U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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{ } TRANSITION REPORT PURSUANT TO 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, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0397464
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
2241 Park Place, Suite E, Minden, NV 89423-8602
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(Address of Principal executive offices)
Issuer's telephone number, including area code: (702) 782-2977
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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_____
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,806,039 shares as of
September 30, 1998
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<CAPTION>
HOMESEEKERS.COM, INC.
Form 10-QSB for the quarter ended September 30, 1998
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TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
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Part I. Financial Information
Item 1. Financial Statements: Page
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Consolidated Balance Sheets as of September 30, 1998
and June 30, 1998 3
Consolidated Statements of Operations for the three
months ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the three
months ended September 30, 1998 and 1997 6
Notes to the Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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2
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HOMESEEKERS.COM, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
UNAUDITED AUDITED
September 30, June 30,
1998 1998
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 227,728 $ 198,410
Accounts receivable, net of allowance for uncollectible
accounts of $4,413 as of 9/30/98 and 6/30/98 99,633 54,883
Accounts receivable, related parties 39,112 193,289
Inventories 27,569 16,712
Prepaid expenses 24,766 13,120
Investments, related party stock, net of valuation
allowance of $700,000 as of 9/30/98 and 6/30/98 - -
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Total Current Assets 418,808 476,414
Investments in LLCs 450,132 450,687
Property and equipment, net 488,799 490,575
Goodwill, net of accumulated amortization of $349,587
as of 9/30/98 and $317,701 as of 6/30/98 539,824 361,359
Other assets 212,940 119,458
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Total Assets $ 2,110,503 $ 1,898,493
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 422,685 $ 323,918
Accrued liabilities 294,943 292,970
Notes payable 29,698 29,698
Notes payable - related parties 66,595 31,595
Deferred revenue 1,211,620 1,147,654
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Total Current Liabilities 2,025,541 1,825,835
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<CAPTION>
HOMESEEKERS.COM, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
September 30, June 30,
1998 1998
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Long-Term Liabilities
Note Payable, due on September 30, 2003, interest
payable monthly at 14% per annum, secured by
the Company's WebQuest stock 250,000 -
Convertible Debt 55,000 140,000
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Total Long-Term Liabilities 305,000 140,000
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Stockholders' Deficit
Series A convertible preferred stock, $0.001
par value, 5,000,000 shares authorized; 692,000
shares issued and outstanding at September 30,
1998 and at June 30, 1998 692 692
Series B convertible preferred stock, $10.00 par
value, 200,000 shares authorized; 0 shares issued
and outstanding at September 30, 1998 and at
June 30, 1998 - -
Series C convertible preferred stock, $10.00 par
value, 400,000 shares authorized; 0 shares
issued. - -
Common stock; $.001 par value, 50,000,000 shares
authorized; 7,806,039 shares and 7,460,703
shares issued and outstanding at September 30,
1998 and at June 30, 1998, respectively 7,806 7,461
Additional paid in capital 11,922,715 11,112,776
Dividends on Series A convertible preferred stock (118,725) (118,725)
Accumulated deficit (11,332,526) (10,369,546)
Unrealized loss on securities (700,000) (700,000)
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Total Stockholders' Deficit ( 220,038) (67,342)
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Total Liabilities and Stockholders'
Deficit $ 2,110,503 $ 1,898,493
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</TABLE>
4
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HOMESEEKERS.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Revenues:
Web Sites and Web Pages $ 174,452 $ 75,612
Advertising 133,306 51,850
Programming, Support and License Fees (1) 41,568 21,525
Other 25,284 15,159
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Total Revenues 374,610 164,146
Cost of Sales 83,878 53,612
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Gross Profit 290,732 110,534
Operating Expenses 1,247,371 683,895
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Net Loss from Operations (956,639) (573,361)
Other Income (Expense)
Interest expense (6,005) (47,481)
Other (335) (332)
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Loss Before Provision for Income Taxes (962,979) (621,174)
Provision for Income Taxes - -
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Net Loss (962,979) (621,174)
Other Comprehensive Income, Net of Tax:
Unrealized loss on securities - (700,000)
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Net Comprehensive Loss $ (962,979) $ (1,321,174)
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Basic and Diluted Net Loss per Common Share $ (.14) $ (.13)
============ ==============
Shares Used in Computing Basic and Diluted
Share Data 7,594,810 4,879,129
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</TABLE>
(1) Programing, Support and License Sales include net sales to related parties
of $18,955 and $21,000 for the three months ending September 30, 1998 and
1997, respectively.
5
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HOMESEEKERS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
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<CAPTION>
1998 1997
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Cash Flows From Operating Activities
Net Loss $ (962,979) $ (621,174)
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Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 83,560 68,998
Allocated loss on investments 555 -
Common stock issued for employee compensation 16,052 46,779
Common stock issued for interest 587 27,983
Changes in assets and liabilities net of effect from
purchase of Genstar
Trade receivables 109,427 (51,775)
Inventories (10,857) -
Prepaid expenses (11,646) (5,000)
Other assets (44,378) 5,000
Accounts payable 98,767 (66,631)
Accrued liabilities 51,973 (36,376)
Deferred revenue 63,965 83,699
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Net adjustments 358,005 72,677
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Net Cash Used in Operating Activities (604,974) (548,497)
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Cash Flows From Investing Activities
Purchase of property and equipment (34,353) (44,615)
Issuance of note receivable (50,000) -
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Net Cash Provided (Used) in
Investing Activities (84,353) (44,615)
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Cash Flows From Financing Activities
Principal payments on capital lease obligations - (6,846)
Proceeds from notes payable - related parties 40,000 78,000
Payments on notes payable - related parties (5,000) (98,000)
Proceeds from notes payable 250,000 250,000
Payments on notes payable - (28,210)
Net proceeds from sale of common stock 448,645 473,900
Deferred offering costs paid (15,000) -
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Net Cash Provided by Financing Activities 718,645 668,844
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Net (Decrease) Increase in Cash 29,318 75,732
Cash at Beginning of Period 198,410 32,222
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Cash at End of Period $ 227,728 $ 107,954
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
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Cash paid for interest $ 1,134 $ 47,271
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Cash paid for income taxes $ - $ -
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</TABLE>
6
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HOMESEEKERS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1998
- ----
During the quarter ended September 30, 1998, accrued liabilities in the amount
of $50,000 were satisfied by the issuance of 20,000 shares of the Company's
common stock.
During the quarter ended September 30, 1998, $85,000 of debt was converted into
42,500 shares of the Company's common stock.
1997
- ----
During the quarter ended September 30, 1997, the Company issued 15,937 shares of
its common stock in exchange for goods and services.
Accrued interest in the amount of $77,267 was satisfied by the issuance of
22,659 shares of the Company's common stock.
During the quarter ended September 30, 1997, $1,505,252 of debt was converted
into 752,626 shares of the Company's common stock.
The Company established a valuation allowance of $700,000 for certain marketable
securities during the quarter ended September 30, 1997 due to the inability to
establish a market value of the securities.
The Company deferred certain revenues in the amount of $291,667 during the
quarter ended September 30, 1997 due to collectibility issues.
7
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HOMESEEKERS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
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HomeSeekers.com, Incorporated (the "Company") is a leading provider of
online consumer real estate information on the Internet through its Web site at
homeseekers.com. The Company's Web site provides listings for approximately
660,000 homes constituting the second largest group of residential real estate
listings ("listings") on the Internet. Listings are obtained from various
multiple listing services and from realty firms. The Web site maintains listings
in 27 states and Mexico.
The Company also offers desktop software products used by real estate
professionals to manage information, contacts and listings.
The accompanying consolidated financial statements are prepared in
accordance with the instructions to Form 10-QSB, are unaudited and do not
include all the information and disclosures required by generally accepted
accounting principles for complete financial statements. All adjustments that,
in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods have been made and are of a
recurring nature unless otherwise disclosed herein. The results of operations
for such interim periods are not necessarily indicative of results of operations
for a full year.
NOTE 2 - FINANCING REQUIREMENTS
- -------------------------------
In order to finance the operating loss for the three months ending
September 30, 1998, the Company raised $449,000 through the sale of equity at an
average price per share of $1.98 and obtained two loans totaling $290,000 at an
average annual interest rate of 14%. $40,000 of these loans were from a major
stockholder.
The Company has not yet generated significant revenues and has funded its
operations primarily through the issuance of equity. Accordingly, the Company's
ability to accomplish its business strategy and to ultimately achieve profitable
operations is dependent upon its ability to obtain additional financing and
execute its business plan. There can be no assurance that additional funding
will be available to the Company, or if available, can be obtained on terms
favorable to or affordable by the Company. The Company's management expects to
raise additional capital in 1998-99 and to continue to develop the Company's
operations around its products. Ultimately, however, the Company will need to
achieve profitable operations in order to continue as a going concern.
NOTE 3 - ACQUISITION OF GENSTAR MEDIA
- -------------------------------------
In order to enhance the Company's sale of Web sites to real estate agents,
on August 4, 1998, the Company acquired the customer list and certain other
assets of Genstar Media ("Genstar"), a recently formed company engaged in the
sale of Web sites to real estate agents. Genstar's customer list includes
approximately 1,600 Web site customers. In connection with this acquisition, the
Company engaged the principal officer and shareholder of Genstar, and certain of
its other employees, as employees of the Company. The purchase price for the
assets acquired was 50,000 shares of the Company's common stock, and the Company
agreed to issue additional shares having a market value of up to $200,000, based
upon revenues generated from the purchased assets. The Company also loaned the
sellers $50,000, the repayment of which is secured by the stock issued by the
Company.
8
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HOMESEEKERS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITION OF GENSTAR MEDIA (Continued)
- ------------------------------------------------
This acquisition was accounted for by the purchase method and Genstar's
results of operations from August 5 on were included in the Company's results of
operations. Goodwill in the amount of $210,350 was booked for this acquisition
and is being amortized over five years.
Due to the recognition of Web site revenues over twelve months, the
Company's results of operations for the three months ending September 30, 1998
were not materially affected by the acquisition of Genstar. Accordingly,
separate disclosure of Genstar's revenues, operating results and operating
results per share have not been disclosed.
9
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Total revenues of $375,000 for the three months ended September 30, 1998,
increased 128% or $210,000 over the same period in 1997 due to increased sales
of Web pages and Web sites to real estate agents and due to increased
advertising revenues.
Operating expenses of $1,247,000 for the three month period ended September 30,
1998 ("Q1 FY99") were up $563,000, or 82% over the same period in 1997 ("Q1
FY98") due primarily to an increase in employees from 31 to 61 and a
corresponding increase in compensation expense ($386,000 in 1997 and $783,000 in
1998). These employees were added primarily in the sales, sales support and
programming functions to increase Company sales, to support the Company's
homeseekers.com Internet site and to develop and upgrade the Company's software
products.
Interest expense of $6,000 reflects a decrease of 87% from 1997 interest
expense. This decrease results from the conversion into common stock of
$2,056,000 in convertible debt after Q1 FY98 and prior to Q1 FY99.
Net loss for Q1 FY99 of $963,000 or $(.14) per share increased $342,000 from the
net loss of $621,000 or $(.13) per share for Q1 FY98. The increase in net loss
is primarily due to higher operating expenses outpacing higher revenues and
lower interest expense.
Liquidity and Capital Resources
Net cash used in operations during Q1 FY99 of $605,000 was financed by
additional equity sales in the amount of $449,000 and through two new loans
totaling $290,000.
The Company will require additional capital to fund its business plan. The
Company plans to privately offer up to $6 million in shares of common stock.
This offering is anticipated to be completed in Q2 FY99. In the event the
offering is not successfully completed, additional funding will be required in
order to implement the Company's business plan. There is no assurance that
additional funding can be obtained on favorable terms.
Impact of the Year 2000
The Company's internally developed software products are all year 2000
compliant. The Company's computers and critical computer software used to
operate the business are all year 2000 compliant. The Company is currently
determining the extent to which it may be impacted by customers' and vendors'
failure to remedy their own year 2000 issues.
10
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PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults upon Senior Securities
None
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
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized.
HomeSeekers.com, Inc.
(Registrant)
/s/ Greg Johnson /s/ Scott Berry
- ----------------------------- --------------------------
Greg Johnson Scott Berry
Chief Executive Officer Chief Financial Officer
Dated: November 19, 1998
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 227,728
<SECURITIES> 0
<RECEIVABLES> 143,158
<ALLOWANCES> 4,413
<INVENTORY> 27,569
<CURRENT-ASSETS> 418,808
<PP&E> 1,047,481
<DEPRECIATION> 558,682
<TOTAL-ASSETS> 2,110,503
<CURRENT-LIABILITIES> 2,025,541
<BONDS> 0
0
692
<COMMON> 7,806
<OTHER-SE> (227,844)
<TOTAL-LIABILITY-AND-EQUITY> 2,110,503
<SALES> 374,610
<TOTAL-REVENUES> 374,610
<CGS> 83,878
<TOTAL-COSTS> 1,247,371
<OTHER-EXPENSES> 335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,005
<INCOME-PRETAX> (962,979)
<INCOME-TAX> 0
<INCOME-CONTINUING> (962,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (962,979)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
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