SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 28, 1999
HomeSeekers.com, Incorporated
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-23835 87-0397464
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
2241 Park Place, Suite E, Minden, Nevada 89423
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (775) 782-2977
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 11, 1999, HomeSeekers.com, Incorporated (the "Company")
reported on Form 8-K (the "Initial Report") that it had acquired all of the
outstanding shares of Holloway Publications, Inc., an Indiana corporation
("HPI"). The purpose of this Report is to amend the Initial Report by filing the
financial information identified in Item 7, below, in connection with the
Company's acquisition of HPI.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits.
a) Financial Statements of Holloway Publications, Inc. for the periods
specified in Rule 3-05(b) of Regulation S-X, are attached hereto.
b) Pro Forma Financial Information required pursuant to Article 11 of
Regulation S-X, are attached hereto.
c) Exhibits.
1) Plan and Agreement of Reorganization between HomeSeekers.com,
Incorporated and Holloway Publications, Inc. and its
shareholders*.
2) Employment Agreement by and between HomeSeekers.com,
Incorporated and Holloway Publications, Inc. and Steven H.
Holloway**.
* Incorporated by reference to Exhibit (c)(1) to Report on Form 8-K filed
June 11, 1999.
** Incorporated by reference to Exhibit (c)(2) to Report on Form 8-K filed
June 11, 1999.
2
<PAGE>
SIGNATURE
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 hereunto duly authorized.
HOMESEEKERS.COM, INCORPORATED
By: /s/ Greg Johnson
-------------------------------------
Greg Johnson, Chief Executive Officer
Dated: August 6, 1999
3
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2-3
Statements of Income, Comprehensive
Income and Retained (Deficit) Earnings 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-17
<PAGE>
Albright, Persing & Associates, Ltd.
CERTIFIED PUBLIC ACCOUNTANTS
1025 Ridgeview Dr., Suite 300
Reno, Nevada 89509
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
Holloway Publications, Inc.
We have audited the accompanying balance sheets of Holloway
Publications, Inc. as of December 31, 1998 and 1997, and the related statements
of income, comprehensive income and retained (deficit) earnings and cash flows
for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Holloway
Publications, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Albright, Persing & Associates, Ltd.
May 27, 1999, except for Note 10, as to which
the date is July 23, 1999
1
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Current Assets:
Cash $ 6,071 $ 50
Accounts receivable 98,045 116,091
Notes receivable 1,180 8,435
Prepaid expenses 7,922 4,585
------------- -------------
Total current assets 113,218 129,161
------------- -------------
Equipment, Net 117,727 57,824
------------- -------------
Other Assets:
Notes receivable 176 438
Customer list and trademark, net of accumulated
amortization of $28,500 in 1998 and $19,500
in 1997 106,500 115,500
Franchise fee, net of accumulated amortization
of $10,125 in 1997 - 4,875
Loan fees, net of accumulated amortization of
$314 in 1998 8,474 -
Deposits 575 575
------------- -------------
115,725 121,388
------------- -------------
Total Assets $ 346,670 $ 308,373
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
1998 1997
-------- ----------
<S> <C> <C>
Current liabilities:
Bank overdraft $ - $ 16,639
Current portion of long-term debt 147,528 89,539
Due to shareholders - 2,000
Accounts payable 120,489 65,915
Accrued salaries 4,397 3,009
Accrued expenses 2,834 3,039
Accrued interest payable 2,431 360
Deferred revenue - 12,600
--------------- ---------------
Total current liabilities 277,679 193,101
Long-term Debt, net of current portion 346,756 12,565
Due to shareholders 26,000 -
--------------- ---------------
Total Liabilities 650,435 205,666
--------------- ---------------
Stockholders' (deficit) equity:
Common stock, no par value, 1,000 shares
shares authorized, 100 shares issued
and outstanding 100 100
Retained (deficit) earnings (303,865) 102,607
--------------- ---------------
Total stockholders' (deficit) equity (303,765) 102,707
--------------- ---------------
Total Liabilities and Stockholders'
(Deficit) Equity $ 346,670 $ 308,373
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND RETAINED (DEFICIT) EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Net Sales $1,269,655 $1,019,530
Cost of Sales 622,658 445,649
---------- ----------
Gross Profit 646,997 573,881
---------- ----------
Operating Expenses
General and administrative expenses 473,921 424,796
Franchise termination 430,949 -
---------- ----------
904,870 424,796
---------- ----------
(Loss) Income from operations (257,873) 149,085
---------- ----------
Other Income (Expense)
Interest expense (24,636) (16,025)
Interest income 437 22
---------- ----------
(24,199) (16,003)
---------- ----------
Net (Loss) Income (282,072) 133,082
Other Comprehensive Income - -
---------- ----------
Comprehensive (Loss) Income (282,072) 133,082
Retained (deficit) earnings beginning of year 102,607 70,291
Shareholder distributions (124,400) (100,766)
---------- ----------
Retained (deficit) earnings, end of year $(303,865) $ 102,607
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss) $(282,072) $ 133,082
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities
Depreciation 21,912 20,327
Amortization 10,439 10,500
Change in provision for bad debts (183) 1,173
Loss on writeoff of franchise fee 3,750 -
Decrease in accounts receivable 18,229 6,180
(Increase) Decrease in prepaid assets (3,337) 3,887
Increase in accounts payable 54,574 16,662
Increase in accrued salaries 1,388 250
(Decrease) in accrued expenses (205) (1,796)
Increase (Decrease) in accrued interest payable 2,071 (882)
(Decrease) Increase in deferred income (12,600) 12,600
--------- ---------
96,038 68,901
--------- ---------
Net cash (used) provided by operating activities (186,034) 201,983
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Notes receivable additions - (8,873)
Notes receivable collections 7,517 -
Purchase of equipment (8,183) (8,385)
Loan fees paid (8,788) -
Shareholder distributions (124,400) (100,766)
--------- ---------
Net cash used by investing activities (133,854) (118,024)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Loan proceeds 389,000 2,000
Proceeds from bank overdraft (16,639) (6,860)
Principal payments on notes and capital leases payable (46,452) (79,099)
--------- ---------
Net cash provided (used) by financing activities 325,909 (83,959)
--------- ---------
Net increase in cash and cash equivalents 6,021 -
Cash, beginning of year 50 50
--------- ---------
Cash, end of year $ 6,071 $ 50
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING TRANSACTIONS
During 1998 obligations of $73,632 were incurred when the company purchased
new equipment under capital lease obligations.
SUPPLEMENTAL DISCLOSURE
1998 1997
------- --------
Interest paid $ 22,826 $ 16,407
========== ==========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
This summary of significant accounting policies of Holloway Publications,
Inc. (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements
Description of Business
- -----------------------
Holloway Publications, Inc. (the "Company") was originally incorporated under
the laws of the State of Indiana on October 2, 1991. The Company offers
publishing services to individual realtors, almost exclusively comprised of the
printing of specialty brochures and magazines for individual realtors and
realtor groups. The principal customers for the Company's products are realtors
located in the greater Indianapolis, Indiana area. Effective January 1, 1994,
the Company became an S Corporation for federal income tax purposes.
Equipment
- ---------
Equipment is stated at cost. Depreciation is calculated using the straight-line
method over estimated useful lives ranging from 5 to 7 years.
Income Taxes
- ------------
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the stockholders are
liable for individual federal income taxes on their respective portions of the
Company's taxable income.
Financial Statement Estimates
- -----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from these estimates.
7
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES-
- ---------------------------------------------------------------------
Continued
Concentrations of Credit Risk
- -----------------------------
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash in bank, trade receivables, and receivables from
officers/stockholders. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company extends credit
to its customers in the ordinary course of business. At December 31, 1998 and
1997, substantially all of the accounts receivable are due from customers within
the real estate and related industries.
Concentrations of Operations
- ----------------------------
All of the Company's current product offerings are designed for use by persons
operating in the national domestic real estate market. Any recessionary
pressures or other disturbances in the national real estate market could have an
adverse effect on the Company's operations.
Fair Values of Financial Instruments
- ------------------------------------
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS No. 107"). The carrying amounts reported in the balance sheet for cash
and cash equivalents approximate those assets' fair values. Active markets for
the Company's other financial instruments that are subject to the fair value
disclosure requirements of SFAS No. 107, which consist of accounts receivable
and notes payable, do not exist and there are no quoted market prices for these
instruments. Accordingly, it is not practicable to estimate the fair values of
such financial instruments because of the limited information available to the
Company and because of the significance of the cost to obtain independent
appraisals for this purpose.
Stock Options
- -------------
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), which is effective for fiscal years beginning after December
15, 1995, or earlier as permitted. As provided by SFAS No. 123, the Company will
continue to account for employee stock options under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees". The Company
had no stock options that vested during the years ended December 31, 1998 and
1997, therefore, no disclosure of the proforma net income and earnings per share
effect, as if the Company had used the fair value based method prescribed under
SFAS No. 123, is required.
8
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES-
- ---------------------------------------------------------------------
Continued
Revenue Recognition
- -------------------
Magazine publication revenues relating to advertising and real estate listings
are recorded based on the date of publication of the related magazine.
Amortization
- ------------
The cost of trademarks, customer lists and franchise rights, licenses and other
operating rights are being amortized on the straight line basis over their
remaining lives, ranging from 7 to 15 years.
Loan fees and other costs connected with obtaining and executing debt agreements
are capitalized and amortized over the term of the related debt.
Amortization expense charged to operations in 1998 and 1997 was $10,439 and
$10,500, respectively.
Comprehensive Income
- --------------------
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full set of
general-purpose financial statements. This statement does not, however, require
a specific format for the disclosure, but requires the Company to display an
amount representing total comprehensive income for the period in its financial
statements. Comprehensive income is determined by adjusting net income by other
items not included as a component of net income, such as the unrealized gain
(loss) on certain marketable securities. During the periods presented, the
Company had no additional components that were not a part of net income (loss),
therefore, comprehensive income and net income are the same amount.
NOTE 2 - BUSINESS ACQUISITIONS
- ------------------------------
On November 8, 1995, the Company purchased certain assets comprising the
Executive Homes magazine from IBJ Corporation, the owner of a business
newspaper, in exchange for cash and a note payable. The purchase price was
allocated to the name and customer lists, both of which are being amortized on
the straight-line basis over the estimated useful life of 15 years, commencing
in 1995.
9
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - ACCOUNTS RECEIVABLE
- ----------------------------
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
December 31,
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Trade receivables $ 99,035 $ 117,264
Less: Allowance for bad debts (990) (1,173)
---------- ----------
$ 98,045 $ 116,091
========== ==========
</TABLE>
NOTE 4 - NOTES RECEIVABLE
- -------------------------
Notes receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Installment notes receivable from
customers, bearing interest rates to 18%
per annum, monthly payments
range from $30 to $650, all unsecured $ 1,356 $ 8,873
Less: Current Portion (1,180) (8,435)
------------ ----------
Long-Term Portion of Notes Receivable $ 176 $ 438
============ ==========
</TABLE>
NOTE 5 - EQUIPMENT
- ------------------
<TABLE>
<CAPTION>
Equipment consists of the following:
December 31,
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Equipment $ 25,423 $ 18,891
Equipment under capital leases 123,157 94,030
Computer software 47,323 1,167
------------ ------------
195,903 114,088
Less: accumulated depreciation (78,176) (56,264)
------------ ------------
$ 117,727 $ 57,824
============ ============
</TABLE>
10
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NOTE 6 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
December 31,
---------------------------
1998 1997
--------- --------
<S> <C> <C>
Note payable to Huntington National Bank of Indiana, originally dated
April, 1995, renewed and amended on an annual basis, line of credit
obligation, interest only payable monthly at a per annum rate equal to
the bank's prime rate plus 2% (9.75% at 12/31/98) through July, 1999,
secured by any funds of the Company on deposit with Huntington National
Bank, personally guaranteed by the majority shareholders. $ 70,000 $ 60,000
Note payable to Huntington National Bank of Indiana, dated November, 1995,
installment note obligation, payable at $1,111 per month plus interest at
a per annum rate equal to the bank's prime rate plus 2% (10.5% at
12/31/97) through November, 1998, secured by any funds of the Company on
deposit with Huntington National Bank, personally
guaranteed by the majority shareholders. - 11,111
Note payable to Huntington National Bank of Indiana, dated September, 1998,
SBA guaranteed installment note obligation, payable at $4,202 per month
plus interest at a per annum rate of 9.75%, maturity September, 2005,
secured by all of the Company's personal property, personally
guaranteed by the majority shareholders. 339,896 -
11
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - LONG-TERM DEBT - Continued
- --------------------------
Note payable to IBJ Corporation, dated November, 1995, installment note
obligation, payable at $3,269 per month plus interest equal to the
monthly prime rate established by the National Bank of Indianapolis (8.5%
at 12/31/97) through January, 1998, secured by license to use Executive
Homes name and files, personally guaranteed by majority shareholders. - 3,269
Note payable to CFC Leasing Corp, dated dated September, 1998, lease
interim funding agreement, all principal and accrued interest at 11% per
annum due February, 1999, outstanding principal balance converted into
long-term capital lease obligation, secured by lease agreement dated
September, 1998, personally guaranteed
by majority shareholders. 44,505 -
Capital lease payable to GE Capital Trans Leasing, dated December, 1996,
payable at $1,219 per month including interest imputed at 13% per annum,
maturity November, 1999, secured by certain computer equipment,
personally guaranteed by shareholder. 12,565 24,659
Capital lease payable to NBD Leasing,
Inc., dated July, 1995, payable at $438 per month including interest
imputed at 15% per annum, maturity July, 1998, secured by certain
computer equipment, personally guaranteed by shareholder. - 3,065
12
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - LONG-TERM DEBT - Continued
- --------------------------
Capital lease payable to GE Capital Trans Leasing, dated March, 1998,
payable at $243 per month including interest imputed at 14% per annum,
maturity March, 2001, secured by certain computer equipment, personally
guaranteed by shareholder. 5,613 -
Capital lease payable to Star Financial Bank, dated October, 1998, payable
at $683 per month including interest imputed at 21% per annum, maturity
December, 2002, secured by certain magazine racks, personally
guaranteed by shareholder. 21,705 -
---------- ----------
494,284 102,104
Less Current Portion (147,528) (89,539)
---------- ----------
Long Term Debt $ 346,756 $ 12,565
========== ==========
</TABLE>
The amount of interest cost incurred for the years ended December 31, 1998
and 1997 was $23,601 and $15,913, all of which was charged to operations.
Following are maturities of long-term debt for each of the next five years:
Year ended
December 31, Amount
------------ ------
1999 $ 147,528
2000 69,732
2001 70,767
2002 68,077
2003 50,429
Thereafter 87,751
-----------
$ 494,284
===========
13
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - AMOUNTS DUE TO SHAREHOLDERS
- ------------------------------------
<TABLE>
<CAPTION>
Amounts due to shareholders consist of the following:
December 31,
----------------------------
1998 1997
------- --------
<S> <C> <C>
Note payable to Steve Holloway, dated July, 1997, no specific repayment
terms, interest accrues at rate of 12% per annum, maturity
July, 1998, unsecured. $ - $ 2,000
Note payable to Steve Holloway, dated August, 1998, interest only due
monthly at rate of 12% per annum, maturity December 31, 2001 at which
time all unpaid principal is
due, unsecured. 16,000 -
Note payable to Steve Holloway, dated November, 1998, interest only due
monthly at rate of 12% per annum, maturity December 31, 2001 at which
time all unpaid principal is
due, unsecured. 10,000 -
---------- ------------
26,000 2,000
Less Current Portion ( -) (2,000)
---------- ------------
Long Term Portion $ 26,000 $ -
========== ============
</TABLE>
The amount of interest cost incurred on related party debt for the years
ended December 31, 1998 and 1997 was $1,035 and $112, all of which was charged
to operations.
NOTE 8 - DIVIDEND DISTRIBUTIONS
- -------------------------------
As disclosed in Note 1, the Company is taxed as an S corporation under the
provisions of the Internal Revenue Code. Under those provisions, the
shareholders are liabile for individual federal and state income taxes on their
respective shares of the Company's taxable income. It is the policy of the
Company to distribute cash dividends to shareholders as a result of this
pass-through of income.
14
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Capital Leases
- --------------
The Company has computer equipment with a net book value of $53,322
(accumulated depreciation of $69,835) under capital leases at December 31,1998.
Minimum future lease payments under the capital leases as of December 31,
1998, for each of the next five years and in aggregate is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
------------ ------
<S> <C> <C>
1999 $ 23,843
2000 11,121
2001 8,930
2002 8,199
Subsequent to 2002 -
-------------
52,093
Less: amount representing interest (12,210)
-------------
Present value of minimum lease payments $ 39,883
=============
</TABLE>
The interest rate on capitalized leases varies from 12.00% to 21.17% and is
imputed based on the lessor's implicit rate of return.
Operating Leases
- ----------------
The Company conducts its Indiana operations from facilities leased under a
noncancellable operating lease expiring in September, 1999. The operating lease
provides for a one year renewal option at the fair rental value at the time of
renewal. In the normal course of business, operating leases are generally
renewed or replaced by other leases.
Rental expense was $7,511 in 1998 and $7,239 in 1997.
15
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES - Continued
- ---------------------------------------
Other Agreements
- ----------------
In July, 1998, the Company entered into an agreement with a local business
newspaper to enable it to insert a magazine publication into the newspaper every
four weeks during 1999 and 2000. Future minimum insertion fees under the
agreement are as follows:
Year Ended
December 31, Amount
------------ ------
1999 $ 36,400
2000 36,400
-----------
$ 72,800
===========
Employee Bonus Agreements
- -------------------------
The Company has entered into compensation plans with key employees that govern
annual salaries, bonuses and employee benefits.
Franchise Termination
- ---------------------
In August, 1998, the Company entered into a Settlement Agreement with Homes &
Land Publishing, Ltd. wherein, in consideration for a lump sum payment of
$430,949, all franchise agreements and relationships with the franchisor were
terminated.
Sales/Use Tax Assessment
- ------------------------
The Company has been issued a letter of findings, dated April 9, 1999, by the
Indiana Department of Revenue for unpaid sales and use taxes for 1993-1995. In a
prior audit report, dated March 17, 1997, the Indiana Department of Revenue
asserted a tax deficiency for these three years totaling approximately $62,000.
The April, 1999 letter of findings acknowledged certain adjustments in the 1997
audit were improper, but asserted that certain taxes are still owing. Outside
counsel for the Company has advised that at this stage in the proceedings, he
cannot offer an opinion as to the probable outcome, therefore, no liability for
amounts ultimately payable, if any, has been recorded in the financial
statements. The Company is vigorously defending its position in this matter.
16
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - SUBSEQUENT EVENTS
- ---------------------------
Purchase of Company
- -------------------
On May 28, 1999, the Company was acquired by HomeSeekers.com, Inc. in a
stock-for-stock exchange accounted for as a purchase. As a part of the sale, the
majority shareholders of the Company agreed to personally assume the liability
for any amounts ultimately payable, if any, relating to the sales and use tax
issue discussed above.
Payment of Accounts Payable and Notes Payable
- ---------------------------------------------
Immediately after the acquisition of the Company, HomeSeekers advanced $475,184
to the Company, the proceeds of which were used to pay the following
liabilities:
Outstanding accounts payable $ 71,881
Note payable to Huntington National Bank 70,000
Note payable to Huntington National Bank 319,381
Accrued interest on notes payable 922
Paydown of related party notes payable 13,000
----------
$ 475,184
==========
The notes payable to Huntington National Bank were required to be repaid upon
the occurrence of certain events, including a change in ownership of the
Company.
Termination of S Corporation Status
- -----------------------------------
Due to the purchase of 100% of the outstanding stock of the Company by a
disqualifying shareholder, the Company's S corporation status was automatically
terminated on May 28, 1999.
17
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
INTERIM UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<PAGE>
<TABLE>
<CAPTION>
HOLLOWAY PUBLICATIONS, INC.
TABLE OF CONTENTS
Page
<S> <C>
ACCOUNTANTS' DISCLAIMER OF OPINION 1
FINANCIAL STATEMENTS
Unaudited Balance Sheet 2-3
Unaudited Statements of Income, Comprehensive
Income and Retained (Deficit) Earnings 4
Unaudited Statements of Cash Flows 5-6
Notes to Unaudited Financial Statements 7-9
</TABLE>
<PAGE>
Albright, Persing & Associates, Ltd.
CERTIFIED PUBLIC ACCOUNTANTS
1025 Ridgeview Dr., Suite 300
Reno, Nevada 89509
ACCOUNTANTS' DISCLAIMER OF OPINION
To the Stockholders of
Holloway Publications, Inc.
The accompanying balance sheet of Holloway Publications, Inc. as of
June 30, 1999, and the related statements of income, comprehensive income and
retained (deficit) earnings and cash flows for the six months ended June 30,
1999 and 1998 were not audited by us, and accordingly, we do not express an
opinion on them.
/s/ Albright, Persing & Associates, Ltd.
August 4, 1999
1
<PAGE>
<TABLE>
<CAPTION>
HOLLOWAY PUBLICATIONS, INC.
BALANCE SHEET
JUNE 30, 1999
(Unaudited - See Accountants' Disclaimer of Opinion)
ASSETS
Current Assets:
<S> <C>
Cash $ 801
Accounts receivable 129,785
Prepaid expenses 14,792
----------
Total current assets 145,378
----------
Equipment, Net 105,292
----------
Other Assets:
Customer list and trademark, net of accumulated
amortization of $33,000 102,000
Goodwill, net of accumulated amortization of
$7,247 1,297,186
Deposits 575
----------
1,399,761
----------
Total Assets $1,650,431
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
HOLLOWAY PUBLICATIONS, INC.
BALANCE SHEET
JUNE 30, 1999
(Unaudited - See Accountants' Disclaimer of Opinion)
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
<S> <C>
Current portion of capital lease obligations $ 25,752
Due to former shareholders 13,000
Accounts payable 125,108
Accrued salaries 6,038
Accrued expenses 3,371
Accrued interest payable 2,677
-----------
Total current liabilities 175,946
Advances from parent 475,184
Capital Lease Obligations, net of current portion 49,586
-----------
Total Liabilities 700,716
-----------
Stockholder's (deficit) equity:
Common stock, no par value, 1,000 shares
shares authorized, 100 shares issued
and outstanding 100
Additional paid in capital 1,304,433
Retained (deficit) earnings (354,818)
-----------
Total stockholder's (deficit) equity 949,715
-----------
Total Liabilities and Stockholder's
(Deficit) Equity $ 1,650,431
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND RETAINED (DEFICIT) EARNINGS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
1999 1998
-------- -----------
<S> <C> <C>
Net Sales $ 714,149 $ 585,603
Cost of Sales 390,820 268,580
--------- ---------
Gross Profit 323,329 317,023
Operating Expenses 282,854 245,524
--------- ---------
Income from operations 40,475 71,499
--------- ---------
Other Income (Expense)
Interest expense (24,279) (5,058)
Interest income -- 437
--------- ---------
(24,279) (4,621)
--------- ---------
Net Income 16,196 66,878
Other Comprehensive Income -- --
--------- ---------
Comprehensive Income 16,196 66,878
Retained (deficit) earnings beginning of period (303,865) 102,607
Shareholder distributions (67,149) (37,839)
--------- ---------
Retained (deficit) earnings, end of period $(354,818) $ 131,646
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
1999 1998
-------- -------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 16,196 $ 66,878
--------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 17,135 10,416
Amortization 20,221 5,250
Change in provision for bad debts -- (1,173)
(Increase) Decrease in accounts receivable (31,740) 6,636
(Increase) Decrease in prepaid expenses (6,870) 4,585
Increase (Decrease) in accounts payable 4,619 (8,939)
Increase (Decrease) in accrued liabilities 2,424 (5,714)
--------- ---------
Total Adjustments 5,789 11,061
--------- ---------
Net cash provided by operating activities 21,985 77,939
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Notes receivable collections 1,356 8,873
Purchase of equipment -- (5,448)
Shareholder distributions (67,149) (37,839)
--------- ---------
Net cash used by investing activities (65,793) (34,414)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from advances by parent 475,184 --
Repayment of bank overdraft -- (16,639)
Principal payments on notes and capital leases payable (436,646) (17,592)
--------- ---------
Net cash provided (used) by financing activities 38,538 (34,231)
--------- ---------
Net decrease in cash (5,270) 9,294
Cash, beginning of period 6,071 50
--------- ---------
Cash, end of period $ 801 $ 9,344
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
TRANSACTIONS
During the periods ended June 30, 1999 and 1998, obligations of $49,205 and
$7,127, respectively, were incurred when the Company purchased new equipment
under capital lease obligations.
During the six month period ended June 30, 1999, due to the purchase of the
Company, goodwill and additional paid in capital of $1,304,433 resulting from
the application of purchase accounting was recorded to reflect the excess of the
purchase price over the net book value of the Company.
SUPPLEMENTAL DISCLOSURE
1999 1998
----------- ------
Interest paid $ 24,033 $5,418
=========== ======
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
NOTE 1 - DESCRIPTION OF BUSINESS
The accompanying financial statements are prepared in accordance with the
instructions for interim financial statements, are unaudited, and do not include
all the information and disclosures requried 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.
Description of Business
Holloway Publications, Inc. (the "Company") was originally incorporated under
the laws of the State of Indiana on October 2, 1991. The Company offers
publishing services to individual realtors, almost exclusively comprised of the
printing of specialty brochures and magazines for individual realtors and
realtor groups. The principal customers for the Company's products are realtors
located in the greater Indianapolis, Indiana area. Effective January 1, 1994,
the Company became an S Corporation for federal income tax purposes.
Acquisition of Business
On May 28, 1999, all of the issued and outstanding common stock of the
Company was acquired by HomeSeekers.com, Inc. ("HomeSeekers"), in exchange for
150,872 shares of HomeSeeker's common stock, valued at $971,163 based on the
approximate fair market value of the HomeSeekers common stock at the date of
acquisition. The acquisition was accounted for using the purchase method of
accounting and resulted in the assumption of net liabilities of $333,270.
Recorded goodwill of $1,304,433 resulted from the allocation of the excess of
the purchase price over the book value of the net assets.
NOTE 2 - LONG-TERM DEBT
In June, 1999, the Company was advanced $475,184 by its parent, the proceeds of
which were used to pay the following liabilities:
Outstanding accounts payable $ 71,881
Note payable to Huntington National Bank 70,000
Note payable to Huntington National Bank 319,381
Accrued interest on notes payable 922
Paydown of related party notes payable 13,000
----------
$ 475,184
==========
7
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
NOTE 2 - LONG-TERM DEBT - Continued
The notes payable to Huntington National Bank were required to be repaid upon
the occurrence of certain events, including a change in ownership of the
Company. The advances from the parent contain no formal repayment terms, are not
expected to be paid during the next twelve months, and therefore are recorded as
long-term liabilities.
NOTE 3 - INCOME TAXES
Due to the purchase of 100% of the outstanding stock of the Company by a
disqualifying shareholder, the Company's S corporation status was automatically
terminated on May 28, 1999. Accordingly, the Company will be required to file
regular corporate tax returns, either individually or on a consolidated basis
with its parent. The deferred income tax provision shown below was computed
based on differences between income tax and financial reporting for the tax
period beginning on the date of termination of S corporation status and ending
June 30, 1999, approximately one month.
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 as of June 30, 1999 are
as follows:
Deferred tax assets:
Net operating loss carryover $ 17,398
Allowance for bad debts 149
------------
17,547
Deferred tax liabilities:
Depreciation -
------------
17,547
Less: Valuation allowance (17,547)
------------
Net deferred taxes $ -
============
The increase in the valuation allowance was $17,547 for the six months ended
June 30, 1999.
The Company has available at June 30, 1999, $51,172 of unused operating loss
carryforwards that may be applied against future taxable income and that expire
in 2014.
8
<PAGE>
HOLLOWAY PUBLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Unaudited - See Accountants' Disclaimer of Opinion)
NOTE 3 - INCOME TAXES - Continued
The principal reasons for the difference between the effective income tax rate
and the federal statutory income tax rate are as follows:
Federal benefit expected at statutory rate $ (4,828)
Operating losses with no current benefit 17,398
Accumulated cash to accrual adjustments (12,570)
-----------
$ -
===========
NOTE 4 - YEAR 2000 ISSUES
Because many computer systems and programs use only two digits to record
the year in date fields, such systems may not be able to accurately process
dates including the year 2000 and after. The effects of this problem will vary
from system to system and may result in a major system failure, or adversely
affect a company's operations as well as the ability to prepare financial
statements.
In order to determine the impact that Year 2000 issues have on the Company,
(1) a complete assessment of all systems potentially affected by Year 2000
issues needs to be completed, and (2) management needs to determine the
consequences that its Year 2000 issues would have on its business, results of
operations, and financial condition. The Company's assessment of its Year 2000
issues includes addressing whether third parties with whom the Company has a
material relationship are Year 2000 compliant.
At the current time, the Company has conducted a comprehensive review of
its computer systems to identify the systems that could be affected by the Year
2000 issue and is developing an implementation plan to resolve the issue. In
addition, the Company is in the process of identifying all third parties with
whom the Company has a material relationship so that they may determine if such
parties are Year 2000 compliant. The Company presently believes that, with
modifications to existing software and conversion to new software, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, the Year 2000 may have a material
impact on the operations of the Company. Additionally, if the Company's
customers and vendors are unable to resolve such processing issues in a timely
manner, it could result in material financial risk.
9
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Financial Statements 1
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1999 2
Pro Forma Condensed Consolidated Statement of Income
for the Nine Months Ended March 31, 1999 3
Pro Forma Condensed Consolidated Statement of Income
for the Year Ended June 30, 1998 4
Notes to Proforma Condensed Consolidated
Financial Statements 5-7
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 28, 1999, HomeSeekers.com ("Company") acquired all the issued
and outstanding shares of the common stock of Holloway Publications, Inc.
("Holloway"), a non-public real estate magazine publication company located in
Indiana, in exchange for 150,872 shares of the Company's common stock, valued at
$971,163 based on the approximate fair market value of the common stock at the
date of acquisition.
In connection with the acquisition, the Company entered into an
employment contract with the key employee of Holloway, which includes certain
provisions for incentive bonuses payable in the form of additional issuances of
the Company's common stock if Holloway's net income meets or exceeds certain
levels. Holloway had approximately $400,000 of debt which pursuant to its terms
was required to be repaid upon the occurrence of certain events, including a
change in ownership of Holloway. Subsequent to the purchase, the Company
advanced Holloway approximately $475,000 to payoff the debt and certain
outstanding accounts payable.
The acquisition was accounted for using the purchase method of
accounting and resulted in the assumption of net liabilities of approximately
$330,000. The purchase price was allocated substantially to acquired goodwill,
the customer base, accounts receivable and equipment acquired in the
acquisition.
The accompanying condensed consolidated financial statements illustrate
the effect of the acquisition ("Pro Forma") on the Company's financial position
and results of operations. The condensed consolidated balance sheet as of March
31, 1999 is based on the historical balance sheets of the Company and Holloway
as of that date and assumes the acquisition took place on that date. The
condensed consolidated statements of income for the nine months ended March 31,
1999 and the year ended June 30, 1998 are based on the historical statements of
income of the Company and Holloway for those periods. The pro forma condensed
consolidated statements of income assume the acquisition took place on July 1,
1997.
Holloway reported on a calendar year. To prepare the condensed
consolidated financial statements, the financial information of Holloway had to
be prepared as of March 31, 1999.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition. In particular, the pro
forma condensed consolidated financial statements are based on management's
current estimate of the allocation of the purchase price, the actual allocation
of which may differ.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of the
Company and Holloway.
1
<PAGE>
<TABLE>
<CAPTION>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
HomeSeekers.com, Holloway
Inc. Publications, Inc. Adjustments Pro Forma
--------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 8,831,948 $ 2,937 B $ (475,184) $ 8,359,701
Accounts receivable 1,664,653 112,169 1,776,822
Accounts receivable - Related parties 94,712 - 94,712
Accounts receivable - Employee 50,000 - 50,000
Prepaid expenses 179,153 575 179,728
-------------- -------------- -------------
Total Current Assets 10,820,466 115,681 10,460,963
-------------- -------------- -------------
Investments 300,000 - 300,000
Property and equipment - net 879,587 114,526 994,113
Intangible assets - net 921,672 - A 1,304,433 2,226,105
Other assets 489,450 104,250 593,700
-------------- -------------- -------------
Total Assets $ 13,411,175 $ 334,457 $ 14,574,881
============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 269,749 $ 131,963 B (71,881) $ 329,831
Accrued liabilities 118,219 1,004 119,223
Current portion of capital lease obligations - 17,146 17,146
Notes payable 5,000 120,424 B (112,019) 13,405
Convertible debt 30,000 - 30,000
Deferred revenue 2,695,454 12,520 2,707,974
-------------- -------------- -------------
3,118,422 283,057 3,217,579
-------------- -------------- -------------
Long-Term Liabilities
Notes payable - 277,362 B (277,362) -
Notes payable - related parties - 26,000 B (13,000) 13,000
Capital lease obligation - 62,031 62,031
-------------- -------------- -------------
- 365,393 75,031
-------------- -------------- -------------
A 971,163
A 333,270
Stockholders' Equity (Deficit) 10,292,753 (313,993) B (922) 11,282,271
-------------- -------------- -------------
Total Liabilities & Stockholders' Equity (Deficit) $ 13,411,175 $ 334,457 $ 14,574,881
============== ============== =============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
2
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HomeSeekers.com, Holloway
Inc. Publications, Inc. Adjustments Pro Forma
--------------- ------------------ ----------- ---------
<S> <C> <C> <C>
Revenues $ 2,571,878 $ 1,016,180 $ 3,588,058
Cost of sales 344,254 531,611 875,865
------------- ------------- -------------
Gross profit 2,227,624 484,569 2,712,193
Operating expenses 4,774,629 372,779 C 65,222 5,212,630
------------- ------------- -------------
Net loss from operations (2,547,005) 111,790 (2,500,437)
Other Income (Expense) 272,349 (463,675) D 22,408 (168,918)
------------- ------------- -------------
Loss before provision for income taxes (2,274,656) (351,885) (2,669,355)
Provision for income taxes 1,240 - 1,240
------------- ------------- -------------
Net loss before other comprehensive income (2,275,896) (351,885) (2,670,595)
Other Comprehensive Income
Unrealized gain on securities, net of tax 700,000 - 700,000
------------- ------------- -------------
Net Comprehensive Loss $ (1,575,896) $ (351,885) $ (1,970,595)
============= ============= =============
Loss per share $ (0.32) $ (0.36)
============= =============
Weighted average number of shares
outstanding 9,125,093 9,125,093
============= =============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
3
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HomeSeekers.com, Holloway
Inc. Publications, Inc. Adjustments Pro Forma
---- ------------------ ----------- ---------
<S> <C> <C> <C>
Revenues $ 1,666,570 $ 1,059,986 $ 2,726,556
Cost of sales 338,415 435,475 773,890
------------ -------------- -------------
Gross profit 1,328,155 624,511 1,952,666
Operating expenses 3,984,875 436,206 C 86,962 4,508,043
------------ -------------- -------------
Net loss from operations (2,656,720) 188,305 (2,555,377)
Other Income (Expense) (185,575) (15,768) D 7,705 (193,638)
------------ -------------- -------------
Loss before provision for income taxes (2,842,295) 172,537 (2,749,015)
Provision for income taxes - - -
------------ -------------- -------------
Net loss before extraordinary item (2,842,295) 172,537 (2,749,015)
Extraordinary item-gain on extinguishment of debt 46,750 - 46,750
------------ -------------- -------------
Net loss $ (2,795,545) $ 172,537 $ (2,702,265)
============ ============== =============
Loss per share $ (0.51) $ (0.50)
============ =============
Weighted average number of shares
outstanding 6,199,343 6,199,343
============ =============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
4
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - ACQUISITION OF HOLLOWAY PUBLICATIONS, INC.
- ---------------------------------------------------
The pro forma adjustments to the condensed consolidated balance sheet are as
follows:
A) To record the acquisition of Holloway and the allocation of the purchase
price on the basis of the fair values of the assets acquired and liabilities
assumed. The components of the purchase price are as follows:
Purchase Price (150,872 shares) $ 971,163
Liabilities assumed 696,247
Assets acquired (362,977)
-----------
Cost in excess of net assets acquired $ 1,304,433
===========
B) To record the subsequent payoff of liabilities of Holloway considered part of
the acquisition of Holloway. The components of the payoff of liabilities are as
follows:
Payoff of term bank loan $ 319,381
Payoff of bank line of credit 70,000
Paydown of related party loan 13,000
Interest expense to payoff date 922
Payment of certain accounts payable 71,881
-------------
Total Cash Used by Holloway $ 475,184
=============
Total Cash Provided by the Company $ 475,184
=============
5
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 - ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------
Holloway reported on a fiscal year ending December. To properly consolidate the
two entities, Holloway's financial statements were restated to an interim period
ending March and a fiscal year ending June. Interim income statements were added
and subtracted to arrive at the nine month and twelve month fiscal periods. The
following is a summary of amounts included and excluded to arrive at the
restated statements (rounded):
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1999
- ----------------------------------------------
<TABLE>
<CAPTION>
Net
Gross Gross Income
Revenues Profit (Loss)
-------- ------ ------
<S> <C> <C> <C>
12 Months ended 12/31/98 $ 1,269,500 $ 647,000 $ (303,900)
Add:
Three months ended 3/31/99 332,300 154,600 18,900
Less:
Six months ended 6/30/98 585,600 317,000 66,900
-------------- ------------- -------------
$ 1,016,200 $ 484,600 $ (351,900)
============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 1998
- -----------------------------------------------
<S> <C> <C> <C>
12 Months ended 12/31/97 $ 1,019,500 $ 574,000 $ 133,000
Add:
Six months ended 6/30/98 585,600 317,000 66,900
Less:
Six months ended 6/30/97 545,100 266,400 27,300
------------- ------------- -------------
$ 1,060,000 $ 624,600 $ 172,600
============= ============= =============
</TABLE>
6
<PAGE>
HOMESEEKERS.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 - ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME -
- -------------------------------------------------------------------------
Continued
The pro forma condensed consolidated statements of income were then adjusted as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
----------------- -------------
<S> <C> <C>
(C) Adjustments to operating expenses:
Amortization of Goodwill
over 15 years $ 65,222 $ 86,962
================ ===============
(D) Adjustments to interest expense:
Interest expense on loan
payoffs $ 22,408 $ 7,705
================ ===============
</TABLE>
7
