,730,000 during the fourth quarter (see Note 7). On December 3, 2001, the
Company sold substantially all the assets of its MLS operating division,
including the business unit to which Terradatum was a component, to Fidelity
National Information Solutions, Inc. ("FNIS") (see below).
Information Management Company, Inc. ("IMCO")
On September 30, 1999, the Company completed the acquisition of all of
the issued and outstanding common stock of IMCO, a provider of electronic
publishing and software development for the real estate listing management
industry. The purchase price consisted of 341,151 shares of the Company's common
stock valued at $1,000,000, based on the fair market value of the stock given in
the acquisition. The acquisition agreement provides for additional consideration
of $1,000,000 payable in the Company's common stock in equal installments on the
first and second anniversaries of the agreement. This amount was recorded as
additional purchase price and included as additional paid in capital. The
purchase price was allocated primarily to purchased technology in the
approximate amount of $1,918,000, which was being amortized over 3 years. During
the year ended June 30, 2001, the Company issued 199,203 additional shares of
its common stock to the prior owners of IMCO for the first anniversary
installment, with no further value recorded to the purchased technology for the
issuance of these shares. During the latter part of the year ended June 30,
2001, the Company restructured the operations of this entity, discontinued the
use of the purchased technology, and recorded an impairment charge of
approximately $866,000 (see Note 7).
On December 3, 2001, the Company sold substantially all the assets of
its MLS operating division, including the business unit to which IMCO was a
component, to FNIS (see below). As noted above, the Company was obligated to
make a common stock payment of $500,000 on the second anniversary of the
original purchase agreement which was not made. In connection with the sale of
IMCO to FNIS, and in lieu of the original agreement, the Company entered into a
settlement agreement to issue $437,000 of common stock to the original
principals of IMCO, not to exceed 3.5 million shares, at such time as the
Company has sufficient shares authorized to make the issuance.
Home Seekers Magazines, Inc. ("HMI")
On February 8, 2000, the Company completed the acquisition of all of
the issued and outstanding common stock of HMI, a real estate magazine
publication company, for approximately $1,053,000 in cash and the assumption of
approximately $1,189,000 in liabilities. The excess cost over the fair market
value of the net assets acquired was approximately $1,858,000, which was being
amortized over 15 years. During the year ended June 30, 2001, the Company sold
the magazine publication businesses comprising of HMI to four separate buyers
and recognized a loss of $1,347,000, including the write-off of the $1,267,000
net remaining balance of the intangible asset. Revenues recognized during the
years ended June 30, 2001 and 2000 totaled $1,551,000 and $746,000,
respectively.
Information Solutions Group, Inc ("ISG")
On April 3, 2000, the Company acquired all of the issued and
outstanding common stock of ISG, a real estate electronic forms provider. The
purchase price consisted of 279,400 shares of the Company's common stock valued
at approximately $4,238,000, based upon the average closing price of the stock
on specified days preceding the date of acquisition, the assumption of
liabilities of approximately $849,000 and other costs aggregating $346,000. The
original acquisition agreement provided for additional consideration payable in
the Company's common stock depending upon the closing prices of the Company's
common stock on specified days preceding the first anniversary of the closing
date and if certain revenue targets were met, for which the Company recorded an
additional $1,000,000 at June 30, 2000. The purchase price was allocated
partially to intangible assets in the amount of approximately $1,500,000, which
were being amortized over 3 years. The excess of cost over the fair market value
of the net assets acquired was approximately $4,705,000, which were being
amortized over 5 years. During the year ended June 30, 2001, the acquisition
agreement was amended, and the Company issued 2,200,000 additional shares of the
Company's common stock as final payment of further consideration due under the
agreement with no further value recorded to the purchased intangible assets for
the issuance of the shares. The amended agreement required the Company to
register the additional shares by February 28, 2001. As of March 20, 2002, the
Company had not completed the registration.
F-14
During the latter part of the year ended June 30, 2001, the Company
restructured the operations of this entity and recorded an impairment charge of
approximately $4,112,000 (see Note 7).
Connect2Call ("C2C")
On June 9, 2000, the Company acquired the assets of C2C, a developer of
voice-over-internet protocol and web-enabled, interactive voice communication
technologies. The purchase price consisted of 347,639 shares of the Company's
common stock valued at approximately $1,434,000 based on the fair market value
of the Company's common stock at the date of acquisition. The acquisition
provided for additional consideration payable in the Company's common stock
depending upon the closing prices of the Company's common stock on specified
days preceding effective registrations and certain earnings targets. The
purchase price was allocated primarily to purchased technology and a covenant
not to compete in the approximate amounts of $699,000 and $675,000,
respectively, and was being amortized over 3 years. During the year ended June
30, 2001, the Company issued 106,948 additional shares of the Company's common
stock to the prior owners of C2C, with no further value recorded to the
purchased intangible assets for the issuance of shares. During the six-months
ended December 31, 2001 the Company wrote-down its remaining investment in C2C
for a total expense of approximately $170,000.
Immediate Results Through Intuitive Systems, LLC ("IRIS")
On July 21, 2000, the Company completed the acquisition of all of the
issued and outstanding common stock of IRIS, a provider of productivity software
to real estate professionals, through payment of $25,000 cash, the issuance of
500,000 shares of the Company's common stock and the assumption of liabilities
of $1,195,000. The purchase agreement provided for additional consideration of
up to 2,900,000 shares of the Company's common stock on specified dates within
the first year of the agreement, which the Company issued during the year ended
June 30, 2001. The 3,400,000 total shares of the Company's common stock issued
in the acquisition were valued at $2,587,000, based on an average of closing
prices per share of the Company's common stock just prior to and after the dates
the shares were issued. The purchase price was allocated primarily to purchased
technology and a covenant not to compete in the approximate amounts of
$2,809,000 and $500,000, respectively, and was being amortized over 3 years. The
purchase agreement required the Company to register any shares issued as
additional consideration by September 19, 2001. As of March 20, 2002, the
Company had not completed the registration.
During the latter part of the year ended June 30, 2001, the Company
restructured the operations of this entity and recorded an impairment charge of
approximately $1,747,000 (see Note 7).
The following unaudited pro forma summary presents financial
information as if the acquisitions discussed above occurred as of the beginning
of the Company's fiscal years ended June 30, 2001 and 2000. The pro forma
amounts include certain adjustments, primarily to record additional amortization
of purchased intangible assets and deferred revenue, and do not reflect any
benefits from economies that might be achieved from combining operations. The
pro forma information does not necessarily reflect the actual results that would
have occurred nor is it necessarily indicative of future results of operation of
the combined companies.
June 30, June 30,
(Amounts in thousands, except per share data, unaudited) 2001 2000
-------- --------
Revenues.................................................. $ 17,588 $ 18,841
======== ========
Net loss.................................................. $(51,913) $(30,034)
======== ========
Basic and diluted net loss per common share............... $ (1.57) $ (1.42)
======== ========
F-15
MLS Operations Sale to FNIS
On October 25, 2001, FNIS and the Company entered into an agreement
whereby FNIS would purchase certain assets of the Company representing
substantially all of the Company's MLS operations, such assets amounting to less
than twenty percent (20%) of the Company's total assets. FNIS and the Company
also entered into an agreement (the "Management Agreement") pursuant to which
FNIS would provide management services to the Company until the earlier to occur
between the close or the termination of the Asset Purchase Agreement.
On December 3, 2001, the agreement was consummated and FNIS acquired
substantially all of the assets, including corporate and trade names and
goodwill associated with the business, of the Company's XMLSweb(tm) division
(formerly Terradatum LLC and Information Management Company, LLC). The total
consideration paid was $2,000,000, of which $500,000 was advanced in November
and $1,275,000 was paid in December 2001. An additional amount of $225,000 was
withheld pending the resolution of licensing obligations of the Company which
had not been resolved as of April 23, 2002.
NOTE 4--INVESTMENTS
As of December 31, 2001 and June 30, 2001, the Company had net
investments in marketable securities of $20,000 and $30,000, respectively.
Certain transactions occurring during the six-months ended December 31,
2001 and year ended June 30, 2001 are described in the following paragraphs.
The Company's investments in marketable securities are held for an
indefinite period and thus are classified as available for sale. Investments in
marketable securities at December 31, 2001 and June 30, 2001 are summarized as
follows:
December 31, 2001 June 30, 2001
----------------- -------------
Gross Gross
Unrealized Fair Unrealized Fair
Cost Loss Value Cost Loss Value
-------- ---------- -------- -------- ----------- --------
Common stock, related party............. $200,000 $(180,000) $ 20,000 $200,000 $(170,000) $ 30,000
======== ========== ======== ======== =========== ========
The Company owns common stock of Webquest, Inc., a company considered a
related party as a former officer and two former members of the Company's Board
of Directors also served on the Webquest board.
In prior years, the Company was given 700,000 shares of Webquest common
stock in lieu of cash payment for the license of technology. During the year
ended June 30, 2000, the Company received an additional 400,000 shares of
Webquest common stock in payment of notes and accounts receivable due and as
consideration for the termination of certain operating agreements. At various
dates during the year ended June 30, 2000, the Company sold 54,300 shares of the
common stock recognizing a gain on sale included in other income of
approximately $46,000. During the year ended June 30, 2001, the Company sold
245,700 shares of the common stock recognizing a loss on sale included in other
expense of approximately $152,000. At December 31, 2001, the Company owned
500,000 shares of common stock valued at $20,000.
During the six-months ended December 31, 2001 and years ended June 30,
2001 and 2000, the Company recorded revenues from the above related party of $0,
$0 and $370,000, respectively, related to the technology licensing and custom
programming fees.
NOTE 5--INVESTMENT IN FOREIGN AFFILIATE
In May 2000, the Company completed an agreement to acquire an equity
interest in, and enter into an operating agreement with property portal!
Limited, a Hong Kong company that operates an Asian Internet real estate portal
("pp.com").
In the transaction, the Company issued 1,638,750 of its common shares,
valued at approximately $6,452,000, in exchange for 1,613,000 shares of pp.com,
representing approximately a 23% ownership of pp.com. In addition, the Company
issued to the stockholders of pp.com fully vested warrants to purchase an
aggregate of 1,000,000 shares of the Company's common stock at $7 per share. The
warrants were exercisable for one year after the date of issue. The estimated
fair value of the warrants, $1,270,000, was recorded as a component of the
investment in pp.com, and valued using the Black-Scholes valuation method using
a volatility of 1.226.
F-16
The operating agreement was a technology consulting and license
agreement whereby the Company granted a license to its products for sales in the
territory of the People's Republic of China (including Hong Kong and Taiwan),
Malaysia, Singapore and Thailand. Pursuant to the agreement, the Company was to
be paid an initial fee of $1,800,000. The Company received $200,000 in May 2000
and was to receive $1,600,000 following the completion of a defined trial
period. After the first anniversary date of the agreement, pp.com was to pay the
Company a royalty equal to 14% of all revenue derived from the commercial use by
pp.com of any services or technology provided by the Company. The agreement was
for a period of ten years, subject to earlier termination by the parties under
certain terms of the agreement.
The investment in pp.com was accounted for using the equity method of
accounting, with inter-company accounts and transactions eliminated. The
Company's equity in the net loss of pp.com for the year ended June 30, 2001 and
for the period May 16 to June 30, 2000 was $282,914 and $81,308, respectively,
which was included in other expense. The excess of the Company's cost of the
investment over the Company's equity in the net assets of pp.com was being
amortized over a period of three years. Amortization expense for the years ended
June 30, 2001 and 2000 was $1,934,393 and $310,988, respectively. Payments
received from pp.com under the operating agreement were to be applied as a
reduction of the investment until such time as the investment was fully
recovered, then recognized as other income thereafter.
During the third quarter of the year ended June 30, 2001, the Company
wrote its remaining investment in pp.com down to $1,000,000 and restructured its
agreement with pp.com. pp.com elected to merge with iShowFlat in a
stock-for-stock exchange pursuant to which the Company owns approximately 11% of
the merged company and terminated pp.com's exclusive agreement for the
development and marketing of the Company's technology in Asia. iShowFlat paid
the Company $200,000 cash in May 2001 for non-exclusive agency rights to the
Company's technology in Asia. Because of iShowFlat's inability to raise
necessary capital and its ongoing operating losses, the Company wrote off the
$732,000 balance of its investment during the fourth quarter of the year ended
June 30, 2001. Subsequent to December 31, 2001, iShowFlat announced it was
considering a buyout offer for the company and that, if it did not receive
bridge financing in connection with the buyout, it would have to consider other
financing sources or cease doing business.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 and June 30:
December 31, June 30,
2001 2001
----------- ----------
Computer equipment....................................... $3,029,965 $2,986,024
Computer software........................................ 266,821 847,613
Furniture and office equipment........................... 258,126 864,547
Leasehold improvements................................... 307,169 392,873
Vehicles................................................. - 55,000
----------- ----------
3,862,081 5,146,057
Less: accumulated depreciation and amortization.......... (2,524,629) (2,585,117)
----------- ----------
$1,337,452 $2,560,940
=========== ==========
The Company has computer equipment and software with a net book value
of $141,404 and $293,414, respectively (accumulated depreciation of $110,730 and
$238,342, respectively) under capital leases at December 31, 2001 and June 30,
2001.
NOTE 7--PURCHASED INTANGIBLE ASSETS
Purchased intangible assets consist of the following at December 31 and
June 30:
December 31, June 30,
Period 2001 2001
---------- ----------- -----------
Acquired technology................................... 3 years $ - $ 2,693,240
Cost in excess of net assets of acquired businesses... 3-15 years - 210,350
Covenants not to compete.............................. 3 years - 1,114,632
Other................................................. 1-2 years 9,651 525,276
----------- -----------
9,651 4,543,498
Less: accumulated amortization........................ (4,633) (1,281,004)
----------- -----------
$ 5,018 $ 3,262,494
=========== ===========
F-17
Amortization expense was $972,767, $7,734,956 and $4,209,218 for the
six-months ended December 31, 2001 and years ended June 30, 2001 and 2000,
respectively.
The Company performed an assessment of the carrying value of its
long-lived assets to be held and used, including significant amounts of
purchased intangible assets recorded in connection with its various
acquisitions. This assessment was performed pursuant to SFAS 121 due to
significant negative industry and economic trends affecting both the Company's
current and future operations, as well as the general decline of technology
valuations. Management concluded that the decline in market conditions within
the Company's industry was significant and other than temporary. As a result of
this assessment, along with the Company's decision to discontinue its publishing
operations in the third quarter and consolidation and restructuring of other
acquired businesses primarily in the fourth quarter of fiscal 2001, the Company
wrote down $1,033,982 and $13,307,860 of impaired purchased intangible assets as
of December 31, 2001 and June 30, 2001, respectively. Such assets were written
down based on the amount by which the carrying amount exceeded their fair value.
Fair value was determined based on discounted future cash flows for the
operating divisions that had separately identifiable cash flows. The cash flow
periods used were three years with a discount rate of 15%, which are assumptions
that reflect management's best estimates.
NOTE 8-- LONG-TERM DEBT
Long-term debt consisted of the following at December 31 and June 30:
December 31, June 30,
2001 2001
----------- ----------
Note payable to Fidelity National Financial, Inc. ("Fidelity"), with stated
interest at prime plus 2% (totaling 6.75% at December 31, 2001), payable
quarterly, secured by certain assets of the Company, due April 24, 2003,
convertible into shares of the Company's common stock at the option of the
holder at $0.10 per share.................................................. $ 3,000,000 $ -
Notespayable to E-Home.com, Inc. ("Homemark" see Note 13), with interest at 8%,
secured by certain assets of the Company, due September 30 to December
31, 2001................................................................... - 1,000,000
Note payable to a former Director of the Company, with interest at 9%, secured
by certain assets of the Company, past due, convertible into shares of the
Company's common stock at $0.10 per share subordinated to Fidelity note
payable.................................................................... 500,000 500,000
Note payable to a former Director of the Company, with stated interest at 10%,
secured by certain assets of the Company, payable in four equal
installments, due December 31, 2002 subordinated to Fidelity note payable.. 200,000 250,000
Notes payable to individuals, with interest at 9%, unsecured, due December 13,
2002....................................................................... 162,000 200,000
Capital lease obligations (Note 11)............................................. 180,907 273,156
Other........................................................................... 90,793 150,805
----------- ----------
Total........................................................................... 4,133,700 2,373,961
Less current portion............................................................ (1,045,679) (2,248,773)
----------- ----------
Long-term portion............................................................... $ 3,088,021 $ 125,188
=========== ==========
Future maturities of long-term debt at December 31, 2001 are as follows:
Years ending December 31:
2002................................................. $ 1,045,679
2003................................................. 3,068,952
2004................................................. 16,391
2005................................................. 2,678
-----------
Total $ 4,133,700
===========
F-18
The Company entered into a Warrant Purchase Agreement simultaneously
with the note payable to Fidelity such that the aggregate potential equity
represented in the note payable to Fidelity and the warrant is 25% of the
Company's outstanding common stock. To the extent the note is not converted to a
number of shares of common stock representing at least a 25% equity stake in the
Company, the Warrant is exercisable to bring Fidelity's beneficial ownership to
as much as 25% of the outstanding shares of Common Stock.
The note payable of $500,000 to a former Director contains a late
payment penalty clause requiring the Company to issue warrants to purchase
100,000 shares of the Company's common stock on April 9, 2001, the original due
date, and additional warrants to purchase 100,000 shares of the Company's common
stock each week thereafter until the note is repaid. As of December 31, 2001
warrants to purchase a total of 3,800,000 shares of the Company's common stock
at exercise prices ranging from $0.03 to $0.67 per share were issued to the
former Director. The former director was also issued a warrant to purchase
375,000 shares of the Company's common stock at an exercise price of $0.19 per
share at the time the loan was made. The Company recognized interest expense of
$631,000 and $605,169 attributable to the value of these warrants (under SFAS
123) for the six-months ended December 31, 2001 and year ended June 30, 2001,
respectively. Although the Company has entered into discussions with the former
Director to modify the agreement, the warrants continue to accrue subsequent to
year-end. The warrants vest immediately and expire three years from the date of
issuance.
During the year ended June 30, 2001, the Company issued warrants to
purchase 100,000 shares of the Company's common stock at an exercise price of
$0.43 per share in connection with the loan of $250,000 from a former Director
of the Company. In addition, the Company issued a total of 75,000 shares of the
Company's common stock to the former Director to extend the due date of the
loan. The loan balance outstanding as of December 31, 2001 was $200,000. The
Company recognized interest expense of $87,000 and $38,000 attributable to these
warrants and shares, respectively, for the year ended June 30, 2001. The Company
did not recognize any interest expense attributable to these warrants or shares
during the six-months ended December 31, 2001. The warrants vest immediately and
expire three years from the date of issuance.
During the year ended June 30, 2001, the Company issued warrants to
purchase a total of 250,000 shares of the Company's common stock at an exercise
price of $0.25 per share to the individuals who loaned the Company $200,000. The
warrants vest immediately and expire three years from the date of issuance. The
loan balance outstanding as of December 31, 2001 was $162,000. The Company
recognized interest expense of $241,000 attributable to the warrants for the
six-months ended December 31, 2001 and $72,500 attributable to the warrants for
the year ended June 30, 2001. These notes payable also include a late payment
penalty clause whereby the Company issued 100,000 warrants per week for each of
the two notes payable with a cap of one million warrants for each note holder,
which was reached as of December 31, 2001. The due dates of these notes were
extended to December 13, 2002.
The interest rate on capitalized leases varies from 12.0% to 32.1% and
is imputed based on the lessor's implicit rate of return.
NOTE 9--STOCKHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 50,000,000 shares of common stock,
par value $.001 per share, 5,000,000 shares of Class A preferred stock, par
value $.001 per share, of which 5,000 have been designated as Class A, Series 1,
200,000 shares of Class B preferred stock, par value $10.00 per share, and
4,800,000 shares of undesignated preferred stock, par value $.001 per share.
Terms of the Class A, Class B and undesignated preferred stock are to be
prescribed by resolution of the Board of Directors. At December 31, 2001 and
June 30, 2001, there were no outstanding shares of preferred stock. In July
2001, the Board of Directors of the Company adopted a resolution proposing that
the Articles of Incorporation be amended to increase the authorized number of
shares of common stock to 200,000,000, subject to stockholder approval of the
amendment. As of March 20, 2002 the Company had not held a meeting of its
stockholders to approve such an increase.
F-19
Common Stock
As of December 31, 2001, the Company had 48,954,561 common shares
issued and outstanding, 3,004,493 outstanding options issued pursuant to the
Company's Amended and Restated 1996 Stock Option Plan, as amended (the "1996
Plan") and 16,745,556 outstanding warrants. The Company will require an increase
in the number of authorized shares of common stock to enable the future
exercises of the outstanding options and warrants.
During the six-months ended December 31, 2001, options to purchase
54,000 common shares were exercised at prices ranging from $0.16 to $0.59 per
share. During the year ended June 30, 2001, warrants to purchase 200,000 common
shares were exercised at a price of $0.19 per share and options to purchase
3,334 common shares were exercised at a price of $0.59 per share. During the
year ended June 30, 2000, warrants to purchase 1,026,039 common shares were
exercised at prices averaging $2.96 per share and options to purchase 677,497
common shares were exercised at an average price of $2.21 per share.
In August 2001, the Company issued a total of 1,020,834 unrestricted
common shares with a combined value of $500,000 to EntrePort Corporation
("EntrePort") as an advance against the purchase price of the existing business
of EntrePort (see Note 13). In addition, the Company issued a total of 788,130
unrestricted common shares to former officers and directors as part of
separation and settlement agreements including 600,000 shares issued to three
such individuals during July and August 2001 (see Note 14).
Common Stock Warrants
Warrants for the purchase of common shares that were issued and
outstanding as of December 31, 2001 are summarized below:
Number of Exercise
Warrants Price Expiration
--------- ----------- ----------
3,546,500 $0.03-$0.11 2002-2004
7,907,371 0.13-0.49 2003-2006
3,958,075 0.50-0.80 2002-2004
283,334 1.47-1.50 2002-2003
308,649 2.38-2.47 2003-2005
468,527 2.50-3.00 2002-2004
18,100 4.00 2002
150,000 5.50 2002
50,000 6.06 2002
55,000 10.19 2003
----------
16,745,556
During the six-months ended December 31, 2001, a total of 9,390,871
warrants expiring on various dates in 2002 through 2004 to purchase common
shares at exercise prices of $0.03 to $0.67 were issued to officers of the
Company, consultants and investors (see Note 10 for disclosure of the impact on
net loss and loss per share had the warrants issued to the officers of the
Company been valued pursuant to SFAS No. 123). During the six-months ended
December 31, 2001, the Company recognized $1,845,403 of compensation expense,
$871,846 of interest expense, and $43,750 of outside service expense in the
accompanying consolidated statements of operations to reflect the differences in
the warrant exercise price and the market value on the date of issuance pursuant
to APB 25. During the year ended June 30, 2001 a total of 7,439,098 warrants
expiring on various dates in 2002 through 2006 to purchase common shares at
exercise prices of $0.19 to $3.00 were issued to consultants and investors.
During the year ended June 30, 2000, a total of 1,809,877 warrants expiring on
various dates in 2000 through 2004 to purchase common shares at exercise prices
of $2.38 to $10.81 were issued to consultants and investors.
During the six-months ended December 31, 2001, a total of 1,270,000
warrants issued to consultants and investors expired and were canceled. In
connection with the note issued to Fidelity, the Company entered into a Warrant
Purchase Agreement such that as a result of the issuance to Fidelity of the note
and the warrant, Fidelity has a currently exercisable right convert or purchase
up to the equivalent of 25% of the outstanding shares of the Company's common
stock. To the extent the Note is not converted to a number of shares of common
Stock representing a 25% equity stake in the Company, the Warrant is exercisable
to bring Fidelity's beneficial ownership to as much as 25% of the outstanding
shares of Common Stock. Fidelity has the sole right to receive or the power to
direct the receipt of dividends from, or proceeds from the sale of, the shares
of the Company's Common Stock issuable upon the exercise of the note and the
warrant.
F-20
NOTE 10--1996 STOCK OPTION PLAN
On October 9, 1996, the Company's Board of Directors ratified a stock
option plan (the "1996 Plan") under which the Company may grant qualified and
non-qualified incentive stock options to employees, directors, and consultants.
As part of the provisions of the plan, the Company may grant, but is not
obligated to grant, options that include reload features.
Options granted generally have terms from one to five years from the
date of grant and generally vest immediately or ratably over their terms. The
exercise price of incentive stock options granted under the plan may not be less
than 100% of the fair market value of the Company's common stock on the date of
the grant. For a person who at the time of the grant owns stock representing 10%
of the voting power of all classes of the Company's stock, the exercise price of
the incentive stock options granted under the plan may not be less than 110% of
the fair market value of the common stock on the date of the grant. During the
year ended June 30, 1999, the Company amended and restated the 1996 Plan to
allow employees 90 days after separation from the Company to exercise all vested
options. In addition, during the year ended June 30, 2000, the stockholders
approved an amendment to increase the authorized shares under the plan from
5,500,000 shares to 11,500,000 shares.
In January 2001, the Company's Board of Directors approved the
repricing of all outstanding employee stock options to $0.593 per share. Prior
vesting schedules and the number of shares underlying the options remained
unchanged. In April 2001, the Company's Board of Directors approved the
repricing of all outstanding options of certain officers and managers of the
Company to $0.13 per share in consideration for reductions in salary. These
options now require variable accounting treatment, with appropriate charges to
compensation expense in future reporting periods as the market price of the
Company's common stock fluctuates. The market price of the Company's common
stock on June 30, 2001 was $0.62 per share, resulting in compensation expense
for fiscal year 2001 of approximately $2.27 million. The market price of the
Company's common stock on December 31, 2001 was $0.06 per share, which is lower
than previously issued option prices resulting in no additional compensation
expense being recorded.
The Company applies APB Opinion No. 25 in accounting for its fixed
stock granted to employees. Accordingly, since the market value and the option
price of the Company's stock were equal on the measurement date, no compensation
cost has been recognized for new issuances under the plan in the six-months
ended December 31, 2001, and years ended June 30, 2001 and 2000. Had
compensation cost been determined on the basis of fair value pursuant to SFAS
No. 123, net loss and loss per share would have been impacted as follows:
(Amounts in Thousands, Except Per Share Data)
December 31, June 30, June 30,
2001 2001 2000
----------- ---------- ----------
Net Loss
As reported............................................ $ (11,966) $ (51,627) $ (25,034)
=========== ========== ==========
Pro forma.............................................. $ (12,456) $ (61,201) $ (28,280)
=========== ========== ==========
Basic and Diluted Loss Per Share
As reported............................................ $ (0.25) $ (1.66) $ (1.47)
=========== ========== ==========
Pro forma.............................................. $ (0.26) $ (1.96) $ (1.66)
=========== ========== ==========
The pro forma amounts were estimated using the Black-Scholes
option-pricing model with the following assumptions for the six-months ended
December 31, 2001 and years ended June 30, 2001 and 2000:
December 31, June 30, June 30,
2001 2001 2000
----------- ------------ ----------
Risk-Free Interest Rate......................... 4.0% 5.0% 5.5-6.9%
Expected Life................................... 3-4 years 3-4 years 3-7 years
Expected Volatility............................. 227.2% 121.1-166.4% 121.1%
Expected lives are equal to the remaining option terms for all years.
F-21
Following is a summary of the status of options outstanding during the
six-months ended December 31, 2001 and years ended June 30, 2001 and 2000:
Weighted
Number of Exercise average
shares under price exercise
options range price
------------ ---------- --------
Outstanding at July 1, 1999............ 4,082,874 $1.47-9.97 $2.58
Granted................................ 4,310,038 2.31-22.50 7.14
Canceled............................... (646,969) 1.47-21.13 9.62
Exercised.............................. (677,497) 1.47-9.44 2.21
------------
Outstanding at June 30, 2000 7,068,446 1.47-22.50 4.95
============
Options exercisable at June 30, 2000 3,179,159 2.54
Outstanding at July 1, 2000............ 7,068,446 1.47-22.50 4.95
Granted................................ 2,003,250 0.13-3.34 1.96
Canceled............................... (2,214,782) 0.34-21.94 5.06
Exercised.............................. (3,334) 0.59 0.59
------------
Outstanding at June 30, 2001 6,853,580 0.13-1.04 0.31
============
Options exercisable at June 30, 2001 5,806,672 0.28
Outstanding at July 1, 2001............ 6,853,580 0.13-1.04 0.31
Granted................................ 825,000 0.07-0.49 0.11
Canceled............................... (4,620,087) 0.13-1.04 0.26
Exercised.............................. (54,000) 0.13-0.59 0.16
------------
Outstanding at December 31, 2001 3,004,493 0.07-1.04 0.34
============
Options exercisable at December 31, 2001 1,816,942 $0.38
The weighted average grant date fair value of options granted in the six-months
ended December 31, 2001 and years ended June 30, 2001 and 2000 was $0.11, $1.49
and $5.57, respectively.
The following table summarizes information regarding stock options
outstanding at December 31, 2001:
Outstanding Exercisable
--------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Exercise Contractual Average Average
Price Range Number Life (In Years) Exercise Price Number Exercise Price
----------- --------- --------------- -------------- --------- --------------
$0.07-0.13 1,486,999 2.10 $0.10 779,480 $0.12
0.16-0.56 174,000 2.39 0.42 78,653 0.45
0.59-1.04 1,343,494 1.30 0.60 958,809 0.59
--------- -------------- --------- --------------
3,004,493 $0.34 1,816,942 $0.38
========= ============== ========= ==============
F-22
NOTE 11--COMMITMENTS AND CONTINGENCIES
Leases
The Company has property and equipment under capital leases with
maturity dates to February 2004. Certain of the leases are secured by the
personal guarantee of a shareholder. As of December 31, 2001, the Company has no
future obligation under any facility leases. Future minimum payments under all
capital leases as of December 31, 2001 are as follows:
Years Ending Operating Capital
December 31: Leases Leases
------------ --------- ---------
2002 $ - $ 142,382
2003 - 63,542
2004 - 4,345
2005 - -
2006 - -
Thereafter - -
--------- ---------
Total minimum lease payments $ - 210,269
=========
Less: amount representing interest (29,362)
---------
Present value of future minimum lease payments 180,907
Less: current portion 120,818
---------
Long-term portion $ 60,089
=========
During the six-months ended December 31, 2001, the Company terminated
numerous leased facilities and recorded lease termination costs of approximately
$75,000. The Company believes that any obligations that might be remaining
attributable to the closure of these facilities are minimal. Rental expense for
all operating leases was $583,461, $1,229,834 and $559,370 for the six-months
ended December 31, 2001 and years ended June 30, 2001 and 2000, respectively.
Employment Agreements
The Company has employment agreements with certain employees calling
for annual salaries, bonuses and the grant of stock options. Certain of the
agreements were negotiated in connection with business acquisitions.
Claims and Litigation
The Company is involved in various legal proceedings arising out of its
operations in the ordinary course of its business, including various claims that
have been asserted or complaints that have been filed alleging patent and
copyright infringement, breach of employment and separation agreements, and
non-payment under various agreements. In addition, various claims have been made
against the Company in connection with certain of its acquisitions, including
breach of registration rights agreements. Management intends to contest each
case and in certain instances may attempt to reach a settlement of the issues
claimed. The Company does not believe that these proceedings will have a
material adverse effect on its business, financial condition, or result of
operations beyond the amounts recorded in the accompanying financial statements
for the estimated settlement of specific actions. However, if settlement is not
reached and the matters proceed to trial, an unfavorable outcome could have a
material adverse effect on the Company's financial position and results of
operations.
Registration Rights Agreements
As discussed in Note 3, the Company is currently in violation of
registration rights agreements associated with the ISG and IRIS purchase
agreements and certain amendments thereto. The required registration of the
shares issued as additional consideration to the former owners of ISG and IRIS
is pending the approval by the stockholders of the Company of a proposed
amendment to the Company's Articles of Incorporation to increase the number of
authorized common shares.
F-23
Realty Alliance Agreement
On May 1, 2001, the Company announced a strategic and technology
relationship with The Realty Alliance, an alliance of independent residential
real estate companies in the United States. The agreement would have required
the Company to issue one million shares of its common stock to The Realty
Alliance and to issue up to fifteen million warrants exercisable over a
five-year period at a price of $0.50 per share. The Realty Alliance and the
Company subsequently terminated the agreement with no further obligation on
behalf of the Company.
NOTE 12 - INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The significant components of the Company's deferred taxes were as
follows as December 31, 2001 and June 30, 2001:
December 31, June 30,
2001 2001
----------- -----------
Deferred tax assets:
Net operating loss carryover............. $23,098,985 $16,901,554
Deferred revenue......................... 1,123,743 1,876,445
Amortization of goodwill................. - 2,316,879
Accrued expenses and other............... 1,003,340 206,510
----------- -----------
25,226,068 21,301,388
Deferred tax liabilities:
Depreciation............................. (5,081) (5,081)
----------- -----------
25,220,987 21,296,307
Less: Valuation allowance................... (25,220,987) (21,296,307)
----------- -----------
Net deferred taxes....................... $ - $ -
=========== ===========
A valuation allowance has been established due to the Company's
accumulated losses. The increase in the valuation allowance was $3,924,680,
$9,559,612 and $6,898,526 for the six-months ended December 31, 2001 and years
ended June 30, 2001 and 2000, respectively. In addition, the Company has
available at December 31, 2001, approximately $70 million of unused Federal net
operating loss carryforwards that may be applied against future taxable income
and that expire in various years from 2008 to 2021. The utilization of these
loss carryforwards may be limited by certain events including an ownership
change as defined by the Internal Revenue Code.
Deferred tax assets relating to net operating loss carryforwards as of
December 31, 2001 include approximately $1,190,000 associated with stock option
activity for which subsequent recognized tax benefits, if any, will be credited
directly to shareholders' equity.
The principal reasons for the difference between the effective income
tax rate and the federal statutory income tax rate are as follows:
(Six Months) (Twelve Months) (Twelve Months)
December 31, June 30, June 30,
2001 2001 2000
------------ --------------- ---------------
Federal benefit expected at statutory rate.......... $(4,068,440) $(17,552,559) $(8,511,560)
Valuation allowance................................. 3,924,680 9,559,612 6,898,526
Write-down of intangible assets..................... - 5,337,836 -
Write-down of investment............................ - 585,820 850,000
Goodwill amortization............................... 123,760 2,054,192 739,862
Non-deductible expenses............................. 20,000 15,099 23,172
------------ --------------- ---------------
$ - $ - $ -
============ =============== ===============
F-24
NOTE 13--HOMEMARK TRANSACTIONS
On June 6, 2001, the Company entered into a Securities Purchase
Agreement with Homemark. Homemark agreed to purchase 5,000,000 shares of the
Company's Series A convertible preferred stock, subject to certain terms and
conditions including satisfactory completion of due diligence procedures and the
approval by the Company's stockholders of a proposed amendment to the Company's
Articles of Incorporation to increase the number of authorized common shares.
The cash considerations for the preferred stock was $20.0 million, to be paid
upon closing to the Company in a series of transactions, the number and timing
of which were to be determined. In addition to the cash purchase price, Homemark
was to assign to the Company $80.0 million of prepaid advertising owned by
Homemark in a national print publication.
Concurrent with the Securities Purchase Agreement, the Company and
Homemark entered into a Loan Agreement, providing for a non-contingent loan of
up to $1.0 million. These funds were advanced to the Company by Homemark during
June 2001, and were payable $500,000 on September 30, 2001 and $500,000 on
December 31, 2001 (see Note 8). Homemark also advanced the Company an additional
net amount of $875,000 in the form of short-term loans during July, August and
September 2001. The Securities Purchase Agreement and the transactions
contemplated by the agreement with Homemark were subject to the approval and
ratification of a majority of the stockholders of the Company.
On November 1, 2001 the Company entered into a Business Separation and
Settlement Agreement with HomeMark and HomeSeekers Management, Inc. In
accordance with the terms of the agreement, the companies terminated, and
released any and all obligations under, all agreements between the parties. In
connection with the settlement, and in addition to other terms and conditions,
the Company paid HomeMark its note payable balance of $1,875,000 and assigned to
HomeMark its Loan Agreement and the Security Agreement and Financing Agreement
dated July 16, 2001 between EntrePort Corporation and the Company in the total
principal amount of $500,000.
NOTE 14 - SEPARATION AND SETTLEMENT AGREEMENTS
In July and September 2001, and in connection with the transactions
with Homemark, the Company entered into separation and settlement agreements
with three of its former officers and directors. These individual agreements
provided for the termination of the officers' employment with the Company.
Pursuant to the agreements, the Company agreed to the following: (1) pay all
final salary, unpaid personal time off and other sums due, which totaled
approximately $50,000 combined; (2) pay a combined $59,000 cash to two of the
officers in July, and $20,000 cash to the other officer each month from
September 2001 through January 2002; (3) issue each officer 200,000 unrestricted
shares of the Company's common stock; (4) cancel all vested employee stock
options of the officers with an exercise price of $0.13 per share and issue to
them a total of 4,078,996 three-year warrants to purchase shares of the
Company's common stock at an exercise price of $0.13 per share; and (5) issue to
the officers over a 36 month period shares of the Company's common stock with a
combined value each month of approximately $72,000, with the number of shares to
be delivered to be determined by dividing the monthly payment amount by the
average closing price of one share of the Company's common stock for the ten
trading days immediately preceding the 15th day of each month. One of the
officers entered into a one-year consulting agreement with the Company for
$5,000 per month commencing in February 2002, and a note payable to the Company
by this officer of $70,000 was forgiven along with approximately $10,000 of
accrued interest. Each of the agreements contained mutual releases of certain
claims, liabilities or causes of actions that one party might have against the
other party. During the six-months ended December 31, 2001, the Company recorded
compensation expense of approximately $5,246,000, including an accrued liability
of $2,731,000 and common stock and additional paid-in capital of $2,249,000
attributable to these agreements.
The Company did not issue any stock to any of the officers under the
36-month provision called for by the agreements. Similarly, the Company did not
make any cash payments called for beyond September 2001. On April 23, 2002 the
Company and the former officers entered into new agreements that, among other
features, voided the 36-month stock issuance provision as well as all remaining
cash obligations under the old agreements. The Company agreed to issue a total
of 1 million shares of stock to each of two of the officers and warrants to
purchase 1 million shares of the Company's common stock to each of the three
officers exercisable during a 5 year period at an exercise price of $.10 per
share. The Company agreed to forgive certain indebtedness totaling approximately
$90,000 from one officer. Any issuances of common stock or any exercise of
warrants to purchase common stock as contemplated by the new agreements are
subject to an increase in the authorized number of common shares available which
must be approved by the Company's stockholders. The gain on the settlement of
these agreements totaled approximately $2.0 million, which will be recorded in
the second quarter of fiscal 2002.
F-25
NOTE 15 --QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized unaudited quarterly financial information for the six-months
ended December 31, 2001 and years ended June 30, 2001 and 2000 are noted below
(in thousands, except per share amounts):
1st Quarter 2nd Quarter 3rd Quarter (1) 4th Quarter (2)
----------- ----------- --------------- ---------------
December 31, 2001
Revenues......... $3,403 $2,632 - -
Loss from operations $7,748 $3,790 - -
Net loss......... $8,351 $3,615 - -
Basic and diluted net loss per
share......... $0.17 $0.08 - -
June 30, 2001
Revenues......... $4,414 $4,883 $4,412 $3,683
Loss from operations $7,841 $6,620 $14,930 $19,868
Net loss......... $8,664 $7,564 $14,746 $20,653
Basic and diluted net loss per
share......... $0.39 $0.31 $0.45 $0.51
June 30, 2000
Revenues......... $1,443 $2,574 $3,396 $3,677
Loss from operations $2,751 $4,923 $5,786 $12,052
Net loss......... $2,638 $4,787 $5,684 $11,925
Basic and diluted net loss per
share......... $0.17 $0.28 $0.32 $0.70
(1) Loss from operations and net loss include the impact of charges related to
asset impairment and investments, totaling $7,852 in the fiscal year ended
June 30, 2001.
(2) Loss from operations and net loss include the impact of charges related to
asset impairment and investments, totaling $11,816 in the fiscal year
ended June 30, 2001
NOTE 16 --TRANSITION PERIOD COMPARATIVE DATA
The following table presents certain financial information for the
six-month period ended December 31, 2001 and 2000, respectively.
(Amounts in Thousands)
Six-Months Six-Months
Ended Ended
December 31, 2001 December 31, 2000
----------------- -----------------
(unaudited)
Revenue.......................... $ 6,035 $ 9,297
Gross profit..................... 3,185 3,821
Loss from operations............. (11,538) (14,461)
Net loss......................... (11,966) (16,228)
F-26
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HOMESEEKERS.COM, INCORPORATED
By: /S/ Thomas Chaffee
------------------------------------
Thomas Chaffee
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
immediately below constitutes and appoints Thomas Chaffee his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-K and to file the
same with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ Thomas Chaffee
--------------------- Chairman of the Board, Director April 27, 2002
Thomas Chaffee and Chief Executive Officer
/S/ Steven M. Crane
--------------------- President and Chief Operating Officer April 27, 2002
Steven M. Crane (Principal Financial and Accounting Officer)
47
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -------------------
2.1 Purchase Agreement, dated as of July 21, 2000, by and among
HomeSeekers.com and the Members of Immediate Results Through
Intuitive Systems, LLC (incorporated by reference to the
Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission (the "Commission") on August
7, 2000).
2.2 First Amendment to Agreement and Plan of Merger, dated as of
February 15, 2001, by and among HomeSeekers.com and the
Shareholders of Information Solutions Group, Inc. (incorporated
by reference to the same numbered exhibit as filed with the
Company's Form 10-K for the year ended June 30, 2001).
2.3 First Amendment to Conditional Promissory Note, dated as of
February 15, 2001, by and among HomeSeekers.com and the Members
of Immediate Results Through Intuitive Systems, LLC.
(incorporated by reference to the same numbered exhibit as filed
with the Company's Form 10-K for the year ended June 30, 2001).
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-3, as amended (Commission File No. 333-32586), as filed
with the Commission on March 15, 2000 (the "S-3").
3.2 Amended and Restated Bylaws of HomeSeekers.com, Incorporated
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, as filed with the Commission on May
23, 2000).
4.1 Form of Common Stock Warrant (incorporated by reference to
Exhibit 4.3 to the S-3).
4.2 Registration Rights Agreement, dated as of July 21, 2000, by and
among HomeSeekers.com and the Members of Immediate Results
Through Intuitive Systems, LLC (incorporated by reference to the
Company's Current Report on Form 8-K, as filed with the
Commission on August 7, 2000).
4.3 Form of Common Stock Warrant (Exhibit D to the Equity Line of
Credit Agreement (as defined below)) (incorporated by reference
to Exhibit 1.1 to the Company's Current Report on Form 8-K, as
filed with the Commission on December 19, 2000 (the December
8-K")).
4.4 Registration Rights Agreement, dated as of January 25, 2001,
between the Company and Bradley N Rotter Self Employed Pension
Plan and Trust (incorporated by reference to the Company's
Quarterly Report on Form 10-Q, as filed with the Commission on
May 15, 2001 (the "May 10-Q")).
4.5 Registration Rights Agreement, dated as of February 15, 2001, by
and among HomeSeekers.com and the Shareholders of Information
Solutions Group, Inc. (incorporated by reference to the same
numbered exhibit as filed with the Company's Form 10-K for the
year ended June 30, 2001).
4.6 Warrant Agreement, dated as of March 15, 2001, between the
Company and Bradley N Rotter Self Employed Pension Plan and Trust
(incorporated by reference to the May 10-Q).
7.1 Form of Credit Agreement with Fidelity National Financial, Inc.
dated October 25, 2001 (incorporated by reference to the same
number exhibit as filed with the Company's Current Report on Form
8-K, as filed with the Commission on November 5, 2001.).
7.2 Form of Convertible Revolving Promissory Note with Fidelity
National Financial, Inc., dated November 5, 2001 (incorporated by
reference to the same number exhibit as filed with the Company's
Current Report on Form 8-K, as filed with the Commission on
November 5, 2001.).
7.3 Form of Purchase Warrant with Fidelity National Financial, Inc.,
dated November 5, 2001 (incorporated by reference to the same
number exhibit as filed with the Company's Current Report on Form
8-K, as filed with the Commission on November 5, 2001.).
7.4 Form of Security Agreement with Fidelity National Financial,
Inc., dated October 25, 2001 (incorporated by reference to the
same number exhibit as filed with the Company's Current Report on
Form 8-K, as filed with the Commission on November 5, 2001.).
48
7.5 Form of Business Separation and Settlement Agreement with
E-Home.com, Inc. d/b/a HomeMark, Inc., dated November 1, 2001
(incorporated by reference to the same number exhibit as filed
with the Company's Current Report on Form 8-K, as filed with the
Commission on November 5, 2001.).
7.6 Form of Assignment and Assumption Agreement with Fidelity
National Information Solutions, Inc., dated November 1, 2001
(incorporated by reference to the same number exhibit as filed
with the Company's Current Report on Form 8-K, as filed with the
Commission on November 5, 2001.).
7.7 Form of Asset Purchase Agreement with Fidelity National
Information Solutions, Inc., dated October 25, 2001 (incorporated
by reference to the same number exhibit as filed with the
Company's Current Report on Form 8-K, as filed with the
Commission on November 5, 2001.).
7.8 Form of Management Agreement with Fidelity National Information
Solutions, Inc., dated October 25, 2001 (incorporated by
reference to the same number exhibit as filed with the Company's
Current Report on Form 8-K, as filed with the Commission on
November 5, 2001.).
10.1 Settlement Agreement, dated as of November 21, 2000, by and among
Terradatum, LLC, Steven Hightower, Peter Krause and William D.
Biggs (incorporated by reference to the Company's Quarterly
Report on Form 10-Q, as filed with the Commission on February 14,
2001 (the "February 10-Q")).
10.2 Settlement Agreement, dated as of November 28, 2000, by and among
the Company, Alpenglow, Inc., Mark Stephens and Greg Hubly
(incorporated by reference to the February 10-Q).
10.3 Equity Line of Credit Agreement (the "Equity Line of Credit
Agreement"), dated as of December 4, 2000, between the Company
and Alpha Venture Capital, Inc. ("AVC") (incorporated by
reference to Exhibit 1.1 to the December 8-K).
10.4 Letter Agreement, dated as of December 15, 2000, between the
Company and AVC, amending the Equity Line of Credit Agreement
(incorporated by reference to Exhibit 1.2 to the December 8-K).
10.5 Promissory Note between the Company and Bradley N Rotter Self
Employment Pension Plan and Trust dated January 25, 2001
(incorporated by reference to the May 10-Q).
10.6 Security Agreement, dated January 15, 2001, between the Company
and Bradley N Rotter Self Employed Pension Plan and Trust
(incorporated by reference to the May 10-Q).
10.7 Securities Purchase Agreement, dated as of June 6, 2001, between
the Company and E-Home.com, Inc. d/b/a Homemark ("Homemark")
(incorporated by reference to the Company's Current Report on
Form 8-K filed with the Commission on June 11, 2001 (the "June
2001 8-K").
10.8 Loan Agreement, dated June 6, 2001, between the Company and
Homemark (incorporated by reference to the June 2001 8-K).
10.9* Amended and Restated 1996 Stock Option Plan (incorporated by
reference to Exhibit 6.1 to the Company's 10-KSB (Commission File
No. 000-23825) for the year ended June 30, 1999 (the "1999
10-KSB")).
10.10* Amendment No. 1 to HomeSeekers.com, Incorporated Amended and
Restated 1996 Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Commission File No. 333-44786), as filed with the Commission on
August 30, 2000).
10.11* Employment Agreement between the Company and John Giaimo dated
March 9, 1999 (incorporated by reference to Exhibit 6.6 to the
1999 10-KSB).
10.12* Employment Agreement between the Company and Greg Johnson dated
March 9, 1999 (incorporated by reference to Exhibit 6.7 to the
1999 10-KSB).
10.13* Employment Agreement between the Company and Doug Swanson dated
March 9, 1999 (incorporated by reference to Exhibit 6.8 to the
1999 10-KSB).
49
10.14* Employment Agreement between the Company and Greg Costley dated
August 23, 1999 (incorporated by reference to Exhibit 6.11 to the
1999 10-KSB).
10.15 Promissory Note between the Company and William Tomerlin dated
November 22, 2000. (incorporated by reference to the same
numbered exhibit as filed with the Company's Form 10-K for the
year ended June 30, 2001).
10.16 Security Agreement between the Company and William Tomerlin dated
November 22, 2000. (incorporated by reference to the same
numbered exhibit as filed with the Company's Form 10-K for the
year ended June 30, 2001).
10.17 Ted C. Jones resignation letter dated October 9, 2001
(incorporated by reference to the same number exhibit as filed
with the Company's Current Report on Form 8-K, as filed with the
Commission on October 9, 2001.).
10.18 Joseph Harker resignation letter dated October 16, 2001
(incorporated by reference to the same number exhibit as filed
with the Company's Current Report on Form 8-K, as filed with the
Commission on October 9, 2001.).
10.19 David L. Holmes resignation letter dated October 18,
2001(incorporated by reference to the same number exhibit as
filed with the Company's Current Report on Form 8-K, as filed
with the Commission on October 9, 2001.).
16.1 Letter on Change in Certifying Accountant (incorporated by
reference to the Company's Annual Report on Form 10-KSB filed
with the Commission on October 6, 2001).
16.2 Letter on Change in Certifying Accountant from Ernst & Young LLP
(incorporated by reference to the same number exhibit as filed
with the Company's Current Report on Form 8-K, as filed with the
Commission on October 16, 2001.).
21.1 Subsidiaries of Registrant. (incorporated by reference to the
same numbered exhibit as filed with the Company's Form 10-K for
the year ended June 30, 2001).
23.1 Consent of CORBIN & WERTZ, Independent Auditors (filed herewith).
99.1 Escrow Agreement, dated as of December 4, 2000, between the
Company and AVC (Exhibit E to the Equity Line of Credit
Agreement) (incorporated by reference to Exhibit 1.1 to the
December 2000 8-K).
99.2 Press Release related to Securities Purchase Agreement with
Homemark (incorporated by reference to the June 2001 8-K).
----------------
* Management contract or compensatory arrangement.
50