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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________to________________
Commission File Number: 0-23835
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HomeSeekers.com, Incorporated
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Nevada 87-0397464
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2800 Saturn Street, Suite 200, Brea, CA 92821
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 927-2200
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 48,954,561 shares of
common stock, $ .001 par value, outstanding as of November 15, 2002.
HOMESEEKERS.COM, INCORPORATED
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002
Part I Financial Information Page
----
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
September 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Condensed Statements of Operations
for the Quarters ended September 30, 2002
and 2001 (Unaudited) and Nine-Months ended
September 30, 2002 and 2001 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for
the Nine-Months ended September 30, 2002
and 2001 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 12
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
CERTIFICATIONS 15
2
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 447 $ 1,232
Accounts receivable, net of allowance for doubtful
accounts of $65 and $190, respectively 1,209 57
Accounts and notes receivable, related parties -- 92
Other assets 109 86
------------- -------------
Total current assets 1,765 1,467
Investments, net -- 20
Property and equipment, net 593 1,337
Purchased intangible assets, net -- 5
Other assets 7 50
------------- -------------
$ 2,365 $ 2,879
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 3,319 $ 3,945
Accrued payroll and other liabilities 2,353 4,704
Liability under purchase agreement 500 500
Long-term obligations, current portion 3,792 1,046
Deferred revenue, current portion 2,280 2,722
------------- -------------
Total current liabilities 12,244 12,917
Long-term liabilities
Long-term obligations 37 3,088
Deferred revenue 456 583
------------- -------------
Total long-term liabilities 493 3,671
Commitments and contingencies -- --
Stockholders' equity (deficit)
Common stock, $.001 par; 50,000,000 shares authorized;
48,954,561 shares issued and outstanding 49 49
Additional paid-in capital 91,501 90,975
Accumulated other comprehensive loss (200) (180)
Accumulated deficit (101,722) (104,553)
------------- -------------
Total stockholders' equity (deficit) (10,372) (13,709)
------------- -------------
$ 2,365 $ 2,879
============= =============
See notes to consolidated condensed financial statements.
3
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 AND
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Amounts in thousands, except share and per share data)
(Unaudited)
Quarters Ended Nine-Months Ended
September 30, September 30,
2002 2001 2002 2001
------------------------------ ------------------------------
Revenues $ 3,451 $ 3,403 $ 7,875 $ 11,498
Cost of revenues 529 794 1,492 8,877
------------ ------------ ------------ ------------
Gross profit 2,922 2,609 6,383 2,621
------------ ------------ ------------ ------------
Operating expenses
Operating expenses 2,338 7,278 6,049 22,801
Write down of assets -- 843 5 20,130
------------ ------------ ------------ ------------
2,338 8,121 6,054 42,931
------------ ------------ ------------ ------------
Income (loss) from operations 584 (5,512) 329 (40,310)
Other income (expense)
Interest expense (167) (542) (582) (1,403)
Interest income 5 2 6 39
Other, net 462 (63) 3,077 160
------------ ------------ ------------ ------------
300 (603) 2,501 (1,204)
------------ ------------ ------------ ------------
Net Income (loss) 884 (6,115) 2,830 (41,514)
Other comprehensive loss -- -- (20) (157)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ 884 $ (6,115) $ 2,810 $ (41,671)
============ ============ ============ ============
Net income (loss) per common share
Basic $ 0.02 $ (0.13) $ 0.06 $ (0.98)
============ ============ ============ ============
Diluted $ 0.02 $ (0.13) $ 0.06 $ (0.98)
============ ============ ============ ============
Shares used in computing per share data
Basic 48,954,561 48,154,736 48,954,561 42,379,049
============ ============ ============ ============
Diluted 49,094,561 48,154,736 49,094,561 42,379,049
============ ============ ============ ============
See notes to consolidated condensed financial statements.
4
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Amounts in thousands)
(Unaudited)
2002 2001
-------- --------
Cash flows from operating activities
Net income (loss) $ 2,830 $(41,514)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Depreciation 860 1,218
Amortization -- 5,086
Write down of assets -- 20,278
Compensation expense from option repricing -- (230)
Gain from extinguishment of debt (2,227) --
Write down of intangible assets 5 --
Settlement of accounts payable and other liabilities (896) --
Equity in net losses of foreign affiliate -- (463)
Common stock and warrants issued for services -- 3,271
Common stock and warrants issued for interest 286 1,320
Other -- 405
Changes in assets and liabilities net of effects from acquisitions
Accounts receivable (1,152) 773
Accounts receivable, related parties -- 63
Prepaid expenses (23) 287
Other assets 43 (38)
Accounts payable 270 1,440
Accrued payroll and other liabilities 208 2,611
Deferred revenue (569) (432)
-------- --------
Net cash used in operating activities (365) (5,925)
-------- --------
Cash flows from investing activities
Purchase of property and equipment (115) (227)
Proceeds from sale of intangibles -- 354
Payment from foreign affiliate -- 200
Proceeds from sale of assets -- 5
Other -- 8
-------- --------
Net cash provided by (used in) investing activities (115) 340
-------- --------
Cash flows from financing activities
Issuance of debt -- 2,741
Repayments of debt (305) (472)
Net proceeds from sale/exercise of common stock, options
and warrants -- 3,035
-------- --------
Net cash provided by (used in) financing activities (305) 5,304
-------- --------
Net decrease in cash and cash equivalents (785) (281)
Cash and cash equivalents at beginning of period 1,232 586
-------- --------
Cash and cash equivalents at end of period $ 447 $ 305
======== ========
See notes to consolidated condensed financial statements.
5
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION AND BASIS OF PRESENTATION
The consolidated condensed financial statements are unaudited and, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, previously
filed with the Securities and Exchange Commission. The Company presumes that
users of the interim financial information herein have read or have access to
the audited financial statements for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context. Accordingly, footnote disclosure that would
substantially duplicate the disclosure contained in the Company's Annual Report
on Form 10-K for the six-months ended December 31, 2001 has been omitted. The
results of operations for the quarter and nine-months ended September 30, 2002
are not necessarily indicative of the results that will be realized for a full
year. Certain prior period amounts have been reclassified to conform to the
current period's presentation.
NOTE 2 - NEW ACCOUNTING STANDARD
On April 30, 2002 the Financial Accounting Standards Board (FASB)
issued Statement 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. FASB 145 rescinds Statement
4, which required all gains and losses from extinguishments of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. Early application of the provisions of FASB 145 may be as of
the beginning of the fiscal year or as of the beginning of the interim period in
which FASB 145 is issued. The Company has elected to adopt FASB 145 as of the
beginning of the current fiscal year.
As discussed in Note 5, on April 23, 2002 the Company and three of its
former officers canceled certain separation and settlement agreements and
entered into new agreements that generated a gain on the settlement of
approximately $2.2 million. As a result of the adoption of FASB 145, the Company
recorded the gain as other income during the quarter ended June 30, 2002 as it
did not meet the criteria for treatment as an extraordinary item as provided for
in APB Opinion 30. The impact on diluted earnings per share for the quarter and
year-to-date June 30, 2002 was $.04 per share.
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.
6
NOTE 3 - GOING CONCERN
The Company reported net income of approximately $884,000 for the
quarter ended September 30, 2002 and incurred a net loss of approximately $12.0
million during the six-months ended December 31, 2001, and at September 30, 2002
had a working capital deficit of approximately $10.5 million, an accumulated
deficit of approximately $101.7 million and a stockholders' deficit of
approximately $10.4 million. In addition, the Company used cash of approximately
$364,000 to fund operations during the most recent nine-month period. The
reports of independent auditors on the Company's December 31, 2001 and June 30,
2001 consolidated 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
consolidated condensed 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.
NOTE 4 - EQUITY TRANSACTIONS
Pursuant to a late payment penalty clause of a note payable to a former
director, the Company is obligated to issue warrants to purchase 100,000 shares
of the Company's common stock each week until the note is paid. At September 30,
2002 the Company was obligated to issue to the former director penalty warrants
to purchase an additional 7.8 million shares of the Company's common stock.
Interest expense recognized during the quarter ended September 30, 2002
attributable to these warrants was $74,000. Similarly, interest expense
attributable to these warrants recognized during the six-months ended December
31, 2001 was $631,000.
NOTE 5 - GAIN FROM EXTINGUISHMENT OF DEBT
On April 23, 2002 the Company and three of its former officers canceled
certain separation and settlement agreements entered into during July and
September 2001 and entered into new agreements that, among other features,
voided a 36-month stock issuance provision as well as any 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 $92,000
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 $2.2 million, which was recorded in the quarter
ended June 30, 2002.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following discussion of financial condition and results of
operations should be read in conjunction with the consolidated condensed
financial statements and notes thereto included elsewhere in this report. This
Form 10-Q 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-Q, 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-Q 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-Q. 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.
Prior to the quarter ended September 30, 2002, the Company had
experienced recurring losses from operations and has an accumulated deficit of
approximately $101.7 million and a working capital deficit of $10.5 million at
September 30, 2002 and limited cash reserves. Because of these factors, the
reports of the independent auditors on the consolidated financial statements for
the six-months ending December 31, 2001 and the year ended June 30, 2001
included 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. During its first quarter ending March 31, 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.
8
The Company is operating with a new management team and has undertaken
a significant restructuring of its operations. As a direct result of these
efforts, the Company generated positive earnings from operations and posted net
income of approximately $884,000 for the quarter ended September 30, 2002, as
compared to a net loss of approximately $6,115,000 in the comparable prior
period. The Company is currently operating at profitable levels; however, 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.
Results of Operations
Revenues
Revenues increased 3% from $3.4 million in the quarter ended September
30, 2001 to $3.5 million in the quarter ended September 30, 2002. This also
represents a 35% increase from revenues of $2.6 million in the quarter ended
June 30, 2002. For the nine-months ended September 30, 2002 revenues decreased
31% to $7.9 million from $11.5 million in the comparable prior period. The
primary reason for the decrease in revenues from the prior period was the
termination of the Company's publishing operations and the sale of its MLS
operations between periods. Revenues recognized during the quarter ended
September 30, 2002 were primarily composed of sales of the Company's software
productivity tools for real estate agents, hosting fees associated with real
estate agent web sites, and fees for customized software development, data
aggregation, and hosting services for third-parties including the one-time
recognition of $1.2 million associated with the delivery of one custom software
project.
Cost of Revenues
Cost of revenues decreased from $794,000 in the quarter ended September
30, 2001 to $529,000 in the quarter ended September 30, 2002, and decreased from
$8.9 million in the nine-months ended September 30, 2001 to $1.5 million in the
nine-months ended September 30, 2002. The decrease is primarily a result of the
elimination of the publication operations and the sale of its MLS operations
between periods, which had a significantly higher cost of revenue, and the
inclusion in cost of revenues in the prior period of amortization costs
associated with certain purchased technology from prior business acquisitions.
Operating Expenses and Write-Down of Assets
Total operating expenses decreased from $8.1 million in the quarter
ended September 30, 2001 to $2.3 million in the quarter ended September 30,
2002, and decreased from $42.9 million in the nine-months ended September 30,
2001 to $6.1 million in the nine-months ended September 30, 2002. As noted
above, the Company eliminated its publication operations and sold its MLS
operations between periods. Additionally, the Company undertook a significant
restructuring and consolidation of its remaining business units in order to
significantly reduce its operating expenses and achieve positive cash flows. The
largest single component of operating expenses in both periods was compensation
and related expenses. As a result of the above, compensation and related
expenses included in operating expenses decreased from $1.9 million to $908,000
between quarterly periods, and decreased from $9.0 million in the nine-months
ended September 30, 2001 to $2.7 million in the nine-months ended September 30,
2002. Depreciation and amortization expense included in operating expenses
during the quarter ended September 30, 2002 was $289,000 compared to $913,000 in
the prior period and decreased from $3.2 million to $860,000 between the
nine-month periods, as the Company fully-depreciated or disposed of depreciable
assets between periods.
9
During the quarter ended September 30, 2001, the Company wrote down
$843,000 of impaired long-lived assets. For the nine-months ended September 30,
2001 the Company wrote down a total of $20.1 million of impaired assets. The
write-downs included an investment in a foreign affiliate, significant amounts
of purchased intangible assets in connection with various acquisitions, and
other investments. After careful assessment of various factors relating to these
assets, including the Company's decision to discontinue its publishing
operations and continued negative stock market conditions for emerging
technology companies, management determined it was appropriate to write down the
value of these assets. Accordingly, such assets were written down to estimated
fair value based on estimated future undiscounted net cash flows in accordance
with Statement of Financial Accounting Standards No. 121.
Liquidity and Capital Resources
The Company has limited cash reserves, an accumulated deficit of $101.7
million, and a working capital deficit of $10.5 million at September 30, 2002.
Because of the Company's significant net losses, working capital deficit,
accumulated deficit and uncertainty as to its ability to secure additional
financing, the reports of the independent auditors on the consolidated financial
statements for the six-months ended December 31, 2001, and for the year ended
June 30, 2001, included an explanatory paragraph indicating there is substantial
doubt about the Company's ability to continue as a going concern.
At September 30, 2002, the Company's cash balance was $447,000 compared
to $1,232,000 at December 31, 2001, a net decrease of $785,000. Cash and
customer receivables, net of allowances for doubtful accounts, increased between
periods, from $1,289,000 to $1,656,000 at September 30, 2002, an increase of
$367,000. From inception and until only recently, the Company has experienced
negative cash flows from operations. During the nine-months ended September 30,
2002, net cash used in operating activities was approximately $365,000 compared
to net cash used in operating activities of $5,925,000 during the nine-months
ended September 30, 2001. Adjustments to reconcile the net loss to net cash used
in operations during the nine-months ended September 30, 2001 included a
significant amount of non-cash expenses attributable to depreciation,
amortization and write-down of assets in the prior period.
Net cash used in investing activities during the nine-months ended
September 30, 2002 was $115,000 for the purchase of computer hardware and
equipment necessary to the Company's business. Subject to the sale of assets in
the prior period, the net cash provided by investing activities during the
nine-months ended September 30, 2001 was $340,000.
10
Net cash used in financing activities during the nine-months ended
September 30, 2002 was $305,000 and was attributable to debt repayments. During
the nine-months ended September 30, 2001, a significant portion of the
operations of the Company was funded through the issuance of equity securities.
Accordingly, the net cash provided by financing activities during the
nine-months ended September 30, 2001 was $5.3 million.
RISK FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Investors are cautioned that this Form 10-Q 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. These risks and uncertainties are discussed from time
to time in the Company's filings with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to revenue recognition, intangible assets, financing operations,
and contingencies and litigation. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. These accounting policies
are described at relevant sections in this discussion and analysis and in the
notes to the consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2002, 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 September 30,
2002. Therefore, such investments are not subject to significant market risks.
11
ITEM 4. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and
procedures by Thomas Chaffee, the Company's Chief Executive Officer, and Steven
M. Crane, the Company's President and Chief Operating Officer, as of a date
within 90 days of the filing date of this quarterly report, such officers have
concluded that the Company's disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported, within the time period
specified by the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
ITEM 1. 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 as a result of the
exercise of outstanding options and warrants and other agreements that are in
excess of the Company's authorized number of shares of common stock, including a
loan convertible into 30,000,000 shares of the Company's common stock or 25% of
the Company's outstanding common stock on the date of exercise. 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. Any increase in the
authorized capital requires an amendment to the Articles of Incorporation, which
must be approved by the stockholders. In July 2002 the Company appointed three
additional individuals to its board of directors for a total of four board
members. Although it is within corporate guidelines to create permanent
appointments, these appointments are considered temporary until ratified by the
stockholders. Among other matters, the board is considering the earliest date
feasible for a meeting of the stockholders at which the Company may 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 its
obligations. Additionally, the Company relied heavily on the issuance of common
stock in the past for 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 or otherwise raise capital until such an
increase is approved and effected.
12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None. The Company did not issue any shares of its common stock during
the quarter ended September 30, 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter ended September 30, 2002, the Company was in default
of one debt instrument for non-payment in accordance with the terms of the note.
See "Note 4 - Equity Transactions."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 Securities and Exchange Commission (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).
99.1(a) and 99.1(b)
Certification pursuant to 18 U.S.C. ss.1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company did not issue any Reports on Form 8-K during the quarter
ending September 30, 2002.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HomeSeekers.com, Incorporated
(Registrant)
/S/ Steven M. Crane
-----------------------------------
Steven M. Crane
President and Chief Operating Officer
(Principal Financial and Chief Accounting Officer)
Dated: November 18, 2002
14
CERTIFICATION
I, Thomas Chaffee, Chairman of the Board and Chief Executive Officer, certify
that:
1. I have reviewed this Quarterly Report on Form 10-Q of HomeSeekers.com,
Incorporated;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/ Thomas Chaffee
--------------------------
Thomas Chaffee
Chairman of the Board and Chief Executive Officer
15
CERTIFICATION
I, Steven M. Crane, President and Chief Operating Officer certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of HomeSeekers.com,
Incorporated;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/ Steven M. Crane
-----------------------------
Steven M. Crane
President and Chief Operating Officer
(Principal Financial and Chief Accounting Officer)
16