AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1999
Registration No. 333-______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
HOMESEEKERS.COM, INCORPORATED
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
Nevada 5045 87-0397464
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
2241 Park Place
Suite E
Minden, NV 89423
(775) 782-2977
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Greg Johnson, Chief Executive Officer
2241 Park Place
Suite E
Minden, NV 89423
(775)782-2977
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
Steven I. Weinberger, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security Offering Price Registration Fee
- -------------------- --------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share(2) 5,043,288 $4.995 $25,191,223 $7,003.16
Common Stock issuable upon
exercise of Warrants(3) 132,993 1.47 195,500 54.35
Common Stock issuable upon
exercise of Warrants(3) 143,000 2.00 286,000 79.51
Common Stock issuable upon
exercise of Warrants(3) 100,000 2.38 238,000 66.16
Common Stock issuable upon
exercise of Warrants(3) 100,000 2.47 247,000 68.67
Common Stock issuable upon
exercise of Warrants(3) 20,000 2.50 50,000 13.90
Common Stock issuable upon
exercise of Warrants(3) 1,603,001 3.00 4,809,003 1,336.90
Common Stock issuable upon
exercise of Warrants(3) 19,000 3.50 66,500 18.49
Common Stock issuable upon
exercise of Warrants(3) 150,000 4.00 600,000 166.80
Common Stock issuable upon
exercise of Options(3) 424,000 1.47 623,280 173.27
Common Stock issuable upon
exercise of Options(3) 177,500 2.00 355,000 98.69
Common Stock issuable upon
exercise of Options(3) 10,000 4.56 45,600 12.68
----------
Total Registration Fee $9,092.58
</TABLE>
ii
<PAGE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Based upon the average of the closing bid and asked prices for the Common
Stock on March 2, 1999.
(3) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may be issuable pursuant to the anti-dilution
provisions of the Options and Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
iii
<PAGE>
Subject to Completion March 5, 1999
PROSPECTUS
HOMESEEKERS.COM, INCORPORATED
7,922,782 Shares of Common Stock
($.001 par value per share)
This Prospectus relates to the 7,922,782 shares of Common Stock, $.001
par value per share, of HomeSeekers.com, Incorporated, being offered by certain
Selling Securityholders. Of such shares, 5,043,288 shares are currently
outstanding and 2,879,494 shares are reserved for issuance upon exercise of
options and warrants which have been granted to certain Selling Securityholders.
We will not receive any proceeds from the sale of the shares by the Selling
Securityholders. However, we may receive up to $7,515,883 in the event all of
those options and warrants are exercised.
Our Common Stock is traded on the OTC Bulletin Board under the trading
symbol "HMSK". On February 25, 1999, the closing bid and asked prices for our
Common Stock were $5.47 and $5.53, respectively. We intend to file an
application for listing of our Common Stock on the NASDAQ SmallCap Market and to
seek the trading symbol of "HMSK", however, our application for listing may not
be approved. See "Risk Factors" beginning on Page 7.
----------------------------------------
This Investment Involves a High Degree of Risk. You Should Purchase
Shares Only If You Can Afford a Complete Loss of Your Investment. See "Risk
Factors" Beginning on Page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------------------------
The date of this Prospectus is ____________, 1999
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the United States Securities and Exchange Commission (the
"SEC"). You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also publicly available through the SEC's web site on
the Internet at http://www.sec.gov.
This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. Descriptions of any
contract or other document referred to in this Prospectus are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement for a more
complete description of the matter involved, each such statement being qualified
in its entirety by such reference. At your written or telephonic request, we
will provide you, without charge, a copy of any of the information that is
incorporated by reference herein (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Direct your request to the Company at
HomeSeekers.com, Incorporated, 2241 Park Place, Suite E, Minden, NV 89423,
Attention: Chief Financial Officer, telephone (775) 782-2977.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors",
"Business" and Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated herein, the information
in this Prospectus does not give effect to the issuance of up to (i) 15,000
shares in the event of conversion of outstanding convertible promissory notes,
(ii) 2,387,994 shares in the event of conversion of outstanding warrants, (iii)
3,717,874 shares in the event of conversion of outstanding options, (iv) 68,862
shares upon conversion of outstanding Series A, Class A Preferred Stock, and (v)
1,514,150 shares issuable upon exercise of future options available for grant
under the Company's Stock Option Plan.
This Prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. You are urged to read this
Prospectus carefully and in its entirety.
THE COMPANY
We are a leading provider of online consumer real estate information on
the Internet through our Web site at www.homeseekers.com. Our Web site currently
contains approximately 681,000 residential home listings in 28 states, most of
which serve the Florida, California, Illinois and the District of Columbia
markets. We obtain listings from the 36 multiple listing services ("MLS")
currently under contract with us, and from realty firms. Our Web site also
enables users to obtain information on services of interest to residential home
owners, such as mortgage companies, title insurers and providers of services
such as carpeting, painting, landscaping, drapes, appliances, furniture and
other related products and services. We also market products designed to enhance
the productivity of real estate agents, enabling them to more efficiently
operate their businesses.
Our Web site allows prospective home buyers to log on from their
computers and view data from participating MLSs and realty firms. While viewing
listings on our Web site, the prospective buyer can prompt our search engine to
search our database, find and display all listed homes that satisfy the criteria
designated by the Buyer. The Buyer may specify criteria including, price,
location, number of rooms and bathrooms, pool, garage, view, fireplace or street
location. The listing detail page for a given home typically provides a full
color photograph of the home, a detailed description of the home and property,
as well as the name of the listing realty firm and agent. If a home was listed
by a real estate agent participating in the Company's Web page program, the
listing will provide a direct link to the agent's home page and E-mail address.
We market our Internet search products under the product names HomeSeekersTM and
HomeSeekers/CityNetTM.
Through banners on our Web pages, home buyers can also access helpful
related information and services such as information on mortgage interest rates
and mortgage providers, and may pre- qualify for a mortgage and then apply for a
mortgage. The buyer may also apply for title insurance, and view advertising for
building supplies, contractors, moving and storage and other home-related goods
and services. In addition, a prospective home buyer can obtain location maps and
information on schools, and, for a fee, information on comparable home sales. We
believe that we offer a wider suite of listing services and products for
consumers and realtors than any other real estate-related Internet site.
3
<PAGE>
Our Web site has generated a rapidly increasing traffic of people
seeking homes. The number of homes viewed per month has increased from 800,000
in January 1996 to over 15 million in January 1999. Presently, over 600,000
separate users access our Web site per month, staying an average of
approximately 36 minutes and viewing an average of more than 22 homes per visit.
We generate revenues from several sources: (1) the sale of Web pages to
real estate agents; (2) referral and processing fees from mortgage companies;
(3) advertising fees; and (4) the marketing of goods and services derived from
strategic alliance partners.
In addition to revenues from the sale of Web pages to real estate
agents, another important source of revenues is advertising and referral fees
from mortgage and title insurance companies. Approximately 40 currently
participating mortgage companies are provided rotating banners on our Web pages
that provide linkage to the mortgage companies' Web sites. We also expect to
generate revenues through advertising from merchants who offer goods or services
that benefit from a change in home ownership. These merchants include providers
of carpeting, painting, landscaping, drapes, appliances, furniture and other
related products and services.
Our principal productivity tool designed to enhance the productivity of
real estate agents is a software package known as Realty 2000R, which was
originally introduced in 1988. Realty 2000R Net '98 ("Net '98") is a
significantly upgraded version of Realty 2000R. Net '98 incorporates a client
contact scheduling program, sales flyer producer, financial calculator, word
processor, a digital camera interface and a comparative market analysis program
in those markets where the Company has contracted for real estate listing data.
Our other productivity tools include H.S. PassportTM, a proprietary E-Mail
system for real estate agents, and MLS2KTM, an Internet-based multiple listing
system for real estate agents.
We recently completed a private placement of 4,062,004 shares of our
Common Stock (including 62,016 shares issued in partial payment of placement
agent commissions), for which we received net proceeds of approximately $10.6
million.
Our fiscal year end is June 30. Our executive offices are located at
2241 Park Place, Suite E, Minden, Nevada 89423, and our telephone number is
(775) 782-2977.
SEE "RISK FACTORS," "MANAGEMENT," "BUSINESS" AND "CERTAIN
TRANSACTIONS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by
Selling Securityholders........................................ 7,922,782 Shares(1)
Common Stock Outstanding:
Prior to the Offering .................................... 13,357,211
After the Offering ...................................... 16,236,705(2)
Trading Symbol for Common Stock................................ HMSK(3)
Risk Factors .................................................. The Offering involves a high degree of risk.
See "Risk Factors".
</TABLE>
- ---------------------------
(1) The Selling Securityholders are offering up to 7,922,782 shares of our
Common Stock that they presently own or which are issuable to them upon
the exercise of options or warrants that they own. The shares will be
sold in brokerage transactions that may be effected by them from
time-to-time. We have not arranged for any underwriter to sell the
shares on behalf of the Selling Securityholders. See "Description of
Securities".
(2) Gives effect to the issuance of 2,879,494 shares in the event of
exercise of options and warrants being registered for sale under this
Prospectus.
(3) Our Common Stock is currently listed on the OTC Bulletin Board. We
intend to apply for listing of our Common Stock on the NASDAQ SmallCap
Market under the trading symbol "HMSK". Our application for listing may
not be approved. See "Risk Factors".
5
<PAGE>
SELECTED FINANCIAL DATA
The table below contains certain summary historical financial
information of the Company. The information has been derived from the Financial
Statements included elsewhere in this Prospectus. The six months data at
December 31, 1998 and 1997 are derived from the Company's unaudited financial
statements and include all adjustments, consisting of only normal recurring
adjustments, that management considers necessary to fairly present such data.
The results for the six months ending December 31, 1998 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1999. This information should be read in conjunction with the Financial
Statements appearing elsewhere in this Prospectus and "Management's Discussion
and Analysis or Plan of Operation".
<TABLE>
<CAPTION>
(in 000's, except per share data)
Six months ended
Year ended June 30, December 31,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,667 $1,590 $1,442 $597
Gross Profit $1,328 $1,366 $1,226 $493
Operating Expenses $3,985 $3,221 $2,780 $1,686
Net (Loss) $(2,796) $(2,122) $(1,550) $(1,284)
Net (Loss) Per Share $(0.50) $(0.53) $(.22) $(.26)
June 30, December 31, 1998
-------------------- --------------------------------
1998 1997 Actual As Adjusted (1)
---- ---- ------ ------------
Working Capital
(Deficit) $(1,349) $(2,298) $(2,121) $8,479
Total Assets $1,898 $2,055 $4,349 $14,949
Current Liabilities $1,826 $2,433 $4,851 $4,851
Convertible Debt $140 $2,056 $30 $30
Long-Term Note Payable -0- -0- $250 $250
Shareholder's Equity
(Deficit) $(67) $(2,435) $(782) $9,818
</TABLE>
- -------------------------
(1) Gives effect to our sale of 4,062,004 shares of Common Stock (including
62,016 shares issued in partial payment of placement agent commissions)
and our receipt of net proceeds of approximately $10.6 million
subsequent to December 31, 1998. Does not give effect to our issuance
of up to 2,879,494 shares being registered for sale pursuant to this
Prospectus, and our receipt of up to $7,515,883, in the event of the
exercise of options and warrants.
6
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
securities offered hereby. This Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed below, and
elsewhere in this Prospectus.
Net Losses
For the fiscal years ended June 30, 1998 and 1997, we experienced net
losses of $2,795,545 and $2,121,906, respectively. For the six months ended
December 31, 1998, we incurred a net loss of $1,550,282. Our operating results
for future periods will include significant expenses, including product and
service development expenses, sales and marketing costs, programming and
administrative expenses and acquisition costs, and will be subject to numerous
uncertainties. As a result, we are unable to predict whether we will achieve
profitability in the future.
Dependence on and Uncertainties Concerning the Internet
Use of the Internet by consumers is at an early stage of development,
and market acceptance of the Internet as a medium for commerce is subject to a
high degree of uncertainty. Our ability to succeed will depend on our ability to
significantly increase revenues, which will require the further development and
widespread acceptance of the Internet as a medium for commerce and advertising.
Among the areas of uncertainty that will have a long-term effect on our success
and the acceptance of the Internet as a successful retailing channel, many of
which are out of our control, are the following:
o the lack of reliable network backbones or complementary
services such as high speed modems and security procedures for
financial transactions;
o delays in the development and adoption of new standards and
protocols to handle increased levels of Internet activity;
o acceptance of the Internet as an advertising medium, and, more
particularly, our ability to successfully generate significant
advertising revenues;
o our ability to anticipate, monitor and successfully respond to
rapidly changing consumer needs and preferences to attract a
sufficient number of users to our Web sites and attract,
retain and expand a loyal user base;
o overcoming Consumer concern over Internet security through the
development of comprehensive security technologies; and
o our potential exposure for claims arising from the nature and
content of information available on our Web sites.
7
<PAGE>
Need for Additional Capital
We recently received net proceeds from the sale of shares of our Common
Stock of approximately $10.6 million. We believe these funds will satisfy our
cash requirements for approximately 18-24 months. However, our operations are
capital intensive and our growth through acquisition strategy will consume a
substantial portion of our available working capital. Therefore, depending upon
the timing and rate at which we are able to generate revenues from operations,
we may require additional capital in order to fund our operations. We cannot
predict whether additional financing, if required, will be available to us on
acceptable terms.
Competition
We have encountered and will continue to encounter intense competition
in all aspects of our existing and proposed business, and we will compete
directly with other companies, a significant number of which have greater
capital and other resources and longer operating histories than do we. At least
two of our competitors operate Internet sites which provide access to MLS data.
One such competitor, HomeAdvisor, is affiliated with Microsoft Corp., and the
other operates under the name Real Select. We understand that RealSelect is
seeking to obtain exclusive contractual arrangements with MLSs. To the extent
that our competitors are successful in securing exclusive contractual
arrangements with MLSs, we will be limited in MLS listings accessible on our Web
site. Our inability to secure MLS listings could adversely effect our operating
results.
Possible Contract Terminations
We are a party to numerous contractual understandings, pursuant to
which we provide access to data, products and services on the Internet. Many of
these agreements may be cancelled by either party, upon relatively short notice
and/or may not be renewed upon expiration of their terms. While we believe we
have established positive relations with the parties to our contracts, we are
unable to predict whether we will be able to maintain and renew existing
contracts. See "Business".
Uncertainty of Emerging Technology and Business
The Internet-based real estate services industry is an emerging
business characterized by an increasing number of market entrants who have
introduced or are developing an array of new products and services. As is
typically the case in an emerging industry, demand and market acceptance for
newly introduced products and services is subject to a high level of
uncertainty. In light of the evolving nature of this industry, we can offer no
assurance as to the ultimate level of demand or market acceptance for our
products and services. In addition, we cannot confirm that we will successfully
implement our business strategies, expand our capacity, maintain the cost and
technological competitiveness of our products and services, meet our current
marketing objectives or succeed in positioning ourselves as the preferred
Internet real estate services provider. We are also unable to predict whether
the present trends in growth of Internet use and users will continue or whether
the capacity of the Internet in general will be sufficient to meet anticipated
demands or that the present pricing structure for Internet access will be
maintained in the future.
8
<PAGE>
Uncertainty of Product and Technology Development; Technological Factors
We have not completed development and testing of certain of our
proposed products and product enhancements, some of which are still in the
planning stage or in relatively early stages of development. Our success will
depend in part upon our ability to meet targeted performance and cost
objectives, and upon the timely introduction of new products into the
marketplace. Our product development efforts are subject to all of the risks
inherent in the development of new products and technology (including
unanticipated delays, expenses and difficulties). We cannot predict when or
whether product development efforts will be successfully completed or whether
our products will satisfactorily perform their intended functions, meet
applicable price or performance objectives or that unanticipated technical or
other problems will not occur which cause increased costs or material delays in
product development.
Challenges of Growth
We anticipate a period of rapid growth that is expected to place a
strain on our administrative, financial and operational resources. Our ability
to manage any staff and facilities growth effectively will require that we
continue to improve our operational, financial and management controls and to
train, motivate and manage our employees. We may be unable to successfully
install management information and control systems in an efficient and timely
manner, or assure that new systems will be adequate to support our future
operations. If we are unable to hire, train and retain qualified systems
engineers and consultants to implement these services or are unable to manage
the post-sales process effectively, our ability to attract repeat sales or
provide references may be materially adversely affected. If we are unable to
manage growth effectively, our business, operating results and financial
condition may be materially adversely affected.
Government Regulation and Legal Uncertainties
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business, and we believe we are
currently in compliance with such laws and that they do not have a material
impact on our operations. However, due to increasing popularity and use of the
Internet, we anticipate that new laws and regulations will be adopted with
respect to the Internet. Such laws and regulations may cover issues such as user
privacy, pricing and characteristics and quality of products and services. The
enactment of any such laws or regulations in the future may slow the growth of
the Internet, which could in turn decrease the demand for our products and
services and increase our cost of doing business. In addition, the applicability
to the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain and could expose us to substantial
liability for which we might not be indemnified by content providers or
insurance.
Prior Failure to Register Securities
We have, from time-to-time, issued our securities in connection with
private offerings and other business transactions, in connection with which we
agreed to register the securities sold for subsequent public sale. Due to
financial constraints, we did not meet our obligation to register such
securities. While we believe that following registration of the securities
covered by this Prospectus we will be in compliance with our registration
obligations, it is possible that we will be liable for our prior failure to
comply with registration obligations.
9
<PAGE>
Dependence on Executive Officers and Key Employees
Our success is dependent on our ability to retain the continued
services of our directors, executive officers and certain key employees. While
we have entered into contractual agreements with several of our executive
employees, we are unable to predict whether our directors, executive officers,
or key employees will remain associated with us, or whether they will not
compete, directly or indirectly, with us.
Effect of Issuance of Common Stock Upon Conversion of Convertible Securities
As of February 19, 1999, we had reserved an aggregate of 6,189,730
shares of Common Stock for issuance upon conversion of Preferred Stock,
convertible notes and the exercise of warrants and options. The issuance of
shares of Common Stock upon the conversion and exercise of these securities may
have a depressive effect on the market price for our securities. Moreover, the
terms upon which we will be able to obtain additional equity capital may be
materially adversely affected because the holders of the convertible securities
can be expected to convert or exercise them, to the extent they are able to, at
a time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided in the convertible securities.
Securities and Exchange Commission Rules on "Penny Stocks"
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5.00 per share, subject to certain exceptions.
Depending on market fluctuations, our Common Stock may be deemed to be a "penny
stock" and be subject to rules that impose additional sales practice
requirements on broker/dealers who sell such securities to persons other than
established customers and accredited investors, unless the Common Stock is
listed on The Nasdaq SmallCap Market. For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the purchase
of such securities, must have received the purchaser's written consent to the
transaction prior to the purchase and must provide certain written disclosure to
the purchaser. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell our securities, and may adversely affect the ability of
holders of shares of our Common Stock to resell them. While we intend to use our
best efforts list our Common Stock on the Nasdaq SmallCap Market, there is no
assurance that our listing application will be accepted.
Absence of Dividends on Common Stock
We have no present intention of paying cash dividends on our Common
Stock in the foreseeable future, as we intend to follow a policy of retaining
our earnings, if any, for use in our business. See "Description of Securities"
and "Price Range of Common Stock and Dividend Policy".
Shares Eligible for Future Sale May Adversely Affect the Market
The sale, or availability for sale, of a substantial number of shares
of Common Stock in the public market subsequent to the offering pursuant to Rule
144 under the Securities Act or otherwise could materially or adversely affect
the market price of the securities and could impair our ability to raise
additional capital from the sale of our equity securities or debt financing.
There are currently 6,875,299 shares of our outstanding Common Stock that are
"restricted securities", of which,
10
<PAGE>
5,043,288 shares are being registered for sale pursuant to this Prospectus. All
of those "restricted" shares, as well as the additional 1,832,011 "restricted"
shares not being registered at this time, may, in the future, also be sold upon
compliance with Rule 144 adopted under the Securities Act. Rule 144, as amended,
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell every three months a number of shares equal to the greater
of (a) one percent of our issued and outstanding shares, or (b) the average
weekly volume of sales during the four calendar weeks preceding the sale. The
amount of "restricted securities" which a person who is not affiliated with us
may sell is not so limited, since non-affiliates may sell without volume
limitation their shares held for two years. Nonaffiliated persons who hold for
the two year period described above may sell unlimited shares once their holding
period is met. All of our executive officers and directors have agreed not to
sell their securities in the Company for a period of 12 months from the
effective date of the Registration Statement of which this Prospectus forms a
part, without the prior written consent of the placement agents for our recently
completed private placement.
Year 2000 Risk
We have implemented a Year 2000 date conversion program to ensure that
our computer systems and applications will function properly beyond 1999. We
believe that we have allocated adequate resources for this purpose and expect
our Year 2000 date conversion program to be successfully completed on a timely
basis. There can, however, be no assurance that this will be the case. We do not
expect to incur significant expenditures to address this issue. The ability of
third parties with whom we transact business to adequately address their
respective Year 2000 issues is outside of our control. There can be no assurance
that our failure or the failure of such third parties to adequately address our
respective Year 2000 issues will not have a material adverse effect on our
business, financial condition, cash flows and results of operations.
It is not possible to foresee all risks which may affect us. Moreover,
we cannot predict whether we will successfully effectuate our current business
plan. Each prospective purchaser is encouraged to carefully analyze the risks
and merits of an investment in the Shares and should take into consideration
when making such analysis, among others, the Risk Factors discussed above.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of December 31, 1998, and (ii) as adjusted to reflect, subsequent to December
31, 1998, (a) our sale of 4,062,004 shares of Common Stock (including 62,016
shares issued in partial payment of placement agent commissions) and our receipt
of net proceeds of approximately $10.6 million, (b) the conversion of 622,569
Class A, Series A Preferred Stock and accrued dividends thereon into 1,327,933
shares of Common Stock and (c) our issuance of 20,945 shares of Common Stock
upon the exercise of certain warrants and as partial payment for services
rendered. The table should be read in conjunction with the Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1998(1)
----------------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Total Notes Payable $866,293 $866,293
--------- ----------
Shareholder's Equity (Deficit):
Common Stock, $.001 par value,
50,000,000 shares authorized,
7,924,329 issued and outstanding
at December 31, 1998, 13,335,211,
as adjusted $7,924 $13,335
Class A, Series A Convertible
Preferred Stock, $.001 par value,
1,000,000 shares authorized, 657,000
shares issued and outstanding at
December 31, 1998, 34,431 as adjusted 657 34
Class B Convertible Preferred Stock,
$10.00 par value, 200,000 shares
authorized, no shares issued or
outstanding at December 31, 1998,
or as adjusted -0- -0-
Class C Convertible Preferred Stock,
$.001 par value, 400,000 shares
authorized, no shares issued or
outstanding at December 31, 1998,
or as adjusted -0- -0-
Additional Paid-in Capital 11,991,313 23,108,960
Accumulated (Deficit) (11,919,829) (11,919,829)
Unrealized Loss on Securities(2) (700,000) (700,000)
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Dividends on Series A Convertible
Preferred Stock(3) (161,933) (684,368)
Total Stockholder's Equity (Deficit) $(781,868) $9,818,132
--------- -----------
Total Capitalization $84,425 $10,684,425
========= ===========
</TABLE>
- -----------------------
(1) Does not give effect to the issuance of up to (i) 15,000 shares in the
event of conversion of outstanding convertible promissory notes, (ii)
2,387,994 shares in the event of conversion of outstanding warrants, (iii)
3,717,874 shares in the event of conversion of outstanding options, (iv)
68,862 shares upon conversion of outstanding Series A, Class A Preferred
Stock, and (v) 1,514,150 shares issuable upon exercise of future options
available for grant under the Company's Stock Option Plan. Options and
warrants included in (ii) and (iii) to purchase 2,879,494 shares are being
registered for sale pursuant to this Prospectus. In the event such options
and warrants are exercised in full, the Company will receive proceeds of
$7,515,883.
(2) See "Management - Certain Transactions; Transactions with Affiliated
Parties".
(3) Assumes the payment of accumulated dividends on 622,569 Class A, Series A
Preferred Stock by the issuance of Common Stock having a market value of
$6.31 per share as of January 15, 1999.
USE OF PROCEEDS
The Company will not receive any proceeds upon the sale of shares by
the Selling Securityholders. However, this Prospectus relates to the sale of up
to 2,879,494 shares that may be issued in the event of exercise of certain
outstanding options and warrants held by Selling Securityholders. In the event
all of such options and warrants are exercised, the Company will receive
proceeds of $7,515,883. Such proceeds, if received by the Company, will be used
for working capital.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's shares of Common Stock are traded over-the-counter and
quoted on the OTC Electronic Bulletin Board under the symbol "HMSK". The
reported high and low bid prices for the Common Stock are shown below for the
period from inception of trading in January 1993 through December 31, 1998, and
on February 25, 1999. The quotations reflect inter-dealer prices and do not
include retail mark-ups, mark-downs or commissions. The prices do not
necessarily reflect actual transactions.
Period High Low
- ------ ---- ---
Third Quarter ended 3/31/97 $9.50 $4.00
Fourth Quarter ended 6/30/97 $5.00 $3.16
First Quarter ended 9/30/97 $6.31 $3.06
Second Quarter ended 12/31/97 $5.87 $1.50
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<PAGE>
Third Quarter ended 3/31/98 $2.88 $1.34
Fourth Quarter ended 6/30/98 $4.53 $2.00
First Quarter ended 9/30/98 $6.22 $2.19
Second Quarter ended 12/31/98 $6.44 $1.94
February 25, 1999 $6.00 $5.50
The closing bid and asked prices of the Company's Common Stock on
February 25, 1999 were $5.47 and $5.53, respectively, as quoted on the OTC
Electronic Bulletin Board. As of February 1, 1999, there were approximately 600
shareholders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Fiscal Year Ended June 30, 1998 Compared to June 30, 1997
Results of Operations
Percentage of Revenues
Fiscal Year Ended June 30,
1998 1997
---- ----
Net Sales 100% 100%
Cost of sales (20) (14)
Operating expenses (239) (203)
Interest expense (7) (18)
Other (5) 2
Extraordinary income 3 -0-
----- ----
Net loss (168)% (133)%
Net Sales. Net sales increased 5% from $1,590,000 in fiscal 1997 to
$1,667,000 in fiscal 1998. Internet web page sales increased by $282,000 from
1997 to 1998, from $194,000 to $476,000. This was due to a ramp-up of selling
web pages to real estate agents during fiscal 1998. The publication and sale of
FOCUS demographic books started in January 1998 and totaled $104,000 for fiscal
1998. Custom programming, support and licensing revenues, which include net
sales to a related
14
<PAGE>
party, WebQuest International, Inc. ("WebQuest"), decreased by $279,000, from
$563,000 in fiscal 1997 to $284,000 in fiscal 1998. This was due primarily to a
$300,000 licensing fee charged to WebQuest in fiscal 1997 for license of certain
technology developed by the Company.
Cost of Sales. Cost of sales increased from fiscal 1997 to fiscal 1998,
both as a percentage of sales (from 14% to 20%), and in total cost (from
$224,000 to $338,000). This $114,000 increase was due primarily to an increase
in the fees paid to multiple listing boards of realtors for the use of their
home listing data, used by the Company in its homeseekers.com Internet site, the
cost to outside developers of certain operating features included in the
Company's Internet site and the cost of "CityNet" cards used by customers to
access the CityNet intranet system.
Operating Expenses. Operating expenses increased from $3,221,000 in
fiscal 1997 to $3,985,000 in fiscal 1998. This 24% increase in costs was due to
several factors, all relating to improvement in the Company's infrastructure
necessary to support more traffic on the Company's Internet web site, and
eventually higher advertising sales and web page sales. Total employee
compensation increased from $1,595,000 in fiscal 1997 to $2,245,000 in fiscal
1998, with average employee headcount increasing from 37 in fiscal 1997 to 46 in
fiscal 1998. Employees were added primarily in programming and sales during
fiscal 1998.
The balance of the increase in operating expenses resulted primarily
from an increase in sales promotion expenses and from the cost of registering
the Company's common stock, under Section 12(g) of the Securities Exchange Act
of 1934.
Interest Expense. Interest expense decreased 60% from $290,000 in
fiscal 1997 to $116,000 in fiscal 1998. This was due primarily to the conversion
of $1,916,000 of convertible debt into common stock during 1998 .
Other. Other expense of $69,000 during fiscal 1998 consisted primarily
of a $51,000 sales commission paid by the Company to sell common stock received
for payment from a customer.
Extraordinary Gain. Extraordinary gain of $47,000 in fiscal 1998 was
from the write-off of a Company liability related to fiscal 1996.
Net Loss. As a result of the foregoing, the Company's net loss
increased from $2,122,000 for 1997 to $2,796,000 for 1998.
Financial Condition and Changes in Financial Condition
The Company's current assets increased from $135,000 as of June 30,
1997 to $476,000 as of June 30, 1998 due to an increase in cash and accounts
receivable. These increases were due primarily to the timing of recent equity
transactions (cash) and customer billings (accounts receivable).
Investments in marketable securities decreased from $477,000 to -0-.
This decrease was due to the sale of common stock received from a customer
during 1997 for payment of services rendered.
Investments in LLCs increased from -0- at June 30, 1997 to $451,000 at
June 30, 1998. The Company contributed 300,000 shares of common stock at a value
of $450,000 to a limited liability
15
<PAGE>
company ("LLC") as collateral to perform. The Company formed this LLC in January
1998 as a 50% owner, along with a mortgage company, to develop a new Internet
web site to generate advertising revenues for the Company and mortgage loans for
the mortgage company.
Accounts receivable from related parties, short-term and long-term,
decreased from $526,000 as of June 30, 1997 to $193,000 as of June 30, 1998.
$508,000 of the 1997 balance was due from WebQuest International, Inc.
(WebQuest") for partial billing on the sale of licensing fees on certain
technology. This balance was satisfied during 1998 with payment in the form of
the customer's common stock. This stock is currently being held for resale and
will be sold, in all or in part, once the customer's common stock begins trading
on a public exchange. $150,000 of the 1998 balance was due from WebQuest for
programming services rendered.
Other assets increased $84,000 from June 1997 to June 1998 was due
primarily to a $100,000 non-refundable down payment made on the proposed
acquisition of Opticom Corporation.
Current liabilities decreased by $607,000 from June 30, 1997 to June
30, 1998, primarily due to the more timely payment of vendors and a reduction of
$246,000 in notes payable.
Convertible debt decreased $1,916,000 during fiscal 1998, from
$2,056,000 to $140,000. Debt holders converted their debt to common stock at
$2.00 per share. The outstanding balance of this convertible debt as of June 30,
1998 was $140,000.
Series B convertible preferred stock decreased to zero during fiscal
1998 as the result of forfeiture of such stock in connection with an
unsuccessful attempt to raise capital.
The combination of capital stock and additional paid in capital
increased from $5,340,000 as of June 30, 1997 to $11,120,000 as of June 30,
1998. This was due to an additional 2,855,000 shares of common stock issued
during fiscal 1998 in return for $5,780,000 in cash, services, convertible
preferred stock dividends and extinguished debt. $1,916,000 of this
consideration was for the conversion of outstanding convertible debt.
Dividends on Series A convertible preferred stock totaling $119,000
were paid in the form of common stock to a stockholder when he converted certain
Series A convertible preferred shares into common stock during fiscal 1998.
The Company's accumulated deficit increased by $2,796,000 from June 30,
1997 to June 30, 1998 due to the net loss incurred by the Company during fiscal
1998.
Unrealized loss on securities of $331,000 as of June 30, 1997 was
reversed during fiscal 1998 when the Company sold common stock it had received
as payment for services during fiscal 1997 from a mortgage Company. The $700,000
balance as of June 30, 1998 relates to payment, in the form of common stock,
from a related entity, WebQuest, for licensing fees on certain technology.
Fiscal Year Ended June 30, 1997 Compared with June 30, 1996
Net Sales. Net sales increased 202% from $527,000 in fiscal 1996 to
$1,590,000 in fiscal 1997. This was due primarily to the sale of mortgage leads
to a mortgage company for $500,000 during fiscal 1997 and a $300,000 licensing
fee charged to WebQuest in fiscal 1997 for license of
16
<PAGE>
certain technology developed by the Company. Most of the Company's sales during
fiscal 1996 were generated from the sale of one software product, Realty 2000,
in the real estate industry, and licensing fees of $250,000 charged to a bank
for development of a real estate intranet system.
Cost of Sales. Cost of sales increased from fiscal 1996 to fiscal 1997
in total cost (from $87,000 to $224,000), but decreased as a percentage of sales
(from 17% to 14%). This $137,000 increase was due primarily to an increase in
the fees paid to multiple listing boards of realtors for the use of their home
listing data used on the Company's homeseekers.com Internet site, the cost to
outside developers of certain operating features included in the Company's
Internet site and the cost of "CityNet" cards used by customers to operate the
CityNet intranet system.
Operating Expenses. Operating expenses increased from $2,640,000 in
fiscal 1996 to $3,221,000 in fiscal 1997. This 22% increase in costs was due to
improvements made in the Company's infrastructure necessary to support more
traffic on the Company's Internet web site.
Six Months Ended December 31, 1998 Compared With Six Months Ended December 31,
1997
Total revenues of $1,442,000 for the six months ended December 31, 1998
increased 142% or $845,000 over the same period in 1997 due to increased sales
of Web pages and Web sites to real estate agents; increased Internet prospect
sales, including $400,000 for Internet leads to one customer; increased
advertising revenues and increased custom programming revenues.
Cost of sales increased 108% from $104,000 for the six months ended
December 31, 1997 to $217,000 for the six months ended December 31, 1998. This
increase was due primarily to increased MLS board royalties and Genstar Web Site
third-party hosting fees. The Company has developed its internal Web site
software since the acquisition of Genstar Media in August 1998. This move is
expected to increase Genstar Web site gross margins starting in January 1999.
MLS board royalties are expected to increase in the future proportional to
increases in Web Page revenues.
Operating expenses of $2,780,000 for the six months ended December 31,
1998 represent an increase of $1,094,000, or 65% over the same period in 1997
due primarily to increases in sales and marketing expenses and software
programming expenses. Beginning in January 1998 the Company has expanded
dramatically the channels through which it sells Web Sites and Web pages.
Interest expense of $21,000 during the six months ending December 31,
1998 reflects a decrease of 77% from the same period during 1997. This decrease
resulted primarily from the conversion of convertible debt into common stock.
The net loss for the six months ending December 31, 1998 of $1,550,000
or $(.22) per share increased $266,000 from the net loss of $1,284,000 or $(.26)
per share for the corresponding six months in 1997. The increase in net loss was
due primarily to increases in sales and marketing expenses preceding increases
in corresponding revenues.
Three Months Ended December 31, 1998 Compared With Three Months Ended
December 31, 1997
17
<PAGE>
Total revenues of $1,068,000 for the three months ended December 31,
1998 increased 147% or $635,000 over the same period in 1997 due to increased
sales of Web pages and Web sites to real estate agents, increased Internet
prospect sales and custom programming revenues.
Cost of sales increased by 161% from $51,000 for the three months ended
December 31, 1997 to $133,000 for the three months ended December 31, 1998. This
increase was due primarily to increased MLS board royalties and Genstar Web site
third-party hosting fees. The Company has developed its internal Web site
software since the acquisition of Genstar Media in August 1998. This move is
expected to increase Genstar Web site gross margins starting in January 1999.
MLS board royalties are expected to increase in the future proportional to
increases in Web Page revenues.
Operating expenses of $1,532,000 for the three months ended December
31, 1998 represent an increase of $530,000, or 53% over the same period in 1997
due primarily to increases in sales and marketing expenses and software
programming expenses. Beginning in January 1998 the Company has expanded
dramatically the channels through which it sells Web Sites and Web pages.
Interest expense of $15,000 reflects a decrease of 65% from the 1997 $
43,000 interest expense. This decrease resulted from the conversion of
convertible debt into common stock.
The Company spun off its FOCUS Publications business unit during
November 1998, resulting in a one-time net gain on sale of $26,000.
The net loss for the three months ending December 31, 1998 of $587,000
or $(.08) per share decreased $76,000 from the net loss of $663,000 or $(.12)
per share for the corresponding three months in 1997. The decrease in net loss
was due to a higher rate of increase in revenues than in expenses.
Liquidity and Capital Resources
As reflected in the cash flow statements for the six months ending
December 31, 1998 and 1997, the Company's operations have not generated
sufficient cash flows to meet the on-going cash needs of the Company. The
Company has generated the additional cash required to fund its operations
through the proceeds from the exercise of stock warrants and options.
During January 1999 the Company raised $12 million through the sale of
common stock to accredited investors pursuant to Rule 506 of Regulation D. This
sale netted the Company approximately $10.6 million in cash, after deducting
commissions of approximately $1.2 million and other offering expenses. The
results of this stock sale are not included in the accompanying financial
statements.
Net cash used in operations during the six months ending December 31,
1998 of $1,030,000 was financed primarily from the proceeds from the exercise of
stock warrants and options of $491,000, and through additional loans totaling
$785,000. These loans were obtained from unrelated entities in the amount of
$250,000 and from related parties in the amount of $535,000. All loans pay
market rates of interest averaging 13% per annum. This compares to net cash used
in operations during the six months ending December 31, 1997 of $1,299,000. This
cash deficit was financed primarily from the sale of common stock, including
$192,000 for the exercise of stock warrants and options.
18
<PAGE>
In October 1998 the Company entered into a technology alliance with an
unrelated entity whereby the Company shall receive payments totaling $2,000,000
through November 1999. At December 1998 the Company has included $250,000 of
these amounts in revenues, $1,875,000 in accounts receivable and $1,750,000 in
deferred revenue.
Cash outflows from investing activities during the six months ending
December 31, 1998 included $152,000 for the purchase of capital assets,
primarily computer equipment and software; and a $50,000 loan made to the owner
of Genstar Media upon the acquisition of this business. Cash inflows included
$57,000 from the sale of Focus publications business unit in November 1998.
Significant investment cash outflows during the six months ended
December 31, 1997 included $71,000 for capital assets, primarily computer
equipment, and the payment of a $100,000 deposit for the purchase of a business.
Impact of the Year 2000 on Computer Systems
The Company has developed two software products, HS Passport and Realty
2000 Net 98. Realty 2000 Net 98 has been upgraded to be year 2000 compliant, and
the Company is currently in the process of upgrading HS Passport to be year 2000
compliant.
The Company's personal computers, network servers and purchased
computer software used to operate the business are all year 2000 compliant, due
to the recent purchase of, or upgrade to these software and hardware tools.
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. At this time, the Company has not found any material deficiencies in
significant vendor's and customer's computer operations. It has been determined
that the multiple listing services real estate listings that the Company pulls
to its homeseekers.com Internet site will not be materially affected by the year
2000 dating problem.
The Company does not anticipate that the financial impact of the year
2000 issues described above will have a material adverse effect on our business,
financial condition or results of operations.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Section and elsewhere in this
Registration Statement regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. All statements which
address operating performance, events or developments that management expects or
anticipates to incur in the future, including statements relating to sales and
earnings growth or statements expressing general optimism about future operating
results, are forward-looking statements. The forward-looking statements are
based on management's current views and assumptions regarding future events and
operating performance. Many factors could cause actual results to differ
materially from estimates contained in management's forward-looking statements.
The differences may be caused by a variety of factors, including but not limited
to adverse economic conditions, competitive pressures, inadequate capital,
unexpected costs, lower revenues, net
19
<PAGE>
income and forecasts, the possibility of fluctuation and volatility of the
Company's operating results and financial condition, inability to carry out
marketing and sales plans and loss of key executives, among other things.
20
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BUSINESS
HomeSeekers.com, Incorporated (the "Company") is a leading provider of
online consumer real estate information on the Internet through its Web site at
www.homeseekers.com. The Company also provides products and services to real
estate firms, brokers and agents and others engaged in the residential real
estate industry. Certain of the Company's products and services are expected to
generate revenues based upon the Company's performance under agreements which
have recently been entered into, but which have not yet produced revenues. There
is no assurance that the Company's products and services will be successfully
developed or that it will operate on a profitable basis. See "Risk Factors".
Products and Services
The products and services offered by the Company can generally be
classified as Internet Marketing Services for Real Estate Agents, Real Estate
Agent Productivity Tools or Other Products and Services.
Internet Marketing Services for Real Estate Agents
- --------------------------------------------------
HomeSeekersTM and HomeSeekers/CityNetTM: Through the Company's
proprietary Internet product, HomeSeekersTM (available at the Company's Web
site, HomeSeekers.com), and its Intranet product, HomeSeekers/CityNetTM, the
Company provides prospective home buyers access to homes for sale in a
subscribing Multiple Listing Service geographical region. HomeSeekersTM and
HomeSeekers/CityNetTM employ a sophisticated search engine with over 50
searchable fields to allow both broadly and narrowly defined searches. The
systems will search, find and display all listings that match a prospective
buyer's criteria, including a preferred location within a city or state, number
of bedrooms and baths, and other desired features. The product's new feature,
"Let the Listings Find YouSM", allows users to enter their search, save it, and
automatically search for updated inventory, thus increasing Company Web site
hits. The systems also permit users to apply for and arrange for a mortgage and
title insurance.
Real estate multiple listing services ("MLSs") aggregate and manage
real estate listings for regional boards of realtors. There are approximately
900 MLSs nationwide, although this number has generally been decreasing as a
result of industry consolidation. The Company contracts with various MLSs to
acquire the right to include their listings on the Company's homeseekers.com
Internet Web site. The contracts generally require a quarterly fee to be paid to
the MLS for the right to use its data. The fees are typically 10% of Company
revenues generated in the MLSs listing area. The Company currently has
contractual relationships with 36 MLSs.
Web Pages and Web Sites: In order to enhance the Company's sale of Web
sites (for $499 per year) to real estate agents, in August 1998, the Company
acquired the customer list and certain other assets of Genstar Media, a recently
formed company engaged in the sale of Web sites to real estate agents. Genstar
Media'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 Media, 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 has also loaned the sellers $50,000, the repayment
of which is
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<PAGE>
secured by the stock issued by the Company, with repayment due on the effective
date of the Registration Statement of which this Prospectus forms a part.
Real Estate Agent Productivity Tools
The Company's Realty 2000R software program was originally introduced
in 1988 and has had over 20,000 cumulative users to date. Realty 2000R Net '98
("Net 98"), a significantly upgraded version of Realty 2000R, is an agent
productivity software program which enables real estate agents to operate their
businesses more efficiently.
Net '98 provides real estate agents with a client contact package, a
sales flyer producer, a scheduler, a digital camera interface, a financial
calculator, word processor and a comparative market analysis ("CMA") tool in
markets where homeseekers.com has contracted for real estate listing data. In
addition, an agent is able to launch directly to the Internet and send and/or
receive E-mail. The agent may also send an E-mail version of their flyer to a
client, E-mail a CMA to a client, access the Internet or access the Company's
advertising partners directly from the Net '98 "Channel Bar" enabling him to
initiate transactions for title insurance, mortgages, home insurance, home
disclosure, or homeseekers.com Internet products. The Company believes that Net
'98 is the only solution currently on the market that accommodates both Internet
and non-Internet enabled real estate agents. Net '98 is integrated with the
Internet and functions as a "Vertical Application Browser" ("VAB"). The term
"Vertical Application Browser" is used to refer to a product that is written
specifically for the real estate vertical market, is an application installed on
the client's computer, and functions in many ways as an Internet browser. There
are three distribution versions available on compact disc or downloaded from the
Internet. All versions are integrated with HomeSeekersTM and the Company's
latest product, MLS2KTM, and perform the CMA function for the agent using data
from the HomeSeekersTM server installations.
H.S. PassportTM: H.S. PassportTM is a proprietary E-mail system that
enables real estate agents to access customer leads via E-mail on the Internet.
Many real estate agents have not connected to the Internet and H.S. PassportTM
enables these agents to use customer lead-generating E-mails from the Company's
HomeSeekers/CityNetTM product. H.S. PassportTM connects the agent to the
Internet through a toll free telephone number, to access leads via E-mail from
interested home buyers. H.S. PassportTM, when coupled with Net '98, allows
agents to access E-mail even if they do not have an Internet service provider
access account. H.S. PassportTM enables the broker's computer to access the
Company's mail server on a scheduled basis, download the mail for its agents,
and then page its agents to tell them they have E-mail.
MLS2KTM: MLS2KTM, designed for MLSs, is the Company's most recently
developed product. MLS2KTM is an Internet-based multiple listing system designed
to allow a MLS to run MLS2KTM in tandem with its conventional real estate
listing management system. MLS2KTM will enable Internet- sophisticated real
estate agents to access real estate listings via the Internet, instead of
through traditional dial-up access systems.
The advantage of MLS2KTM to the agent is that is more efficient than
conventional MLS access. The advantage to the MLS is that it is significantly
more cost effective. MLS2KTM is designed at the high end, initially for sale to
MLSs, and will be marketed for approximately $250,000, plus the payment of
monthly fees of approximately $10,000 to $20,000. MLS2KTM is designed to use
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Net '98 as the agent interface product. This usage provides the additional
advantage of increasing the exposure for Net '98.
Other Products and Services
- ---------------------------
Executive Net Services Division: The Company's current programming
personnel comprise the Company's Executive Net Services division. This division
has developed the Company's H.S. PassportTM and Realty 2000R Net '98 products,
and will continue to maintain, enhance and upgrade these products. The Executive
Net Services division also performs software consulting services for clients
within the real estate market. While management does not anticipate that this
division will generate substantial revenues for the Company, the expertise of
its personnel in developing and maintaining vertical software applications for
the real estate market is critical to enable the Company to sustain its position
as a leading provider of online consumer real estate information.
Strategic Alliances
The Company has strategic alliances with various partners, which are
intended to expand the products and services offered by the Company and which
management believes will enhance the Company's presence in the marketplace.
These strategic alliances are classified based upon whether they are intended to
(i) expand the products and services offered by the Company, (ii) develop
additional sales channels for the Company's products and services or (iii)
expand residential real estate listings available to the Company. The following
is a brief description of each of the Company's strategic alliances:
Expansion of Products and Services
Vista Information Solutions, Inc. ("Vista"), an on-line provider of
home disclosure and home insurance information, is the first company to validate
the Company's Vertical Application Browser capability of Net '98. On October 29,
1998, Vista and the Company entered into a technology alliance under which Vista
agreed to pay the Company two million dollars in non-refundable positioning fees
through November 1, 1999. The Company is also entitled to royalty fees payable
by Vista on sales of Vista products made through the Company's Web site;
however, royalty fees will not be paid until such time as earned royalties
exceed the total of positioning fees paid. This alliance provides Vista exposure
to all facets of the Company's Internet site, as well as exclusive positioning
on the VAB for home disclosure and home insurance.
In mid-1998, the State of California legislated that a home seller must
provide home buyers with a home disclosure report, which is an environmental
report covering items of potential risk such as fire, earthquake, flood, etc.
The Company will seek to capture a portion of this market through royalties it
expects to receive from sales of Vista's reports on the Company's Web site.
In January 1998, the Company and FINET Holdings, Inc. ("Finet") formed
a joint venture under the name HomeSeekers/iQualify, LLC to establish a Web site
for consumers to view information pertaining to real estate, and to provide
consumers an opportunity to pre-qualify for, apply for and close residential
home loans. Finet is one of the nation's leading independent mortgage brokers
and currently a sponsor in multiple locations at the Company's homeseekers.com
Web site. The Company's capital contribution to the joint venture consists of
data output from its homeseekers.com Web site, certain technology and 300,000
shares of the Company's common stock. Finet's capital
23
<PAGE>
contribution to the joint venture consists of data output from its iQualify Web
site, which markets the "Desktop Underwriter Program", a multi-lender platform
for loan approval provided through Fannie Mae. Revenues from the joint venture
are expected to be generated from transaction fees resulting from the processing
of loans and from advertising. Although the Company and Finet each own 50% of
the joint venture, revenues from loans and advertising are paid to the members
in accordance with a formula contained in the agreement. The Company anticipates
that the Web site for the joint venture will become operational in mid-1999.
In February 1998, the Company entered into an agreement with E-Loan,
the nation's leading Internet mortgage company, to incorporate E-Loan's mortgage
offerings on the Company's HomeSeekers.com Web site. This alliance permits home
buyers to access a loan center while viewing homes at the Company's Web site.
The loan center is designed to "hyperlink" the user to various mortgage tools
and services provided by E-Loan. Pursuant to the agreement, E-Loan will pay the
Company $125 for each loan closed as a result of a "link" provided at the
Company's Web site. The agreement may be terminated by either party on 30 days'
written notice.
In April 1998, the Company entered into an agreement with HomeShark, an
Internet provider of discount home mortgage brokerage services and home-buying
advice. The Company has incorporated HomeShark's mortgage offerings onto its
homeseekers.com Web site, which provides "hyperlinks" to permit the user to
access HomeShark's products and services. HomeShark has agreed to pay the
Company a fee of $25 to $30 for each Mortgage Pre-Approval and Application form
completed and submitted to HomeShark as a result of the use of the Company's Web
site. The agreement may be terminated by either party on 30 days' written
notice. HomeShark has also agreed to pay the Company $30,000 for the right to
have a link to HomeShark's Web site placed on 3,000 real estate agent's Web
sites that are accessible from the Company's Web site.
In April 1998, the Company entered into an agreement with Michigan
Multiple Listing Service ("MMLS"), to develop software solutions to enable MMLS
to offer a public access lead generation Intranet system for the advertising of
multiple listing data, real estate agents, brokers and related services. These
software products include the Company's HomeSeekers/CityNetTM, Net '98 and H.S.
PassportTM products, and are intended for use by MMLS to generate advertising
revenues based on their real estate listing data. The Company is compensated
through software license fees.
In May 1998 the Company entered into an agreement with DataQuick, a
division of Acxiom Corporation, to link DataQuick's comparative market analysis
information to the Company's HomeSeekers.com Internet site. This alliance
permits home buyers to view and print a comparative market analysis of any home
viewed on the Company's HomeSeekers.com Internet site. DataQuick will charge the
Company's users directly for market analyses requested by such users, and
DataQuick will remit a royalty to the Company equal to 45% of DataQuick's net
collections (as defined in the agreement). The agreement is for an initial term
of one year, terminating May 1, 1999, subject to automatic one year renewals,
unless either party terminates the agreement on written notice given at least 30
days prior to expiration of the initial or any renewal term.
Sales Channel Development
In August 1997, the Company and Red Informatica Mexico, S.A. de C.V.
("RIM"), an affiliate of Century 21, Incorporated, created a joint venture to
develop Internet and Intranet sites for real estate properties worldwide. These
Web sites are intended to market multiple real estate-related
24
<PAGE>
products and services, and to serve as a platform for the development of foreign
business relationships (other than in the United States and Mexico). The joint
venture contemplates that RIM will provide primary marketing, training and
support for these business relationships, while the Company will provide
technical direction and development. Day-to-day operations of the LLC are to be
managed by two managers, one of whom is selected by each member. The RIM joint
venture may be terminated by either party on 30 days' notice and either party
has the right to request the other to purchase its interest at a price to be
agreed upon.
In October 1997, Baca Landata, Inc. ("Baca"), a wholly owned subsidiary
of Stewart Title, entered into a three-year marketing alliance agreement with
the Company. Pursuant to the agreement, Baca has agreed to use its best efforts
to introduce the Company to MLSs in the State of Texas, and the Company has
agreed to use Baca's services, on an exclusive basis, for such purposes. In
consideration for the services performed by Baca, the Company has agreed to pay
Baca a commission equal to 25% of gross revenues generated from all products and
advertising contracts sold by the Company in Texas, and 15% for renewals
thereof. The Company has the right to terminate the agreement as to portions of
the State in which Baca fails to achieve minimum stated revenue rates for the
Company. In the event the Company determines to sell its HomeSeekersTM product,
Baca has been granted a right of first refusal to purchase the product on the
same terms and conditions as may be contained in a bona fide third-party offer.
In January 1998, the Company entered into a technology alliance with
RE/MAX of Texas Institutional Promotion Fund ("RE/MAX") to develop software that
will enable RE/MAX to offer a public access lead generation Intranet system for
the advertising of multiple listing data, real estate agents, franchise sales
and related services. This software, which will incorporate
HomeSeekers/CityNetTM, Net '98 and H.S. PassportTM, is intended for use by
RE/MAX and its franchisees to access MLS data and communicate with each other.
The Company will be compensated through software license fees. The agreement
also obligates the Company to create and host RE/MAX's Internet site
"ReMax-Texas.com" for a monthly fee. In addition, RE/MAX's brokers will also
market advertising for the Company's HomeSeekers.com site on a commission basis,
and the Company is granted access to RE/MAX's listing data for inclusion in the
HomeSeekers.com Web site.
In August 1998, the Company entered into a marketing agreement with
Harte-Hanks Shoppers, Inc., a division of Harte-Hanks, Inc. (NYSE: HHS).
Pursuant to the agreement, Harte-Hanks Shoppers, Inc.'s salespersons will market
Web pages and advertising space on the Company's Internet sites. The agreement
is cancelable by either party on 30 days' written notice.
Expansion of Residential Real Estate Listings
In March 1998, the Company entered into a technology alliance with
Better Homes and Gardens Real Estate Services ("BH&G"), pursuant to which the
Company has agreed to accumulate BH&G's 120,000 nation-wide real estate
listings, upload such information to BH&G's Internet site and mirror this
information on the Company's HomeSeekers.com Web site. For its set-up services
under the agreement, BH&G paid the Company a fee of $35,000. The Company has
also agreed to perform updates of BH&G's real estate listings for a fee of
$2,000 per update, with a projected frequency of two updates per month. BH&G's
real estate agents throughout the U.S. are offered access to the Company's
products upon payment of a license fee to the Company, and have the opportunity
to advertise on the Company's HomeSeekers.com Web site. BH&G has also agreed to
promote the Company's software products to its members and permit the Company to
be represented at BH&G's
25
<PAGE>
conventions, for which the Company pays BH&G an annual fee of $50,000. The
initial nine month term of the agreement may be renewed for successive one year
terms, and the agreement may be cancelled by either party on 30 days' written
notice if the other party fails to perform its obligations.
Strategic Acquisitions
In addition to its strategic alliances, the Company has historically
employed a growth through acquisition approach to expand its products and
services. This approach includes the Company's acquisition of assets or
outstanding equity of businesses operated by third parties in consideration for
which the Company pays the third party or its stockholders cash, Company
securities, or a combination of cash and securities. This approach also permits
the Company to expand its revenue base without certain of the start-up and/or
development costs typically associated with the introduction of new products
and/or services. The Company intends to continue its growth through acquisition
approach in the future. The Company is in various stages of discussion with
several parties that could lead to one or more acquisitions by the Company of
the type discussed in the preceding paragraph. None of such discussions have
concluded with a formal understanding to consummate an acquisition.
Employees
The Company currently employs 81 persons, 79 of whom are full-time
employees, in the following capacities: 5 executive officers, 20 administrative
personnel, 19 sales and marketing personnel and 37 programmers. The Company's
employees are not represented by a collective bargaining unit. The Company
considers relations with its employees to be good.
Legal Proceedings
The Company is not a party to any material legal proceeding, nor is any
officer, director or affiliate a party adverse to the Company in any such legal
proceeding.
Description of Property
The Company currently leases approximately 6,325 square feet of office
space at its Minden, Nevada corporate headquarters from an unaffiliated party.
Its monthly lease payments are $6,524 subject to yearly adjustments based on the
Consumer Price Index for All Urban Consumers all items, U.S. City average
(1982-1984). The lease term, which commenced on September 15, 1994, is for five
years with an option to renew for an additional five-year term.
The Company also leases approximately 17,298 square feet of office and
storage space in Brea, California which it uses for the Company's Brea
operations, from an unaffiliated party. The term of the lease is six years,
commencing July 23, 1998 and the monthly rental is initially $10,553, increasing
to $19,547 per month in the sixth year. The Company also remains obligated,
until August 1999, for rental payments of $2,400 per month under the Company's
prior lease covering the Brea operations.
The Company leases 1,976 square feet of office space at its Reno,
Nevada location from an unaffiliated party. Its monthly lease payments are
$2,984. The lease term, which commenced on June 15, 1998, is for one year with
an option to renew for an 18 month term at a 3% increase.
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<PAGE>
The Company leases 771 square feet of office space at its Los Angeles,
California Genstar location from an unaffiliated party. Its monthly lease
payments are $1,232 per month for the first 12 months and $1,309 per month for
the second twelve months. The lease term, which commenced on August 1, 1998, is
for two years.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors serve
for two-year terms and their election is staggered so that one-half of the board
stands for election each year. All directors serve until their successors are
elected and qualify. Officers are elected by the Board and their terms of office
are, except to the extent governed by employment contract, at the discretion of
the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Greg Johnson 46 Chairman of the Board of Directors,
Chief Executive Officer,Secretary
and Treasurer
John Giaimo 44 President, Chief Operating Officer
and Director
Douglas Swanson 56 Vice Chairman of the Board of
Directors and Executive Vice
President
Scott Berry 40 Chief Financial Officer
Larry Ross 47 Vice President - Marketing
</TABLE>
GREG JOHNSON, the Company's founder, has served as the Company's
Chairman of the Board since August 6, 1996, as its Chief Executive Officer
("CEO") and a Director since 1988, and as its President from 1988 through August
5, 1996. Mr. Johnson has been involved in all phases of management of the
Company. Mr. Johnson is a licensed real estate broker/agent in Nevada and has
extensive experience in the marketing and sale of real estate.
JOHN GIAIMO has served as the Company's President, Chief Operating
Officer ("COO") and a Director since August 6, 1996. He was the President of
Visual Listings, Inc. ("VLI") since July 1990 until its acquisition by the
Company in May 1996, and the Chief Executive Officer of VLI from July 1990 to
May 1996. Mr. Giaimo was the subject of a Chapter 7 personal bankruptcy which
became final on September 12, 1996, and involved three computer stores where he
was the sole proprietor.
27
<PAGE>
DOUGLAS SWANSON has served as Vice Chairman of the Board of Directors
and Executive Vice President of the Company since October 31, 1995. His current
responsibilities for the Company include serving as liaison to significant
investors in the Company and implementing the HomeSeekers marketing division.
Between 1990 and October 30, 1995, Mr. Swanson served as Chairman and was
founder of Remington-Fox, Inc. (OTC: RFOX), a company engaged in the business of
medical transcribing. Remington-Fox, Inc. filed for bankruptcy protection under
Chapter 11 in June 1996 and is no longer in operation. Because of personal
guarantees associated with Remington-Fox, Mr. Swanson also filed for personal
bankruptcy protection under Chapter 11 in June 1996.
SCOTT BERRY has served as Chief Financial Officer of the Company since
October 1997 and is responsible for investor relations, accounting and financial
planning and control. Between 1994 and October 1997, Mr. Berry served as
Controller of several businesses including Dennis Banks Construction Company
from February 1997 to October 1997, Advanced Plastic Molding, Inc. from April
1996 to January 1997, and Siller Brothers, Inc. from December 1994 to February
1996. From July 1993 to August 1994, Mr. Berry served as Vice President of
Finance for Precision Resource Corporation, a software developer and computer
hardware reseller. From September 1988 through June 1993, Mr. Berry was Chief
Financial Officer of Lansmont Corporation, a developer and manufacturer of
computer-based product and package test equipment.
LARRY ROSS has served as Vice President of Marketing since September
1997. From May 1989 to May 1996, Mr. Ross served as the Regional Director/Chief
Operating Officer for Century 21 Region V, which comprises the eastern half of
Los Angeles County, Riverside County and San Bernardino County, California, one
of the top five regions of 45 nationwide that are consistently ranked first in
"per office" productivity, where he was responsible for 185 offices with 7,000
real estate agents and managed a corporate staff of 35. Between 1990 and 1992,
he served as Regional Director Representative to the National Advertising Fund
committee which helped set direction for the Century 21 advertising fund of $40
million. Additionally, from 1993 to 1994, he was one of three Regional Directors
appointed to serve on the President's National Top Brokers Task Force which
provided input to the Chief Executive Officer of Century 21.
Board Committees; NASDAQ Compliance
The Company's Stock Option Plan is administered by a committee
consisting of the entire Board of Directors. The Company currently has no other
committees. However, the Company intends to seek inclusion of its Common Stock
on the NASDAQ SmallCap Market and, in order for the Company to meet NASDAQ
requirements, the Company intends to (i) appoint at two independent directors to
the Company's Board of Directors and (ii) form an Audit Committee, a majority of
the members of which will be independent directors. The Company has not yet
identified the two independent directors that will satisfy NASDAQ requirements.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information relating to the compensation
paid by the Company during the past three fiscal years to: (i) the Company's
President and Chief Executive Officer; and (ii) each of the Company's executive
officers who earned more than $100,000 during the fiscal year ended December 31,
1998 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Fiscal Other Annual LTIP All Other
Name and Principal Position Year Salary (1) Bonus Compensation Options/ (#) Payouts Compensation
- --------------------------- ---- ---------- ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greg Johnson 1998 $141,546 - - - - -
CEO, Treasurer and Secretary 1997 $ 90,769 - - 200,000 - -
1996 $ 75,383 $34,664 - 526,000 - -
John Giaimo 1998 $141,546 - - - - -
President and COO 1997 $ 90,769 $50,000 - 200,000 - -
1996 $ 10,769 - - 275,000 - -
Douglas Swanson 1998 $141,546 - - 250,000 - -
Executive Vice President 1997 $ 91,503 - - 200,000 - -
1996 $ 42,831 $35,402 - 551,000 - -
</TABLE>
- --------------------
(1) This amount includes monthly automobile allowance for each officer of
$600.00 beginning September 1997.
Employment Agreements
Greg Johnson, Chairman and CEO. In June 1996, the Company entered into
a five year employment agreement with Greg Johnson whereby Mr. Johnson continued
to serve as the President/CEO of the Company and received a signing bonus of
$34,664. Subsequently, Mr. Johnson resigned as President of the Company, however
no written modification has been made to his employment agreement to date.
Effective September 1, 1996, Mr. Johnson's annual salary was increased to
$100,000 and, on March 4, 1997, Mr. Johnson's employment agreement was again
amended to increase his annual salary to $144,000; however, he did not begin
receiving this increased rate until September 1997. The amount earned, but not
paid to Mr. Johnson has been recorded as a liability on the books of the
Company. Mr. Johnson is also entitled to receive (i) an annual bonus equal to 4%
of the pre-tax earnings of the Company and (ii) options to purchase Common Stock
of the Company equal to 4% of the pre-tax earnings of the Company, at an
exercise price equal to the bid price of the Company's Common Stock on the date
of such grant. Mr. Johnson also has the right to receive a monthly automobile
allowance of $600.00.
Douglas Swanson, Vice Chairman. In June 1996, the Company entered into
a five year employment agreement with Mr. Swanson whereby Mr. Swanson continued
to serve as the Vice Chairman of the Company, and received a signing bonus of
$35,402. Effective September 1, 1996, Mr. Swanson's annual salary was increased
to $100,000 and, on March 4, 1997, Mr. Swanson's employment agreement was again
amended to increase his annual salary to $144,000 however, he did not begin
receiving this increased rate until September 1997. The amount earned, but not
paid to Mr. Swanson has been recorded as a liability on the books of the
Company. Mr. Swanson is also entitled
29
<PAGE>
to receive (i) an annual bonus equal to 4% of the pre-tax earnings of the
Company and (ii) options to purchase Common Stock of the Company equal to 4% of
the pre-tax earnings of the Company, at an exercise price equal to the bid price
of the Company's Common Stock on the date of such grant. Mr. Swanson also has
the right to receive a monthly automobile allowance of $600.00.
John Giaimo, President, COO and a Director. In May 1996, the Company
entered into a five year employment agreement with John Giaimo whereby Mr.
Giaimo was appointed President and COO of the Company and received a signing
bonus of $50,000 in July 1996. Effective September 1, 1996, Mr. Giaimo's annual
salary was increased to $100,000 and, on March 4, 1997, Mr. Giaimo's employment
agreement was again amended to increase his annual salary to $144,000; however,
he did not begin receiving this increased rate until September 1997. The amount
earned, but not paid to Mr. Giaimo has been recorded as a liability on the books
of the Company. Mr. Giaimo is also entitled to receive (i) an annual bonus equal
to 4% of the pre-tax earnings of the Company and (ii) options to purchase Common
Stock of the Company equal to 4% of the pre-tax earnings of the Company, at an
exercise price equal to the bid price of the Company's Common Stock on the date
of such grant. Mr. Giaimo also has the right to receive a monthly automobile
allowance of $600.00.
Notwithstanding the foregoing, in connection with the Company's
recently completed private placement, all of the Company's executive officers
have agreed to renew their employment agreements with the Company, and, until
the later to occur of one year from the Effective Date of the Registration
Statement of which this Prospectus forms a part, or the Company's reporting of
net income for two successive quarters, salaries paid to executive officers will
not exceed $150,000 per person, bonuses will not exceed 200% of salaries per
person and the payment of accrued bonuses will be deferred.
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended June 30,
1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Percent of
Number of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year ($/Sh) Expiration Date
---- ----------- ---- ------ ---------------
<S> <C> <C> <C> <C>
Douglas Swanson 250,000 50% $1.47 / 250,000 January 2003
</TABLE>
Incentive and Non-Qualified Stock Option Plan
On October 9, 1996, the Board of Directors ratified a stock option plan
called the "1996 Stock Option Plan (the "Plan") and on December 21, 1996, the
stockholders approved the Plan. On December 18, 1997, at the annual meeting of
the Company stockholders, a majority of the Company's stockholders and members
of the Board of Directors amended the Plan to increase the number of options
available under the Plan to 5,500,000.
30
<PAGE>
The Company believes the Plan will work to increase the proprietary
interest in the Company of its directors, officers, employees and consultants,
and to align more closely their interests with the interests of the Company's
stockholders. The Plan will also maintain the Company's ability to attract and
retain the services of experienced and highly qualified employees and directors.
Under the Plan, the Company has reserved an aggregate of 5,500,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Board of Directors of the Company administers the Plan
including, without limitation, the selection of the persons who will be granted
Plan Options under the Plan, the type of Plan Options to be granted, the number
of shares subject to each Plan Option and the Plan Option price.
The Plan authorizes the issuance of incentive stock options ("ISOs") as
defined in Section 422A of the Internal Revenue Code of 1986, non-qualified
stock options ("NQSOs") and together with ISOs,"Options"). In addition, the Plan
also allows for the inclusion of a reload option provision ("Reload Option"),
which permits an eligible person to pay the exercise price of the Plan Option
with shares of Common Stock owned by the eligible person and receive a new Plan
Option to purchase shares of Common Stock equal in number to the tendered
shares.
Any ISO granted under the Plan must provide for an exercise price of
100% of the fair market value of the underlying shares on the date of such
grant, but the exercise price of any ISO granted to an eligible person owning
more than 10% of the Company's Common Stock must be at least 110% of such fair
market value as determined on the date of the grant. The aggregate fair market
value of the shares covered by the ISOs granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NQSO is determined
by the Board of Directors or a committee thereof, in its discretion, provided
that the exercise price of an NQSO is not less than 75% of the fair market value
of the Common Stock on the date of the grant. The Board of Directors (or
committee thereof), shall determine the term of the Options; provided, however,
that in no event may an Option be exercisable more than 10 years after the date
of its grant and, in the case of an Incentive Option granted to an eligible
employee owning more than 10% of the Company's Common Stock, no more than five
years after the date of the grant. Any option which is granted shall be vested
and exercisable at such time as determined by the Board of Directors or a
committee thereof.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
As of June 30, 1998 and February 19, 1999, there were options
outstanding to purchase an aggregate of 3,609,200 shares and 3,717,874 shares,
respectively, granted pursuant to the Plan.
Option Exercises and Holdings
The following table sets forth information with respect to the exercise
of options to purchase shares of Common Stock during the fiscal year ended June
30, 1998 to each of the Named Executive Officers, and the unexercised options
held as of the end of fiscal 1998.
31
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/
SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Greg Johnson - - 726,000 / 0 $1,633,500 / $0
CEO, Treasurer and
Secretary
John Giaimo - - 475,000 / 0 $1,068,750 / $0
President and COO
Douglas Swanson - - 1,001,000 / 0 $2,252,250 / $0
Executive Vice
President
</TABLE>
- ---------------------
(1) In accordance with the Securities and Exchange Commission's rules, values
are calculated by subtracting the exercise price from the fair market value
of the underlying common stock. For purpose of this table, fair market
value is deemed to be $3.72, the closing price reported on June 30, 1998.
Long-Term Incentive Plans Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Number Performance
of Shares or Other Estimated Future Payouts Under
Units or Period Until Non-Stock Price-Based Plans
Other Rights Maturation Threshold Target Maximum
Name (#) or Payout ($or #) ($or #) ($ or #)
---- -------------------- --------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Greg Johnson -- -- -- -- --
CEO,Treasurer
and Secretary
John Giaimo -- -- -- -- --
President and COO
Douglas Swanson -- -- -- -- --
Executive Vice
President
</TABLE>
Repricing of Management Stock Options
On January 14, 1998, the Board of Directors resolved to reprice stock
options outstanding to all current employees to the closing bid price of $1.47
per share as of this date. Greg Johnson's options to purchase 726,000 shares
were repriced to $1.47 per share, John Giaimo's options to purchase 475,000
shares were repriced to $1.47 per share and Doug Swanson's options to purchase
1,001,000 shares were repriced to $1.47 per share. The purpose of this repricing
was to provide
32
<PAGE>
continued incentive to key personnel in light of reduced market prices for the
Company's common stock.
CERTAIN TRANSACTIONS
Corporate History
Nevada Data Systems, Inc., a predecessor of the Company ("Nevada
Data"), was incorporated under the laws of the State of Nevada on October 28,
1987, and in February 1989, changed its name to NDS Software. From 1987 through
1994, Nevada Data engaged in the development and marketing of Realty 2000, a
proprietary software package providing real estate customer and property
database information for use by realtors. In 1994, Nevada Data introduced
HomeSearch 2000, an Internet search database permitting users to identify
property meeting the user's specifications. HomeSearch 2000 was the precursor to
the Company's HomeSeekers/CityNetTM product.
XRF Corporation, a predecessor of the Company ("XRF"), was organized
under the laws of the State of Utah on January 31, 1983 under the name of Aurora
Energy, Inc. From inception until 1989, XRF was involved in the portable x-ray
fluorescent spectrometer business. During 1987 and 1988 XRF also provided
engineering services and contract manufacturing operations. From 1989 until 1992
XRF sought out a different business to operate, and from 1992 until 1994, was
involved in medical transcription correspondence training.
In July 1994, Nevada Data merged with and into XRF, and changed its
name to NDS Software, Inc. Prior to the time of the merger, XRF had disposed of
its business operations and at the time of the merger was not engaged in
revenue-producing activities.
The Company was incorporated under the laws of the State of Nevada on
September 28, 1994, as a wholly-owned subsidiary of XRF. On October 4, 1994, XRF
merged with and into the Company. References in this Prospectus to the
"Company", include its predecessors Nevada Data and XRF. Effective July 1, 1998,
the Company changed its name to HomeSeekers.com, Incorporated.
Loans to the Company
During fiscal 1997, the Company received a personal loan of $100,000
jointly from Mr. Greg Johnson, the Chief Executive Officer and Chairman of the
Board of Directors, and Dr. John Kelly, then a Director. The funds were borrowed
personally from a bank by Mr. Johnson and Dr. Kelly and advanced to the Company.
The interest rate charged by the bank was variable, and averaged 10% per annum.
Interest was passed on to the Company for payment. The purpose of this $100,000
loan was for working capital and the due date was January 29, 1998. This loan
was paid in full on January 21, 1998.
Subsequent to June 30, 1998, the Company borrowed a total of $535,000
from William Tomerlin, a principal shareholder of the Company. The proceeds were
used as working capital, and the loan was repaid, with interest at the rate of
ten percent per annum, on January 20, 1999.
33
<PAGE>
During December 1998, the Company borrowed $100,000 from Greg Johnson,
Chairman of the Board and Chief Executive Officer of the Company. The proceeds
were used as working capital, and the loan was repaid, with interest at the rate
of ten percent per annum, on January 20, 1999.
Related Party Transactions
The Company had outstanding at June 30, 1998 a $150,000 trade
receivable from WebQuest International, Inc. ("WebQuest"), a company related by
common shareholders. This receivable resulted from programming services
performed by the Company for WebQuest. $129,000 of this receivable was paid off
during July and August 1998.
In January 1998 the Company licensed certain technology to WebQuest for
$700,000. $508,000 of this amount was invoiced as of June 30, 1997, included in
related party receivables and in deferred revenue. During the fiscal year ended
June 30, 1998, the Company accepted WebQuest common stock as settlement of this
$700,000 receivable. At June 30, 1998, a writedown to -0-, the estimated fair
market value of this stock investment, expected to be temporary in nature, was
recorded for the entire amount of $700,000. The $700,000 revenue has been
included in deferred revenue as of June 30, 1998 and will be recognized when the
WebQuest stock becomes marketable.
Revenues
During the fiscal years ended June 30, 1998 and 1997, the Company
received revenues from WebQuest in the amounts of $194,000 and $300,000,
respectively.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned as of February 19, 1999 for (a) each
stockholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding Common Stock, (b) each of the Company's
directors, (c) each named executive officer [as defined in Item 402(a)(2) of
Regulation SB], and (d) all executive officers and directors as a group. At
February 19, 1999 there were 13,357,211 shares of Common Stock outstanding.
Except as specifically set forth in the notes below, the table does not give
effect to the issuance of up to (i) 15,000 shares in the event of conversion of
outstanding convertible promissory notes, (ii) 2,387,994 shares in the event of
conversion of outstanding warrants, (iii) 3,717,874 shares in the event of
conversion of outstanding options, (iv) 68,862 shares upon conversion of
outstanding Series A, Class A Preferred Stock, and (v) 1,514,150 shares issuable
upon exercise of future options available for grant under the Company's Stock
Option Plan.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner(1) Beneficial Ownership(2) of Class
------------------- ----------------------- --------
<S> <C> <C>
Greg Johnson(3) 1,196,440 8.4%
John Giaimo(4) 696,374 5.0%
Douglas Swanson(5) 1,219,502 8.4%
Scott Berry(6) 82,500 0.6%
34
<PAGE>
Larry Ross(6) 15,000 0.1%
William Tomerlin(7) 1,577,762 10.9%
All directors and officers
as a group (five persons) 3,209,816 19.9%
</TABLE>
- ----------------------
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 2241 Park Place, Suite E, Minden,
Nevada 89423. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all the Shares beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of warrants or
options or the conversion of convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days have been exercised.
(3) Mr. Greg Johnson is Chairman of the Board of Directors and Chief
Executive Officer of the Company. Includes options to purchase 814,012
shares. Does not include 1,626 shares underlying warrants owned by
Janet Gookin and Brandon Wilson, the sister and nephew, respectively,
of Mr. Johnson.
(4) Mr. John Giaimo is President, Chief Operating Officer and a Director of
the Company. Includes options to purchase 567,082 shares of Common
Stock and 69,492 shares owned by Melinda Giaimo, the wife of Mr. Giaimo
and an employee of the Company.
(5) Mr. Douglas Swanson is Vice Chairman of the Board of Directors and
Executive Vice President of the Company. Includes options to purchase
1,212,030 shares of Common Stock. Does not include 305,209 shares owned
indirectly by Darin Murphy, the son-in-law of Mr. Swanson, as to which
shares Mr. Swanson disclaims beneficial ownership.
(6) Consists of options to purchase Common Stock.
(7) Mr. William Tomerlin is the former Chairman of the Board of Directors
of the Company. He retired from this position in August 1996. Includes
options to purchase 27,500 shares of Common Stock and warrants to
purchase 100,000 shares of Common Stock.
DESCRIPTION OF SECURITIES
Common Stock
Subject to the dividend rights of the holders of Preferred Stock,
holders of shares of Common Stock are entitled to share, on a ratable basis,
such dividends as may be declared by the Board of Directors out of funds,
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors and holders of Preferred Stock that may be
outstanding, the assets of the Company will be divided pro rata on a per share
basis among the holders of the Common Stock.
35
<PAGE>
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect all of the Directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any Directors. The
ByLaws of the Company require that only a majority of the issued and outstanding
shares of the Company need be represented to constitute a quorum and to transact
business at a stockholders' meeting. The Common Stock has no preemptive,
subscription or conversion rights and is not redeemable by the Company.
Class A Preferred Stock
In December 1994, the Board of Directors of the Company issued an
initial series of Class A Preferred Stock, which was denominated as "Class A,
Series A Preferred Stock" (the "Series A Preferred Stock"). As of the date
hereof, there are 34,431 shares of Series A Preferred Stock issued ad
outstanding. The shares of Series A Preferred Stock have been assigned a value
of $2.00 per share and yield cumulative dividends of 15% per year, payable in
cash or, at the discretion of the Board of Directors, in Common Stock of the
Company. The shares of Series A Preferred Stock are redeemable at the Company's
option at $2.00 per share, plus all accrued dividends. Each share of Series A
Preferred Stock is also convertible into two shares of Common Stock, at the
Preferred stockholder's option. Dividends are payable at the time of conversion,
but do not bear interest. The holder of each share of Series A Preferred Stock
is entitled to five (5) votes per share. The Series A Preferred Stock has a
liquidation preference of $2.00 per share. In January 1999, holders of 622,569
shares of Series A Preferred Stock converted such shares and accrued interest
thereon into an aggregate of 1,327,933 shares of Common Stock.
Class B Preferred Stock
The Board of Directors has authorized the issuance of up to 200,000
shares of Class B Preferred Stock, $10.00 par value, which is denominated as
Class B Convertible Preferred Stock (the "Class B Preferred Stock"). As of the
date hereof, no shares of Class B Preferred Stock have been issued or are
outstanding. Shares of Class B Preferred Stock are entitled to dividends at the
rate of 9% per annum, based upon a value of $10.00 per share, and such dividends
are payable before the payment of dividends to the holders of common stock and
Class A, Series A Preferred Stock. Dividends on the Class B Preferred Stock are
payable in cash or in shares of the Company's common stock, as may be determined
by the Company. The Class B Preferred Stock is entitled to a $10.00 per share
preference over common stockholders in the event of liquidation, dissolution or
winding up of the Company's affairs; however, the Class A, Series A Preferred
Stock shall be senior to the Class B Preferred Stock with respect to the
liquidation preference. The Company has the right to redeem the Class B
Preferred Stock at a redemption price of $10.00 per share, plus accrued
dividends. Commencing six months following issuance, each share of Class B
Preferred Stock is convertible at the option of the Company, into five shares of
common stock, provided that there is a trading market in the Class B Preferred
Stock, and the closing price of the Class B Preferred Stock is at least $3.00
per share for at least 10 consecutive trading days, with an aggregate volume of
not less than 20,000 shares. Holders of Class B Preferred Stock have no voting
rights by reason of their ownership of Class B Preferred Stock (other than as
may be conferred by applicable law).
36
<PAGE>
Class C Preferred Stock
The Board of Directors has authorized the creation of a class of
Preferred Stock, $0.001 par value per share, $10.00 stated value per share,
denominated as Class C $10 6% Cumulative Preferred Stock ("Class C Preferred
Stock"). The Class C Preferred Stock consists of 400,000 shares, none of which
have been issued or are outstanding. Dividends on the Class C Preferred Stock
are payable, in arrears, at the rate of 6% per annum. Holders of Class C
Preferred Stock are not entitled to voting rights. The Class C Preferred Stock
is entitled to a liquidation preference of $10.00 per share, which preference is
payable pari passu with the liquidation preference payable to holders of the
Series A Preferred Stock and Class B Preferred Stock. Each share of Class C
Preferred Stock is convertible into shares of common stock at the greater of
$3.00 per share or 75% of the average closing bid price of the common stock for
the five trading days prior to issuance. The Class C Preferred Stock is also
automatically convertible into common stock at the closing of any future public
offering of the Company's securities.
The Company has no present intent to issue shares of Class B or C
Preferred Stock, or to issue undesignated shares of Series A Preferred Stock.
The future issuance of Preferred Stock could dilute the ownership of the Company
by its Common Stock holders, and could be used to inhibit a hostile takeover of
the Company.
Shares Eligible for Future Sale
As of February 19, 1999, there were 13,357,211 shares of Common Stock
issued and outstanding. Of such shares, 6,481,912 shares comprise the public
float and 5,043,288 shares are being registered for sale pursuant to this
Prospectus. The balance of 1,832,011 shares are "restricted securities which may
be sold in compliance with Rule 144. In general, Rule 144 permits a shareholder
of the Company who has beneficially owned restricted shares of Common Stock for
at least one year to sell without registration, within a three-month period, a
number of shares not exceeding the greater of one percent of the then
outstanding shares of Common Stock or, generally, the average weekly trading
volume during the four calendar weeks preceding the sale, assuming compliance by
the Company with certain reporting requirements of Rule 144. Furthermore, if
such shares are held for at least two years by a person not affiliated with the
Company (in general, a person who is not an executive officer, director or
principal shareholder of the Company during the three month period prior to
resale), such restricted shares can be sold without any volume limitation.
Notwithstanding the foregoing, the Company's officers, directors and principal
shareholders (other than William Tomerlin) have agreed not to sell any of their
shares for one year following the effective date of the Registration Statement
of which this Prospectus forms a part, without the prior written consent of the
placement agents of the Company's recently completed private placement.
The Company also intends to file a Form S-8 registration statement
under the Act to register the Common Stock issuable upon exercise of options
granted by the Company. The Company has granted options to purchase 3,917,874
shares, which are currently available for exercise. The sale of any such
registered shares by officers, directors and principal shareholders of the
Company will be subject to the restrictions described in the preceding
paragraph.
The public sale of shares, under Rule 144 or pursuant to the
Registration Statement, can be expected to have a depressive effect on the
market price of the Company's Common Stock.
37
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the securities of the Company is
Atlas Stock Transfer Company, 5899 South State Street, Salt Lake City, Utah
84107, telephone number (801) 266-7151.
Reports to Securityholders
The Company intends to furnish to its stockholders, annual reports
containing audited financial statements. The Company may disseminate such other
unaudited interim reports to its securityholders as it deems appropriate.
SELLING SECURITYHOLDERS
The following table set forth the name of each Selling Securityholder,
the number or shares of Common Stock beneficially owned by such Selling
Securityholder as of the date of this Prospectus, giving proforma effect to the
exercise of the Selling Securityholders' warrants and options into shares of
Common Stock as described below, and the number of shares being offered by each
Selling Securityholder. Except as otherwise noted below, during the past three
years no Selling Securityholder has been an officer, director or affiliates of
the Company, nor has any Selling Securityholder had any material relationship
with the Company during such period. The shares of Common Stock being offered
hereby are being registered to permit public secondary trading, and the Selling
Securityholders may offer all or part of the shares for resale from time to
time. However, such Selling Securityholders are under no obligation to either
(a) exercise the Selling Securityholders' options and/or warrants, as the case
may be, or (b) if exercised, to sell all or any portion of such shares of Common
Stock immediately under this Prospectus. Because the Selling Securityholders may
sell all or a portion of their shares of Common Stock, no estimate can be given
as to the number of shares of Common Stock that will be held by any Selling
Securityholder upon termination of this offering. Accordingly, the following
table assumes (i) the exercise of the Selling Securityholders' warrants and
options, and (ii) the sale of all shares of Common Stock by the Selling
Securityholders immediately following the date of this Prospectus. All expenses
of the registration of the Common Stock on behalf of the Selling Securityholder
are being borne by the Company; however, the Company will receive none of the
proceeds of this offering.
<TABLE>
<CAPTION>
Shares Owned Shares Available Shares Percent of
Prior to this Pursuant to Owned after Class
Selling Securityholder Offering this Prospectus Offering after Offering
- ---------------------- -------- --------------- -------- --------------
<S> <C> <C>
Stephen D. Baksa 163,168 163,168 - A
Neil G. Berkman Associates 25,000 25,000 - A
Medford Bragg 64,334 64,334 - A
Ken Burns 8,250 8,250 - A
Scott Coffee 8,000 8,000 - A
Cogent Alliance, Inc. 137,500 137,500 - A
Covenant Partners, L.P. 27,500 27,500 - A
Richard A. Fear 13,260 12,500 760 A
William B. Fretz 21,125 21,125 - A
William B. Fretz Jr. Irrv Trust FBO Christopher Bradlay Fretz
Dated 6-26-98 10,000 10,000 - A
William B. Fretz Jr. Irrv Trust FBO Heather Nicole Fretz
Dated 6-26-98 5,000 5,000 - A
Hemlock Investments 47,300 47,300 - A
Lancaster Investment Partners 155,000 155,000 - A
McCalla Family Revocable Trust 24,000 24,000 - A
Terry Pullan 50,000 50,000 - A
Paula Peterson Runnells 8,250 8,250 - A
Duane R. South & Genevieve A South 27,500 27,500 - A
Specialties Enterprises, LLC 187,500 95,267 92,233 A
Specialty Enterprises Corporation 66,275 66,275 - A
The Vernon Corporation 137,500 137,500 - A
38
<PAGE>
Topaz Limited 50,000 50,000 - A
Conrad VonBibra FBO Edith VonBibra 38,467 37,500 967 A
Conrad VonBibra TTEE Edith Von Bibra Trust 38,203 37,500 703 A
Conrad VonBibra 51,114 50,000 1,114 A
Walker Foundation 51,989 50,000 1,989 A
Robert Patrick White 12,623 12,500 123 A
Alexander Hyzer 12,732 12,500 232 A
Charles Schwab & Co. Inc. F/B/O Morgan Trust - A
U/A 1/4/88, Tom Morgan TTEE 12,500 12,500 A
Bradley N. Rotter Self Employed Pension Plan & Trust 333,333 333,333 - A
Fourteen Hill Capital, L.P. 166,667 166,667 - A
J. Steven Emerson Ira II Bear Stearns, Trustee 150,000 150,000 - A
Anvil Investment Associates, L.P. 150,000 150,000 - A
Zeke, L.P. 100,000 100,000 - A
Worthington Growth, L.P. 100,000 100,000 - A
Joseph K. Rensin 100,000 100,000 - A
Losty Capital Management 200,000 200,000 - A
Circle T Partners, L.P. 100,000 100,000 - A
American High Growth Equities Retirement Trust 100,000 100,000 - A
Jeffrey Thorp 100,000 100,000 - A
Howard P. Milstein 100,000 100,000 - A
Porter Partners, L.P. 80,000 80,000 - A
Penn Footwear 80,000 80,000 - A
Cerberos Partners, L.P. 75,000 75,000 - A
Express Marine, Inc. 50,000 50,000 - A
Circle T International, Ltd 50,000 50,000 - A
Davos Partners, L.P. 50,000 50,000 - A
Craddock Asset Mgmt, Inc. 50,000 50,000 - A
Vitaloon, Inc. 49,988 49,988 - A
David Stone 40,000 40,000 - A
Richard B. Stone 40,000 40,000 - A
Steven M. Oliveira 40,000 40,000 - A
Ram-Potti 33,400 33,400 - A
Triple Equity Investments Ltd 33,333 33,333 - A
Emmet M. Murphy 33,333 33,333 - A
Radix Associates 25,000 25,000 - A
Antoine J. Tristani 25,000 25,000 - A
Scott R. McQueen 25,000 25,000 - A
Jonathan Brooks 25,000 25,000 - A
Willis Financial Planning Services, Inc. Profit Sharing Plan 22,667 22,667 - A
D. Vernon Willis TTEE - A
EDJ Limited 20,000 20,000 - A
Marc Lasry 20,000 20,000 - A
Stephen R. Miraglia Trust V/A 5/28/87 17,000 17,000 - A
Michael C. Stead 17,000 17,000 - A
Gary V. Vanier & Barbara D. Vanier Ttees For The Trust Dated
June 30, 1992 17,000 17,000 - A
William Jeffrey III 16,667 16,667 - A
John J. Harrison 16,667 16,667 - A
Jerry Heymann 16,000 16,000 - A
Avi Nechemia 20,000 20,000 - A
David S. Callan, IRA 15,000 15,000 - A
Kenneth Marinai 14,167 14,167 - A
The Blake Miraglia Revocable Living Trust 11,333 11,333 - A
James Robert Phillips & Meredith Coleman Phillips Revocable Trust
Dated 8/23/93 10,000 10,000 - A
Harry Mittleman Revocable Family Trust 10,000 10,000 - A
McElroy Ebd Trust, Edith Bogart Dagley, Trustee 10,000 10,000 - A
Jeffrey H. Porter 10,000 10,000 - A
Kevin Schweitzer 10,000 10,000 - A
Laurence D. Keller 10,000 10,000 - A
Robert H. Getz 8,333 8,333 - A
Evan S. Malik 10,000 10,000 - A
Robert A. Steininger 9,000 9,000 - A
Christopher Allen 7,000 7,000 - A
Keith Fretz 7,000 7,000 - A
G. Mason Delafield 6,667 6,667 - A
Jeffrey Steingarten 6,667 6,667 - A
Attilio & Ida C. Miraglia Rev Trust Dated 7/31/95, Attilio
Miraglia, TTEE 5,667 5,667 - A
Ehud Nahum 5,000 5,000 - A
Constance Fretz 5,000 5,000 - A
Justin Tang 5,000 5,000 - A
George H. Getz 4,000 4,000 - A
Stoddard M. Oliver 3,333 3,333 - A
Cecelia A. Miraglia Trust Dtd 10/1/86, Cecelia A. Miraglia,
Trustee 6,000 6,000 - A
39
<PAGE>
Robert R. Kesner 3,000 3,000 - A
Keith A. Donmoyer, IRA 2,000 2,000 - A
Chad Miraglia 1,133 1,133 - A
Laura & Ken Maranai 1,133 1,133 - A
The Kaufman Fund, Inc. 500,000 500,000 - A
Austost Anstalt Schaan 100,000 100,000 - A
Balmore Funds S.A. 100,000 100,000 - A
Gross Foundation, Inc. 50,000 50,000 - A
C. B. Equities Retirement Trust 50,000 50,000 - A
Eli Jacobson 27,334 27,334 - A
H. Leland Getz 25,000 25,000 - A
Rutgers Casualty Insurance Company 20,000 20,000 - A
Kentucky National Insurance Company 20,000 20,000 - A
Nachum Stein 10,000 10,000 - A
Mike Wilkins & Sheila Duignan 8,334 8,334 - A
Theodore B. Smith III 5,000 5,000 - A
Michail Shapiro 5,000 5,000 - A
Carroll Weinberg, M.D. 5,000 5,000 - A
Charlotte C. Weinberg 5,000 5,000 - A
Robert H. Getz 6,666 6,666 - A
Steven E. Slawson 10,000 10,000 - A
James E. Schwalbe 1,500 1,500 - A
David S. Callan 6,400 6,400 - A
LKS Corporation 120,000 120,000 - A
Alan Swerdloff 2,000 2,000 - A
Richard Stone 20,626 20,626 - A
Nathan Low 39,390 39,390 - A
Armand Group 300,000 300,000 - A
Robert Ahnert 12,925 12,500 425 A
Mihajlo Basic 26,364 25,000 1,364 A
Renato Bautista 53,431 50,000 3,431 A
Charles Billings 6,742 6,250 492 A
Beverly Brown 5,000 5,000 - A
David Cohen 6,694 6,250 444 A
Darrell Crisp 9,500 9,500 - A
Eric Crisp 1,000 1,000 - A
Laurie Crisp 1,539 1,500 39 A
Michael Crockett 25,518 25,000 518 A
Donald Epstein 6,353 6,250 103 A
Stephen Fish 5,000 5,000 - A
H.M. Furbee 4,146 2,000 2,146 A
Stephen Gardner 12,500 12,500 - A
Ralph Garman 6,789 6,250 539 A
Janet Gookin 1,626 1,626 - A
Ronald Hadman 26,689 22,500 4,189 A
Ray Harbert 10,350 10,000 350 A
JBR Investments 18,750 18,750 - A
Nathan Jenkins 17,549 16,500 1,049 A
Stephen Kapit 13,181 12,500 681 A
Michael Kellis 10,000 10,000 - A
Thomas B. Lamb 100,000 100,000 - A
Randall Lazar 5,000 5,000 - A
John Leikensohn 25,000 5,000 20,000 A
Sam Maywood 10,714 10,000 714 A
Jeff Neil 6,250 6,250 - A
Larry Peterson 13,173 12,500 673 A
Gary Quaintance 12,500 12,500 - A
Quantum 6,591 6,250 341 A
Donald Rowe 33,216 15,624 17,592 A
Brian Salonen 6,250 6,250 - A
Seascape 52,139 48,500 3,639 A
Brenda Sensenig 7,500 7,500 - A
Al Shankle 26,906 25,000 1,906 A
Ruth Swanson 20,170 10,000 10,170 A
Anthony Vivino 25,000 25,000 - A
David Wood 8,930 8,500 430 A
Marvin Zayon 6,354 6,250 104 A
Michael Allard 13,304 12,500 804 A
40
<PAGE>
Leonard Bokert 12,500 12,500 - A
Richard Bolton 26,672 25,000 1,672 A
Vasant Chheda 25,000 25,000 - A
Clearwater Ventures LL 26,714 25,000 1,714 A
Gregory Costly 6,043 3,000 3,043 A
John Crary 12,564 12,500 64 A
Richard Fear 12,500 12,500 - A
Griffin Partners 25,000 25,000 - A
Karen Knadler 12,500 12,500 - A
Keith Knadler 12,500 12,500 - A
Harry Kouveliotes 12,500 12,500 - A
Ross MacCarty 12,500 12,500 - A
Tom Morgan 12,500 12,500 - A
Darin Murphy 25,000 25,000 - A
Robert Poh 25,219 12,500 12,719 A
Dennis Riordon 12,500 12,500 - A
Brian Salerno 13,040 12,500 540 A
Robert White 12,500 12,500 - A
Jackson Spears 115,000 95,000 20,000 A
Fourteen Hill Capital, LP 119,000 119,000 - A
KPF, Inc. 29,000 29,000 - A
William Tomerlin(B) 1,450,263 127,500 1,322,763 8.1%
VenBanc, Inc. 27,780 27,780 - A
E. Andrew Sensenig 41,420 41,420 - A
E. Andrew Sensenig, custodian for Kathryn Rae Sensenig 2,500 2,500 - A
E. Andrew Sensenig, custodian for Margaret Louise Sensenig 2,500 2,500 - A
Leah Alperin 30,000 30,000 - A
Carol Dinner 15,000 15,000 - A
Boenning & Scattergood, Inc. 75,000 75,000 - A
Gregory J. Berlacher 23,795 23,795 - A
Robert A. Berlacher 15,054 15,054 - A
Daniel C. Gardner 15,470 15,470 - A
Ronald S. Spangler 12,556 12,556 - A
Richard Johnson 1,000 1,000 - A
Robert A. Powers 1,000 1,000 - A
Andrea Chirieleison 500 500 - A
Alan Swerdloff 4,668 4,668 - A
John Gallagher 29,263 29,263 - A
Preston Tsao 6,209 6,209 - A
Marc Seelenfreund 9,965 9,965 - A
Derek Caldwell 1,046 1,046 - A
Richard Stone 20,908 20,908 - A
Paul Scharfer 6,691 6,691 - A
Nathan Low Roth IRA 71,250 71,250 - A
Dr. Jack Kelly(C) 656,347 316,500 339,847 2.1%
Bill Bradley 73,500 73,500 - A
Brian Donnelly 52,400 25,000 27,400 A
Leah Alperin 3,000 3,000 - A
Grant Wood 120,000 120,000 - A
Rus Bergeron 4,000 4,000 - A
KPF, Inc. 42,500 42,500 - A
Ocean Shores Ventures 10,000 10,000 - A
Grand Total Total 9,822,808 7,922,782
A) Less than one percent.
B) Mr. Tomerlin is a principal shareholder and former director of the Company.
c) Mr. Kelly was a director of the Company until May 1998.
</TABLE>
The information contained in the foregoing table is derived from the books and
records of the Company, as well as from the Company's transfer agent. Of the
7,922,782 shares being offered by Selling Securityholders, 2,879,494 shares are
issuable upon the exercise of outstanding options and warrants.
41
<PAGE>
Plan of Distribution
The sale of the Common Stock by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Securityholders). Alternatively, the
Selling Securityholders may from time to time offer such securities through
dealers or agents. The distribution of the securities by the Selling
Securityholders may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to more or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders in
connection with such sales or securities. The securities offered by the Selling
Securityholders may be sold by one or more of the following methods, including
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principals to facilitated the transaction; (b) purchasers by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions which the broker solicit purchases, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Securities Act with respect to the
securities offered, and any profits realized or commission received may be
deemed underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a Selling Securityholder, to the extend required, a Prospectus will be
distributed which will set forth the number of shares of Common Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for the shares of Common Stock purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
We have informed the Selling Securityholders that the anti-manipulative
rules under the Exchange Act, including Regulation M thereunder, may apply to
their sales in the market and has furnished each of the Selling Securityholders
with a copy of these rules. We have also informed the Selling Securityholders of
the need for delivery of copies of this Prospectus in connection with any sale
of securities registered hereunder.
Sales of securities by us and the Selling Securityholders or even the
potential of such sales would likely have an adverse effect on the market price
of the shares of Common Stock offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
Fort Lauderdale, Florida.
42
<PAGE>
EXPERTS
The financial statements of the Company appearing in this Prospectus
have been audited by Albright, Persing & Associates, Limited, independent
certified public accountants to the extent and for the periods set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
43
<PAGE>
TABLE OF CONTENTS
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at June 30, 1998 and 1997 F-2 - F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1998 and 1997 F-4 - F-5
Consolidated Statements of Stockholders' Deficit for the
Years Ended June 30, 1998 and 1997 F-6 - F-7
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998 and 1997 F-8 - F-10
Notes to Consolidated Financial Statements F-11 - F-33
Consolidated Condensed Balance Sheets at December 31, 1998
and June 30, 1998 F-34 - F-35
Consolidated Condensed Statements of Operations for the
Three and Six Months Ended December 31, 1998 and 1997 F-36
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1998 and 1997 F-37 - F-38
Notes to Consolidated Condensed Financial Statements F-39 - F-40
<PAGE>
Albright, Persing & Associates, Ltd.
CERTIFIED PUBLIC ACCOUNTANTS
1025 Ridgeview Dr., Suite 300
Reno, Nevada 89509
Report of Independent Certified Public Accountant
To the Board of Directors and Stockholders
HomeSeekers.com, Inc. (formerly NDS Software, Inc.)
We have audited the accompanying consolidated balance sheets of
HomeSeekers.com, Inc. (formerly NDS Software, Inc.) (a Nevada Corporation) as of
June 30, 1998 and 1997, and the related consolidated statements of operations,
stockholders' deficit 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 audit
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HomeSeekers.com, Inc. (formerly NDS Software, Inc.) as of June 30, 1998 and
1997, and the consolidated results of its operations and its consolidated cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1, the Company's
ability to generate sufficient cash flows to meets its obligations and sustain
its operations, either through future revenues and/or additional debt or equity
financing, cannot be determined at this time. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Albright, Persing & Associates, Ltd.
Reno, Nevada
September 24, 1998
F-1
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 198,410 $ 32,222
Accounts receivable, net of allowance for uncollectible
accounts of $4,413 in 1998 and 1997 54,883 58,357
Accounts receivable, related parties 193,289 41,469
Inventories 16,712 2,951
Prepaid expenses 13,120 -
Investments, related party stock, net of valuation
allowance of $700,000 in 1998 and -0- in 1997 - -
--------------- ---------------
Total Current Assets 476,414 134,999
Investments in marketable securities - 477,225
Investments in LLCs 450,687 -
Account receivable, long-term - related party - 484,197
Property and equipment, net 490,575 433,711
Goodwill, net of accumulated amortization of $317,701
in 1998 and $148,797 in 1997 361,359 488,899
Other assets 119,458 35,640
--------------- ---------------
Total Assets $ 1,898,493 $ 2,054,671
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 323,918 $ 403,128
Accrued liabilities 292,970 491,893
Current portion of capital lease obligations - 16,799
Notes payable 29,698 150,616
Notes payable - related parties 31,595 157,103
Deferred revenue 1,147,654 1,213,744
--------------- ---------------
Total Current Liabilities 1,825,835 2,433,283
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Long-Term Liabilities
Convertible Debt 140,000 2,056,000
--------------- ---------------
Stockholders' Deficit
Series A convertible preferred stock, $0.001 par value, 5,000,000 shares
authorized; 692,000 shares and 662,500 issued and outstanding at
June 30, 1998 and 1997, respectively 692 663
Series B convertible preferred stock, $10.00 par
value, 200,000 shares authorized; 0 shares and
13,000 shares issued and outstanding at June
30, 1998 and 1997, respectively - 130,000
Series C convertible preferred stock, $10.00 par
value, 400,000 shares authorized; 0 shares
issued and outstanding at June 30, 1998
and 1997, respectively - -
Common stock; $.001 par value, 50,000,000 shares
authorized; 7,460,703 shares and 4,605,815
shares issued and outstanding at June 30, 1998
and 1997, respectively 7,461 4,606
Additional paid in capital 11,112,776 5,334,895
Dividends on Series A convertible preferred stock (118,725)
Accumulated deficit (10,369,546) (7,574,001)
Unrealized loss on securities (700,000) (330,775)
--------------- ---------------
Total Stockholders' Deficit ( 67,342) (2,434,612)
--------------- ---------------
Total Liabilities and Stockholders'
Deficit $ 1,898,493 $ 2,054,671
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Revenues:
Prospect Sales $ 508,675 $ 500,000
Web Page Sales 475,936 194,129
Advertising Sales 223,154 263,156
Programming, Support and License Sales (1) 283,664 562,684
Book and Publishing Sales 103,605 -
Other 71,536 69,689
------------ -------------
Total Revenues 1,666,570 1,589,658
Cost of Sales 338,415 223,624
------------ -------------
Gross Profit 1,328,155 1,366,034
Operating Expenses 3,984,875 3,221,233
------------ -------------
Net Loss from Operations (2,656,720) (1,855,199)
Other Income (Expense)
Interest expense (116,084) (290,331)
Loss on sale of marketable securities (63,125) -
Other (6,366) 23,624
------------ -------------
Loss Before Provision for Income Taxes (2,842,295) (2,121,906)
Provisions for Income Taxes - -
------------ -------------
Net Loss Before Extraordinary Item (2,842,295) (2,121,906)
Extraordinary Item-gain on Extinguishment
of Debt (Net of Income Tax of $0) 46,750 -
------------ -------------
Net Loss $ (2,795,545) $ (2,121,906)
============ =============
</TABLE>
(1) Programing, Support and License Sales include net sales to related parties
of $215,297 and $300,000 for fiscal years 1998 and 1997, respectively.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Basic and Diluted Loss per Share Before
Extraordinary Gain $ (.51) $ (0.53)
Extraordinary Gain on Liabilities Subject
to Compromise .01 -
---------------- ----------------
Basic and Diluted Net Loss per Common Share $ (.50) $ (0.53)
================ ================
Shares Used in Computing Basic and Diluted
Share Data 6,048,471 4,361,744
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional Receivable
------------------- ------------------ --------------------- Paid In From
Shares Amount Shares Amount Shares Amount Capital Stockholder
------ ------ ------ ------ ------ ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 662,500 $ 663 13,000 $ 130,000 4,258,723 $ 4,258 $4,510,078 $ (500,000)
Issuance of common stock
to vendors for payment of
goods/services - - - - 124,592 125 387,539 -
Issuance of common stock
through a private placement
offering - - - - 200,000 200 362,300 500,000
Issuance of common stock for
stock options exercised - - - - 10,000 10 19,990 -
Conversion of debt and accrued
interest to common stock - - - - 12,500 13 54,988 -
Unrealized loss on securities - - - - - - - -
Net loss - - - - - - - -
---------- --------- -------- -------- --------- ---------- --------- ----------
Balance at June 30, 1997 662,500 663 13,000 130,000 4,605,815 4,606 5,334,895 -
Issuance of preferred Series A
stock for cash 134,500 134 - - - - 268,866 -
Issuance of preferred Series A
stock in exchange for debt
payoff 45,000 45 - - - - 90,774 -
Conversion of preferred Series A
stock for common stock (150,000) (150) - - 300,000 300 (150) -
Exchange of preferred Series B
stock for common stock - - (13,000) (130,000) 35,000 35 129,965 -
Issuance of common stock to
vendors and employees for
goods and services - - - - 38,512 38 131,930 -
Issuance of common stock for
preferred Series A dividends - - - - 59,363 59 118,666 -
(RESTUBBED TABLE)
Dividends on
Unrealized Series A
Loss on Accumulated Preferred
Securities Deficit Stock Total
----------- ----------- ------------- -----
Balance at June 30, 1996 $ - $(5,452,095) $ - $(1,307,096)
Issuance of common stock
to vendors for payment of
goods/services - - - 387,664
Issuance of common stock
through a private placement
offering - - - 862,500
Issuance of common stock for
stock options exercised - - - 20,000
Conversion of debt and accrued
interest to common stock - - - 55,001
Unrealized loss on securities (330,775) - - (330,775)
Net loss - (2,121,906) - (2,121,906)
----------- ------------ -------- -----------
Balance at June 30, 1997 (330,775) (7,574,001) - (2,434,612)
Issuance of preferred Series A
stock for cash - - - 269,000
Issuance of preferred Series A
stock in exchange for debt
payoff - - - 90,819
Conversion of preferred Series A
stock for common stock - - - -
Exchange of preferred Series B
stock for common stock - - - -
Issuance of common stock to
vendors and employees for
goods and services - - - 131,968
Issuance of common stock for
preferred Series A dividends - - (118,725) -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional Receivable
------------------- ------------------ --------------------- Paid In From
Shares Amount Shares Amount Shares Amount Capital Stockholder
------ ------ ------ ------ ------ ------ ----------- -----------
<S> <C> <C> <C>
Issuance of common stock for
capital contribution to LLC - - - - 300,000 300 449,700 -
Issuance of common stock for
stock options exercised - - - - 141,100 141 366,359 -
Issuance of common stock for
warrants exercised - - - - 29,507 30 62,470 -
Issuance of common stock for cash - - - - 930,501 931 2,060,069 -
Issuance of common stock for
interest due on notes payable - - - - 37,905 38 129,215 -
Issuance of common stock in exchange
for debt payoff - - - - 25,000 25 49,975 -
Conversion of outstanding debt to
common stock - - - - 958,000 958 1,915,042 -
Sale of warrants - - - - - - 5,000 -
Reversal of prior year unrealized
loss on securities - - - - - - - -
Unrealized loss on securities - - - - - - - -
Net loss - - - - - - - -
---------- -------- ------- -------- --------- ------- ----------- -------
Balance at June 30, 1998 692,000 $ 692 - $ - 7,460,703 $ 7,461 $11,112,776 $ -
========== ======== ======= ======== ========= ======= =========== =======
(RESTUBBED TABLE)
Dividends on
Unrealized Series A
Loss on Accumulated Preferred
Securities Deficit Stock Total
----------- ----------- ------------- -----
Issuance of common stock for
capital contribution to LLC - - - 450,000
Issuance of common stock for
stock options exercised - - - 366,500
Issuance of common stock for
warrants exercised - - - 62,500
Issuance of common stock for cash - - - 2,061,000
Issuance of common stock for
interest due on notes payable - - - 129,253
Issuance of common stock in exchange
for debt payoff - - - 50,000
Conversion of outstanding debt to
common stock - - - 1,916,000
Sale of warrants - - - 5,000
Reversal of prior year unrealized
loss on securities 330,775 - - 330,775
Unrealized loss on securities (700,000) - - (700,000)
Net loss - (2,795,545) - (2,795,545)
--------- ------------ ---------- ----------
Balance at June 30, 1998 $(700,000) $(10,369,546) $ (118,725) $ (67,342)
========= ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (2,795,545) $(2,121,906)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 332,689 263,923
Allocated loss on investments (687) -
Loss on sale of securities 63,125 -
Gain on sale of fixed assets (300) -
Common stock issued for goods and services 9,710 287,665
Common stock issued for employee compensation 58,800 -
Common stock issued for interest 51,986 -
Common stock received in exchange for services - (298,000)
Preferred stock issued for interest 3,111 -
Changes in assets and liabilities net of effect from
purchase of FOCUS
Trade receivables (70,266) (527,754)
Inventories (12,391) 27,267
Prepaid expenses (9,720) 48,483
Accounts payable (17,337) 76,658
Accrued liabilities (171,656) 194,625
Deferred revenue (357,757) 518,109
------------ ------------
Net adjustments (120,693) 590,976
------------ ------------
Net Cash Used in Operating Activities (2,916,238) (1,530,930)
------------ ------------
Cash Flows From Investing Activities
Purchase of property and equipment (212,562) (138,915)
Net cash received on purchase of FOCUS 2,134 -
Proceeds from securities sales 744,875 -
Proceeds from fixed asset sales 300 -
Deposit on Opticom Corporation purchase (100,000) -
Net change in other assets 9,196 (16,556)
------------ ------------
Net Cash Provided (Used) in
Investing Activities 443,943 (155,471)
------------ ------------
Cash Flows From Financing Activities
Proceeds from convertible debt - 619,252
Principal payments on capital lease obligations (16,799) (23,116)
Proceeds from notes payable - related parties 118,000 130,000
Payments on notes payable - related parties (193,508) (191,700)
Proceeds from notes payable 250,000 200,000
Payments on notes payable (283,210) (94,082)
Net proceeds from sale of common stock 2,490,000 912,500
Net proceeds from sale of preferred stock 269,000 -
Net proceeds from sale of warrants 5,000 -
------------ ------------
Net Cash Provided by Financing Activities 2,638,483 1,552,854
------------ ------------
Net (Decrease) Increase in Cash 166,188 (133,547)
Cash at Beginning of Year 32,222 165,769
------------ ------------
Cash at End of Year $ 198,410 $ 32,222
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
------------ -----------
Cash paid for interest $ 150,864 $ 71,898
============ ===========
Cash paid for income taxes $ 855 $ -
============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1998
- ----
During the year ended June 30, 1998, 150,000 shares of Preferred A stock were
converted into 300,000 shares of common stock, and 45,000 shares of Preferred A
stock were issued in exchange for satisfaction of a note payable.
During the year ended June 30, 1998, 59,363 shares of common stock were issued
for payment of Preferred A stock dividends.
Accounts payable in the amount of $63,458 were satisfied by the issuance of
18,237 shares of common stock.
A capital contribution was made to a joint venture LLC by issuing 300,000 shares
of the Company's common stock.
A note payable in the amount of $50,000 was satisfied by the issuance of 25,000
shares of the Company's common stock.
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 year ended June 30, 1998, $1,916,000 of debt was converted into
958,000 shares of the Company's common stock.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(See Report of Independent Certified Public Accountants)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES: - Continued
1998 - Continued
- ----
The Company reversed the allowance on marketable securities recorded in the
prior year in the amount of $330,775 to reflect current market value prior to
their sale. In addition, the Company established a valuation allowance of
$700,000 for certain marketable securities during the current fiscal year 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
current fiscal year due to collectibility issues.
1997
- ----
During 1997, the Company canceled the issuance of 250,000 shares of common stock
when a certificate of deposit in the amount of $500,000 received by the Company
for the stock purchase became uncollectible (Note 10).
During 1997, the Company issued 12,500 shares of common stock in redemption of a
convertible debt note in the amount of $25,000.
During 1997, the Company wrote down certain securities classified as
available-for-sale in the amount of $330,775.
During 1997, the Company issued 124,592 shares of common stock in exchange for
goods and services.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND FINANCING REQUIREMENTS
- -----------------------------------------------------------
HomeSeekers.com, Inc. (formerly NDS Software, Inc., or "NDS") was
originally incorporated under the laws of Nevada on October 28, 1987. On July
20, 1994, NDS merged with XRF Corporation ("XRF"), which was incorporated in
Utah. Through the terms of the merger agreement, XRF, the surviving entity,
acquired all of the outstanding common stock of NDS and NDS ceased to exist.
However, due to the substance of the transaction, the merger has been treated as
a purchase of XRF by NDS (Note 3). Subsequent to the merger, XRF changed its
name to NDS Software, Inc. and has been re-domiciled in the State of Nevada. On
May 15, 1998, NDS changed its name to HomeSeekers.com, Inc.
Effective May 8, 1996, HomeSeekers.com, Inc. acquired 100% of the
outstanding stock of Visual Listings, Inc. ("VLI") located in Brea, California.
The acquisition of VLI has been accounted for as a purchase which resulted in
HomeSeekers.com, Inc. recording $637,696 of goodwill (Note 3).
On August 11, 1997, HomeSeekers.com, Inc. acquired 100% of the outstanding
stock of Focus Publications, Inc. ("FOCUS") located in Lake Forest, California.
The acquisition of FOCUS, which is now a division of HomeSeekers.com, has been
accounted for as a purchase which resulted in HomeSeekers.com, Inc. recording
$41,365 of goodwill (Note 3).
HomeSeekers.com, Inc. offers desktop software products used by real estate
professionals to manage information, contacts and listings. The Company also
provides public access to the Multiple Listing Service via the Internet through
its HomeSeekers.com Internet site. The Internet site allows potential home
buyers to view multiple listings using a standard Internet dial up connection.
Additionally, the Company provides an alternative access to the Multiple Listing
Service on HomeSeekers and CityNet, a product that opens the same data to a
non-Internet connect home buyer that has a computer and modem. FOCUS is a
demographic information, collection and publication company.
The consolidated financial statements include the accounts of
HomeSeekers.com, Inc. and its subsidiary, VLI (the "Company"). All significant
inter-company balance and transactions have been eliminated in consolidation.
The Company has not yet generated significant revenue and has funded its
operation primarily through the issuance of equity and convertible debt.
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 the Company will be able to obtain additional funding, and if available,
will be obtained on terms favorable to or affordable by the Company. The
Company's management is exploring several funding options and expects to raise
additional capital in 1998-99 and to continue to develop the Company's
operations around it products. Ultimately, however, the Company will need to
achieve profitable operations in order to continue as a going concern. The
Company incurred net losses of $2,795,545 and $2,121,906 for the years ended
June 30, 1998 and 1997, respectively. The Company has an accumulated deficit of
$10,369,546 as of June 30, 1998.
F-11
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND FINANCING REQUIREMENTS - Continued
- -----------------------------------------------------------
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Revenue Recognition
Revenues from sales of software licenses are recognized upon shipment of
the related product, net of revenues attributable to insignificant customer
obligations, if any. Advertising revenues are recognized ratably over the term
of the advertising agreement beginning at the time the advertisement first is
displayed on the Company's Internet site. Payments received from customers prior
to the Company shipping product or displaying advertisements are recorded as
deferred revenue.
In accordance with Statement of Position 97-2, the Company accounts for
certain software transactions for which there is no reasonable basis of
estimating the degree or probability of collectibility of related assets using
the installment method of accounting, effectively recording the transaction as
deferred revenue until the collectibility is probable (see Note 17).
Software Development Costs
The Company accounts for the costs of developing software products to be
sold in accordance with Statement of Financial Accounting Standards 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" which requires the capitalization of costs only during the period from
the establishment of technological feasibility to the time at which the product
is available for general release to customers. These costs are not material to
the Company's financial position or results of operations, and have been charged
to research and development expense in the accompanying statements of
operations.
Concentrations
Concentration 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. At
June 30, 1998, substantially all accounts receivables are due from customers
within the real estate and related industries.
F-12
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- ----------------------------------------
Concentrations of Operations - All of the Company's current products are
designed for operation 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.
For the year ended June 30, 1998, 31% of the Company's revenues were received
from one customer for the sale of mortgage leads. This agreement ended during
the fiscal year ended June 30, 1998 and will not be renewed. In addition, 12% of
the Company's revenues were received from a related party for administrative
services and custom programming.
For the year ended June 30, 1997, 32% of the Company's revenues were received
from one customer for the sale of mortgage leads and 19% of the Company's
revenues were received from a related party for a one-time option payment for
the right to market software.
Financial Statements 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.
Significant Estimates
Included in the accompanying balance sheet in marketable securities are 700,000
shares of restricted common stock of a company related by common shareholders.
The carrying value of the marketable securities is $700,000 less a valuation
allowance of $700,000, which represents management's estimate of the estimated
fair market value as of June 30, 1998. Such value is based on (1) the fact that
the related company is in the process of, but has not developed a public market
for, its shares as of June 30, 1998, (2) the block held by HomeSeekers is
restricted stock which cannot be sold for at least one year after it is
acquired, and the block is too large to sell in a public market at the current
time, and (3) the underlying net book value of the related company's stock,
after elimination of intercompany transactions, is zero. Should a public market
develop for the related company's stock, the fair market value of such stock
could be substantially more than the amount of -0- currently shown on the
balance sheet.
F-13
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- ----------------------------------------
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and instruments with
maturities of three months or less at the time of purchase.
Marketable Securities
The Company's securities investments that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded at fair value in the balance sheet
in current assets, with the change in fair value during the period included in
earnings.
Securities investments that the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and recorded
at amortized cost in investments and other assets. Securities investments not
classified as either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in investments and other assets on the balance sheet, with the change
in fair value during the period excluded from earnings and recorded net of tax
as a separate component of equity.
The Company's investments in marketable equity securities are held for an
indefinite period and thus are classified as available-for-sale.
For the year ended June 30, 1998, the Company had securities with no net
recorded value in available-for-sale securities (book value of $700,000 less
valuation allowance write down of $700,000 to fair market value of $-0-).
Inventory
Inventory is recorded at the lower of cost (first-in, first-out method) or
market and consists primarily of books for resale.
Property and Equipment
Property and equipment are stated at cost. Depreciation, which includes the
amortization of assets recorded under capital leases, is calculated using the
straight line method over estimated useful lives of 3-5 years, or the lease
term, whichever is shorter.
F-14
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- ----------------------------------------
Goodwill
The Company has classified as goodwill the cost in excess of fair value of
the net assets of companies acquired in purchase transactions. Goodwill is being
amortized on a straight line method over five (5) years. Amortization charged to
continuing operations amounted to $168,905 and $127,540 for the years ended June
30, 1998 and 1997, respectively. Accumulated amortization at June 30, 1998 was
$317,702. At each balance sheet date, the Company evaluates the realizability of
goodwill based upon expectations of nondiscounted cash flows and operating
results of the companies purchased. Based upon its most recent analysis, at June
30, 1998, goodwill of $34,471 related to the Company's purchase of FOCUS was
written off because it was considered to have no continuing value.
Income Taxes
The Company accounts for income taxes by the asset/liability approach in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. Under this pronouncement,
deferred income taxes, if any, reflect the estimated future tax consequences
when reported amounts of assets and liabilities are recovered or paid. Deferred
income tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are scheduled to be in effect when the
differences are expected to reverse. The provision for income taxes, if any,
represents the total income taxes paid or payable for the current year, plus the
change in deferred taxes during the year. The tax benefits related to operating
loss carryforwards are recognized if management believes, based on available
evidence, that it is more likely than not that they will be realized.
Advertising
The Company periodically places advertisements in newspapers and magazines.
Costs of advertising are expensed when paid. Total advertising costs for the
years ended June 30, 1998 and 1997 were $52,773 and $197,116, respectively.
Net Loss Per Share
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 simplifies the standards for computing
earnings per share ("EPS") and was effective for financial statements issued for
periods ending after December 15, 1997, with earlier application not permitted.
Upon adoption, all prior EPS data was restated.
F-15
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- ----------------------------------------
Net Loss Per Share - Continued
Basic EPS is determined using net income divided by the weighted average
shares outstanding during the period. Diluted EPS is computed by dividing net
income by the weighted average shares outstanding, assuming all dilutive
potential common shares were issued.
Since the fully diluted loss per share for fiscal 1998 and 1997 was
antidilutive, basic and diluted earnings per share are the same. Accordingly,
options to purchase common stock in fiscal 1998 and 1997 of 3,609,200 shares and
2,965,800 shares, respectively, warrants to purchase common stock in fiscal 1998
and 1997 of 1,799,794 and 1,419,500 shares, respectively, common shares
potentially issuable upon conversion of convertible debt in fiscal 1998 and 1997
of 70,000 and 1,028,000 shares respectively, and common shares potentially
issuable upon conversion of preferred stock existing at the end of fiscal 1998
and 1997 of 1,384,000 and 1,975,000 shares, respectively were not included in
the calculation of diluted earnings per common share.
Stock Options
The Company adopted SFAS No. 123, Accounting for Stock Based Compensation,
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 has
disclosed the proforma net loss and earnings per share effect, as if the Company
had used the fair value based method prescribed under SFAS No. 123 in Note 14.
New Accounting Standards
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
loss on marketable securities. The Company will be required to implement SFAS
No. 130 for its fiscal year 1999.
F-16
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - Continued
- ----------------------------------------
New Accounting Standards - Continued
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an enterprise and Related Information. SFAS
No. 131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement also requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. The Company is
currently evaluating the operating segment information that it will be required
to report. The company will be required to implement SFAS No. 131 for its fiscal
year 1999.
NOTE 3 - BUSINESS ACQUISITIONS
- ------------------------------
On July 20, 1994, the Company merged with XRF Corporation, (XRF), (a Utah
corporation). Through the terms of the merger agreement, XRF, the surviving
entity, acquired all of the outstanding common stock of NDS and NDS ceased to
exist. The existing stockholders of XRF retained their 1,192,352 shares and the
stockholders of NDS received shares of XRF at a ratio of 76.5 to 1 for a total
of 1,700,000 shares. Due to majority ownership of the Company after the
transaction by NDS stockholders, and XRF's lack of substantial assets,
liabilities, or marketable products, the transaction was treated as a reverse
acquisition of XRF by NDS using the purchase method for accounting purposes.
Effective May 8, 1996, Visual Listing, Inc. (a California corporation)
became a subsidiary of The Company as part of an agreement in which The Company
acquired all of the outstanding shares of VLI in return for 280,000 shares of
The Company' common stock valued at $560,000. The acquisition was accounted for
as a purchase and resulted in the assumption of net liabilities of $77,696.
On August 11, 1997, Focus Publications, Inc. (a California corporation)
became a division of the Company as part of an agreement in which the Company
acquired all of the outstanding shares of FOCUS in return for 20,000 shares of
the Company's common stock valued at $50,000. The acquisition was accounted for
as a purchase. As such, the excess of the purchase price over the estimated fair
value of the acquired net assets, which approximates $41,000, was recorded as
goodwill. During the fourth quarter of fiscal year 1998, the Company amortized
an additional $34,000 of the goodwill associated with this purchase.
F-17
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 4 - INVESTMENTS IN MARKETABLE SECURITIES
- ---------------------------------------------
The Company's investments in marketable securities are held for an
indefinite period and thus are classified as available for sale. Unrealized
holding losses on such securities, which were subtracted from stockholders'
equity during 1998 and 1997 were $700,000 and $330,775, respectively.
Investments in marketable securities are summarized as follows at June 30:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
---- ---- -----
1998
----
<S> <C> <C> <C>
Available for sale securities:
Common Stock, related party $ - $ (700,000) $ -
================= ========== ===============
1997
----
Available for sale securities:
Common Stock $ - $ (330,775) $ 477,225
================= ========== ===============
</TABLE>
As of June 30, 1998, the Company has temporarily written down common stock
it received as payment for an account receivable on a licensing fee sold to a
related party from $700,000 to $-0-. The common stock is classified on the
balance sheet as securities available-for-sale at its estimated temporary fair
market value of $-0- as of June 30, 1998. The fair market value of $-0- is based
on (1) the fact that the related company is in the process of, but has not
developed a public market for, its shares as of June 30, 1998, (2) the block
held by HomeSeekers is restricted stock which cannot be sold for at least one
year after it is acquired, (3) even if the stock were publicly tradeable, the
block is too large to sell in a public market at the current time, and (4) the
underlying net book value of the related company's stock, after elimination of
intercompany transactions, is zero. Should the related company be successful in
registering their stock for public trading, the fair market value of the stock
held by the Company should increase above the current estimate of -0- currently
shown on the balance sheet. However, until a successful registration occurs, no
market is available for the Company to sell its current holdings.
During the year ended June 30, 1997, the Company temporarily wrote down
common stock it received as payment for customer leads provided to an unrelated
third party from $808,000 to $477,225. The common stock is classified on the
balance sheet as securities available-for-sale at its estimated temporary fair
market value of $477,225 as of June 30, 1997. The fair market value was based on
the trading value of the securities on the public market at June 30, 1997, less
a discount due to the lack of marketability of the stock, which was restricted
at the time. In October, 1997, the Company sold the restricted stock to an
outside party for approximately $745,000, as such, the temporary write down of
$330,775 recorded at June 30, 1997 was reversed and a realized loss of $63,125
was recorded.
F-18
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 4 - INVESTMENTS IN MARKETABLE SECURITIES - Continued
- ---------------------------------------------
Realized gains and losses are determined on the basis of first-in,
first-out. During fiscal 1998 and 1997, sales proceeds and gross realized gains
and losses on securities classified as available for sale were as follows:
1998 1997
---------- -------
Sales Proceeds $ 744,875 $ -
========== =============
Gross Realized Losses $ (63,125) $ -
========== =============
Gross Realized Gains $ - $ -
========== =============
NOTE 5 - INVESTMENTS IN LLCs
- ----------------------------
Investments in jointly owned limited liability companies in which the
Company has a 20% to 50% interest or otherwise exercises significant influence
are carried at cost, adjusted for the Company's proportionate share of their
undistributed earnings or losses. Investments consist of the following at June
30:
Percent Owned
-------------------
1998 1997
---- ----
HomeSeekers/iQualify, LLC 50% 0%
RealtySeekers, LLC 50% 0%
ReoSeekers, LLC 25% 0%
Following is a summary of financial position and results of operations of
limited liability company investees:
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
<S> <C> <C>
Current Assets $ 1,373 $ -
Other Assets 450,000 -
-------------- ----------------
Total Assets $ 451,373 $ -
============== ================
Current Liabilities $ 31,626 $ -
Members' Equity 419,747 -
-------------- ----------------
Total Liabilities and Members' Equity$ 451,373 $ -
============== ================
Sales $ 32,489 $ -
============== ================
Net Income (Loss) $ (30,252) $ -
============== ================
</TABLE>
F-19
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 5 - INVESTMENTS IN LLCs - Continued
- ----------------------------
During the year ended June 30, 1998, in order to obtain the right to have
access to a desktop underwriter program sponsored by Fannie Mae and Freddy Mac,
the Company entered into an LLC agreement with a public mortgage company
("Finet") wherein the Company obligated itself to perform certain duties, such
as the creation of a Website and the creation of sufficient traffic to the site
to generate a certain number of qualified consumer loan leads. In order to
secure its obligation to perform these duties, the Company was required to
contribute 300,000 shares of its common stock as a capital contribution to the
LLC. If the Company fails to meet certain performance criteria outlined in the
LLC agreement, and its partner, Finet, has met its performance criteria, then
Finet has the right to withdraw from the LLC a pro-rata amount of the 300,000
shares of the Company's stock on an annual basis, limited to 100,000 shares per
year. The Company does not consider its investment in the LLC consisting of its
own restricted common stock to be a receivable since the ultimate return of the
stock cannot be established due to the performance criteria restriction.
NOTE 6 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Computer Equipment $ 720,671 $ 534,240
Software 103,528 100,000
Furniture and office equipment 91,761 65,758
Leasehold improvements 13,542 13,542
Equipment under capital lease 68,976 68,976
------------- -------------
998,478 782,516
Less:
Accumulated depreciation and amortization (460,294) (314,991)
Accumulated amortization under capital leases (47,609) (33,814)
------------- -------------
$ 490,575 $ 433,711
============= =============
</TABLE>
Depreciation expense for the fiscal years ended June 30, 1998 and 1997
amounted to $332,689 and $263,923, respectively.
F-20
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 7 - OTHER ASSETS
- ---------------------
Other assets consist of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Deposits $ 10,155 $ 22,751
Deposit on proposed purchase of Opticom Corporation 100,000 -
Trademark, net of accumulated amortization of
$3,281 in 1998 and $2,895 in 1997 6,370 6,756
Debt issue costs, net of accumulated amortization
of $6,667 in 1998 and $3,467 in 1997 2,933 6,133
------------ -------------
$ 119,458 $ 35,640
============ =============
</TABLE>
NOTE 8 - ACCRUED LIABILITES
- ---------------------------
Accrued liabilities consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Accrued payroll and related expenses $ 190,495 $ 271,877
Other accrued liabilities 102,475 220,016
------------ -------------
$ 292,970 $ 491,893
============ =============
</TABLE>
NOTE 9 - NOTES PAYABLE
- ----------------------
Short-term notes payable consisted of the following amounts at June 30:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Note payable to unrelated third party, interest at 12% per
annum, principal and unpaid accrued interest due on or
before January 15, 1997, unsecured. $ - $ 105,918
Note payable to unrelated third party, interest payable
monthly at 12% per annum, principal due on May 30, 1997,
unsecured. 29,698 44,698
----------- -----------
$ 29,698 $ 150,616
=========== ===========
</TABLE>
F-21
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 10 - NOTES PAYABLE TO RELATED PARTIES
- ------------------------------------------
Short-term notes payable to related parties consisted of the following
amounts at June 30:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Note payable to related parties acquired in acquisition of
VLI, interest accrues at annual rates of 16.65% to 18%,
principal and unpaid accrued interest due on demand,
unsecured. $ 31,595 $ 37,103
Notes payable to officers, interest payable
monthly at 10% per annum, principal due
October, 1997, unsecured. - 50,000
Notes payable to officers, interest accrues
at annual rate of 12%, principal and unpaid
accrued interest due on demand, unsecured. - 70,000
----------- -----------
$ 31,595 $ 157,103
=========== ===========
</TABLE>
At June 30, 1998, the weighted average interest rate on all short-term
borrowings including related party borrowings was 12%. The Company incurred
$12,306 and $94,865 in related party interest expense for the years ended June
30, 1998 and 1997, respectively.
NOTE 11 - CONVERTIBLE REDEEMABLE PROMISSORY NOTES WITH WARRANTS
- ---------------------------------------------------------------
During the year ended June 30, 1997, the Company completed a $1,500,000, 60
unit private placement of unsecured convertible redeemable promissory notes with
attached redeemable common stock purchase warrants priced at $25,000 per unit. A
unit includes a redeemable promissory note and a warrant. At June 30, 1997, the
Company had placed 60 units and received $1,500,000.
Also during the year ended June 30, 1997, the Company commenced and
completed a $500,000, 20 unit private placement of unsecured convertible
redeemable promissory notes with attached redeemable common stock purchase
warrants priced at $25,000 per unit. A unit includes a redeemable promissory
note and a warrant. At June 30, 1997, the Company had placed 23.24 units and
received $581,000.
F-22
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 11 - CONVERTIBLE REDEEMABLE PROMISSORY NOTES WITH WARRANTS - Continued
- ---------------------------------------------------------------
The notes mature June 1, 1999 and accrue interest at 12% per annum payable
semi-annually beginning December 1, 1996. The notes are convertible at the
option of the note holder beginning September 15, 1996 at the rate of one share
of the Company's common stock per $2 of indebtedness. The notes are redeemable
at the option of the Company at the same rate as above at any time subsequent to
November 1, 1996 provided that a registration statement covering the shares of
common stock issuable upon the conversion of the notes is effective with the
Securities and Exchange Commission.
Each unit also consists of a warrant to purchase 12,500 shares of the
Company's common stock at an exercise price of $3 per share at any time prior to
June 15, 1998, which was extended until December 15, 1998. The warrants are
redeemable at the option of the Company at a price per common share of $0.01
provided that a registration statements covering the shares of common stock
issuable upon the exercise of a the Company's common stock is $6 per share for
ten (10) consecutive trading days. At June 30, 1998, warrants to purchase
1,040,500 shares of the Company's common stock have been issued to the note
holders.
During the year ended June 30, 1998, convertible debt in the amount of
$1,916,000 was exchanged for the Company's common stock at the rate of one share
of the Company's common stock for each $2 of indebtedness.
NOTE 12 - COMMITMENTS
- ---------------------
Leases
The Company leases its facilities under two non-cancelable operating
leases. One facility lease includes an escalation clause based on the consumer
price index and is adjusted on an annual basis and has a term of five years. The
other facility lease has a term of six years where the monthly rental payment
increases annually. The Company also has a service agreement with an internet
access provider. The Company's capital leases expired during the current fiscal
year. The following is a schedule, by years, of the future minimum lease
payments under operating leases, together with the net minimum lease payments as
of June 30, 1998.
Years ending June 30,
1999 $ 230,689
2000 225,117
2001 215,924
2002 210,762
2003 221,141
Thereafter 300,245
-----------
Totals $ 1,403,878
===========
F-23
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 12 - COMMITMENTS - Continued
- ---------------------
Leases - Continued
Rental expense for all operating leases was $136,283 and $119,000 for the
years ended June 30, 1998 and 1997, respectively. Amortization expense under
capital leases was $13,795 and $13,795 for the years ended June 30, 1998 and
1997, respectively.
Employment Agreements
During May and June of 1996, the Company entered into employment agreements
with three officers. The agreements are for a five-year period and call for an
annual salary for each officer of $70,000 and an annual bonus of 4% of pre-tax
earnings. Effective September 1, 1996, each officer's annual salary increased to
$100,000. An additional increase called for in the agreements to $144,000 was
effective March 4, 1997. Additionally, in the event of an involuntary
termination, each officer is entitled to receive a severance salary equal to 5
years of the annual base pay earned by the officer immediately prior to
termination.
In August, 1997, the Company entered into employment agreements with the
former owners of FOCUS. The agreements are for a five-year period and call for
an annual salary for each employee of $65,000 and an annual bonus of 25% of
pre-tax earnings of FOCUS over $100,000.
Past Due Obligations
The Company is currently in default under the terms of its notes payable to
an outside third party wherein the required payments at the maturity dates of
the notes payable in the amount of $29,698 has not been paid. The Company is
currently working with its lender to extend the maturity date.
In addition, the Company is currently delinquent in the payment of employer
and employee payroll taxes and a number of accounts payable. The Company is
attempting to payoff these outstanding obligations as soon as practicable given
its cash flow requirements.
Federal and State Income Tax Returns
The Company has not filed its federal and state income tax returns since
the year ended June 30, 1995. At the current time, the Company is in the process
of completing the proper returns to bring all tax filings current.
F-24
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 13 - STOCKHOLDERS' DEFICIT
- -------------------------------
On July 15, 1997, the Company amended its articles of incorporation
regarding authorized shares. The Company is authorized to issue 50,000,000
shares of common stock, par value $.001 per share, 5,000,000 shares of Class A
preferred stock, par value $.001 per share, 200,000 shares of Class B preferred
stock, par value $10.00 per share, and 4,800,000 shares of undesignated
preferred stock, par value $.001 per share. On the same date, the Company filed
a certificate of designation creating a class of 400,000 shares of Class C
preferred stock, par value $.001 per share.
Common Stock
As of June 30, 1998, the Company has reserved a total of 6,862,994 shares
of common stock pursuant to outstanding warrants, options, convertible preferred
stock and convertible redeemable promissory notes.
Warrants to purchase 29,507 common shares were exercised during fiscal 1998
at prices averaging $2.11 per share. Options to purchase 141,100 common shares
were exercised during fiscal 1998 at an average price of $2.60 per share.
Options to purchase 10,000 common shares were exercised during fiscal 1997 at an
average price of $2.00 per share.
Redeemable Common Stock Warrants
In May 1996, and in consideration for assisting the Company in raising at
least $2,500,000 in financing which included the convertible redeemable
promissory notes (Note 11), the Company entered into a consulting agreement with
a partnership to perform business advisory services in exchange for three (3)
redeemable warrants to purchase 150,000 shares of common stock each, 50,000
shares of common stock and $50,000. The warrants each have a five year life from
the date of issuance and are exercisable at $1.75, $3 and $4 per share. On
February 12, 1997, this partnership exercised 150,000 of these warrants at $1.75
per share.
Warrants for the purchase of common shares that were issued and outstanding
as of June 30, 1998 are summarized below:
Number of Exercise Year of
Warrants Price Expiration
-------- ----- ----------
132,993 $ 1.47 1998-2001
94,800 2.00-2.50 1999-2001
1,372,001 3.00-3.50 1998-2001
150,000 4.00 2001
50,000 6.00 2000
------------
1,799,794
============
F-25
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 13 - STOCKHOLDERS' DEFICIT - Continued
- -------------------------------
In March, 1998, the Board of Directors authorized the sale of warrants to
purchase 75,000 common shares at $3.00 per share for consideration of $5,000.
During fiscal 1998, a total of 409,801 warrants expiring on various dates
in 1998 through 2001 to purchase common shares at exercise prices of $1.47 to
$5.00 were issued to consultants and investors.
Preferred Stock
Series A
- --------
Series A preferred stock has a par value of $.001 and is entitled to a
cumulative dividend, when declared, of 15% per annum based upon a value of $2
per share. At the option of the board of directors, each share of stock can be
redeemed at $2 per share, or, at the option of the shareholder, each share of
stock can be converted to common stock at a rate of two shares of common stock
for each share of preferred. Upon conversion to common stock, accumulated
dividends shall be paid through the issuance of additional common shares or the
payment of cash at the option of the board of directors. Each share of series A
preferred stock is entitled to the voting rights of five shares of common stock.
Series B
- --------
Series B preferred stock has a par value of $10.00 and is entitled to a
cumulative dividend, when declared, of 9% per annum based upon a value of $10
per share. At the option of the board of directors, each share of stock can be
redeemed at $10 per share or can be converted to common stock at a rate of five
shares of common stock for each share of preferred. Conversion to common stock
cannot occur until at least six months after issuance and if the listed price of
the Company's common stock has been at least $3 for at least ten consecutive
trading days with an aggregate volume of no less than 20,000 shares. Upon
redemption or conversion to common stock, accumulated dividends shall be paid.
Each share of Series B preferred stock is not entitled to the voting rights of
common stock.
During fiscal year 1996 and as part of a financing arrangement with a
private company (the "Investor"), the Company issued 40,500 shares of Series B
convertible preferred stock to the investor for which it received $70,000 in
cash, $60,000 in other consideration, and a $275,000 note receivable.
Additionally, the Company issued 2,500,000 shares of the Company's common stock
to the investor as collateral in exchange for fourteen weekly funding
commitments of $135,000 each and a final funding of $110,000, totaling
$2,000,000. No funding occurred in conjunction with the funding schedule and the
investor defaulted on the agreement. As a result of the default, the Company
filed a complaint against the investor whereby it demanded the return of the
2,500,000 shares of common stock and certain of the Series B preferred shares.
The investor returned the 2,500,000 shares of common stock and 27,500 shares of
Series B preferred shares to the Company. In fiscal 1998, the suit was mediated
to a settlement which allowed the Company to reclaim the remaining 13,000 shares
of Series B preferred shares in exchange for the issuance of 35,000 shares of
common stock.
F-26
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 13 - STOCKHOLDERS' DEFICIT - Continued
- -------------------------------
Preferred Stock - Continued
Series C
- --------
Series C preferred stock has a par value of $.001 and is entitled to a
cumulative dividend, payable annually in arrears, of 6% per annum based upon a
value of $10 per share. Each share of Series C preferred stock may be converted
into common stock at the higher price of $3.00 per share or at a price per share
equal to 75% of the average of the closing bid prices of the common stock of the
Company for the five trading days preceding the closing of the Company's private
offering of Series C preferred stock. Each share of Series C preferred stock is
not entitled to the voting rights of common stock.
At June 30, 1998, there were no outstanding shares of Series B or Series C
preferred stock. At June 30, 1997, there were 13,000 outstanding of Series B
preferred stock and no outstanding shares of Series C preferred stock.
Dividends
Due to the conversion of 150,000 shares of Series A preferred stock to
common stock in February, 1998, the Company paid dividends in arrears on the
converted shares at the rate of $.79 per share. The dividends were paid by the
issuance of additional common stock.
At June 30, 1998, the amounts of dividends in arrears on the 15% cumulative
Series A preferred stock were $479,708 (average of $.69 per share).
NOTE 14 - 1996 STOCK OPTION PLAN
- --------------------------------
On October 9, 1996, the Company's Board of Directors ratified a stock
option plan under which the Company may grant qualified and non-qualified
incentive stock options to employees, directors, and consultants. As part of the
provisions of the plan, the Company may grant, but is not obligated to grant
options that include reload features. The Company has reserved 5.5 million
shares of its common stock for issuance under the plan. Options granted
generally have terms from one to five years from the date of grant and generally
vest immediately or ratably over their terms. The exercise price of incentive
stock options granted under the plan may not be less than 100% of the fair
market value of the Company's common stock on the date of the grant. For a
person who at the time of the grant owns stock representing 10% of the voting
power of all classes of the Company's stock, the exercise price of the incentive
stock options granted under the plan may not be less than 110% of the fair
market value of the common stock on the date of the grant.
The Company applies APB Opinion 25 in accounting for its fixed stock option
plan. Accordingly, since the market value and the option price of the Company's
stock were equal on the measurement date, no compensation cost has been
recognized for the plan in 1998 and 1997. Had compensation cost been determined
on the basis of fair value pursuant to FASB Statement No. 123, net income (loss)
and earnings per share would have been impacted as follows:
F-27
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 14 - 1996 STOCK OPTION PLAN - Continued
- --------------------------------
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Net Income (Loss)
As reported $ (2,795,545) $ (2,121,906)
================ ===============
Pro forma $ (4,544,101) $ (5,842,768)
================ ===============
Basic and Diluted Earnings Per Share
As reported $ (0.50) $ (0.53)
================ ===============
Pro forma $ (.75) $ (1.34)
================ ===============
</TABLE>
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for fiscal 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Dividend Yield 0% 0%
Risk-Free Interest Rate 5.50% 8.50%
Expected Life 1-5 years 1-6 years
Expected Volatility 115.47% 100.99%
</TABLE>
Expected lives are equal to the remaining option terms for both years,
dividend yields are 0% since the Company does not intend to pay dividends on its
common stock in the near term.
Compensation expense that would have been charged to operations had the
provisions of FASB 123 been applied were $1,748,556 in 1998 and $3,720,862 in
1997.
F-28
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 14 - 1996 STOCK OPTION PLAN - Continued
- --------------------------------
Following is a summary of the status of options outstanding during the
years ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED 6-30-98 YEAR ENDED 6-30-97
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
# of Shares Price # of Shares Price
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at July 1 2,965,800 $ 2.97 2,040,800 $ 2.01
Granted 867,500 2.65 980,000 5.06
Canceled (83,000) 4.31 (30,000) 6.38
Exercised (141,100) 2.60 (25,000) 2.00
---------- -------- ---------- --------
Outstanding at June 30 3,609,200 1.76 2,965,800 2.97
Options exercisable at
June 30 3,512,949 1.76 2,965,800 2.97
Weighted average fair value
of options granted during
1998 and 1997 2.02 3.92
</TABLE>
During the year ended June 30, 1998, the Company repriced certain options
held by employees to an exercise price of $1.47, which equaled the fair market
value of the Company's common stock on the repricing date. Prior to the
repricing, the options had exercise prices ranging from $2.00 to $5.56. As a
result of the repricing, the weighted average exercise price for fiscal 1998 was
lower than in the prior fiscal year.
The following table summarizes information regarding stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average
Remaining Weighted Weighted
Exercise Contractual Average Average
Price Range Number Life Exercise Price Number Exercise Price
----------- ------ ---- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.47 2,869,000 4.25 years $ 1.47 2,781,500 $ 1.47
1.93 5,000 2.75 years 1.93 5,000 1.93
2.00 321,700 10 months 2.00 321,700 2.00
2.62 62,500 2.83 years 2.62 62,500 2.62
4.00 100,000 2.83 years 4.00 100,000 4.00
4.25 200,000 2.83 years 4.25 200,000 4.25
4.37 1,000 5.5 months 4.37 1,000 4.37
4.47 10,000 2.58 years 4.47 1,249 4.47
4.56 10,000 2.13 years 4.56 10,000 4.56
5.00 10,000 4.17 years 5.00 10,000 5.00
5.12 5,000 2.17 years 5.12 5,000 5.12
5.50 10,000 1.93 years 5.50 10,000 5.50
6.50 5,000 7 months 6.50 5,000 6.50
------------ -------------
3,609,200 3,512,949
============ =============
</TABLE>
F-29
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of the
fair value of financial instruments. The estimated fair value amounts have been
determined by the Company using available market value information and
appropriate methodologies. However, considerable judgement is required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein may not be indicative of the amounts the Company
could realize in a current market exchange. Estimated fair values of the
Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ---------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 198,410 $ 198,410 $ 32,222 $ 32,222
Accounts receivable 248,172 248,172 584,023 584,023
Investment in marketable
securities - - 477,225 477,225
Investment in related party
stock - - - -
Investment in LLC's 450,687 450,687 - -
Capital leases (-) (-) (16,799) (16,799)
Notes payable (61,293) (61,293) (307,719) (307,719)
Convertible debt (140,000) (140,000) (2,056,000) (2,056,000)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
such values:
For cash and cash equivalents, accounts receivable, notes payable, capital
leases, and convertible debt, the carrying amount reported in the consolidated
balance sheets is considered to be a reasonable estimate of fair value based on
interest rates of similar financial instruments in the marketplace.
For investments in marketable securities, fair values are based on quoted
market prices, less a discount for lack of marketability due to restrictions
placed on selling the securities for a set period of time, if any.
For investments in related party stock, fair values are based on quoted
market prices. If no market prices are available, fair values are based on the
book value of the stock, after considering the effect of related party
transactions on stockholders' equity.
For investments in LLC's, fair values are based on estimated fair values of
the underlying assets, most of which equal the carrying amount of the asset.
F-30
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 16 - INCOME TAXES
- ----------------------
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The significant components of the Company's deferred taxes as of June
30, 1998 and 1997 are as follows: <TABLE> <CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryover $ 2,682,959 $ 1,743,681
Deferred revenue 401,679 424,810
Amortization of goodwill 73,150 29,760
Employee salaries issued in stock 20,580 14,175
Inventory valuation methods 12,928 -
Allowance for bad debts 1,544 1,544
-------------- -------------
3,192,840 2,213,970
Deferred tax liabilities
Depreciation (19,594) (6,816)
-------------- -------------
3,173,246 2,207,154
Less: Valuation allowance (3,173,246) (2,207,154)
-------------- -------------
Net deferred taxes: $ - $ -
============== =============
</TABLE>
The increase in the valuation allowance was $966,091 and $819,167 for the
years ended June 30, 1998 and 1997, respectively.
The Company has available at June 30, 1998, $7,665,598 of unused operating
loss carryforwards that may be applied against future taxable income and that
expire in various years from 2008 to 2013.
The principal reasons for the difference between the effective income tax
rate and the federal statutory income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Federal benefit expected at statutory rate $ (978,441) $ (742,667)
Operating losses with no current benefit 939,278 360,785
Taxable deferred revenue (23,131) 359,838
Amortization of software costs - (22,472)
Depreciation (12,778) (14,627)
Goodwill 43,425 29,759
Employee salaries issued in stock 6,405 14,175
Inventory valuation methods 12,927 -
Allowance for bad debts - 1,545
Non-deductible expenses 12,315 13,664
----------- -----------
$ - $ -
=========== ===========
</TABLE>
F-31
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 17 - RELATED PARTY TRANSACTIONS
- ------------------------------------
Receivables from Related Parties
The Company has outstanding at June 30, 1998 and 1997, amounts due from
related parties as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Trade receivables due from related parties $ 181,771 $ 508,197
Advances due from employees 11,518 17,469
------------ ------------
$ 193,289 $ 525,666
============ ============
</TABLE>
Payables to Related Parties
The Company had outstanding at June 30, 1998 and 1997, amounts due to
related parties as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Notes payable to related parties acquired in
acquisition of VLI $ 31,595 $ 37,103
Notes payable to officers - 120,000
------------- -----------
$ 31,595 $ 157,103
============= ===========
</TABLE>
During the years ended June 30, 1998 and 1997, the Company incurred $12,306
and $94,865 in related party interest expense.
Investments in Related Party Stock
During the fiscal year ended June 30, 1998, the Company accepted the
settlement of an outstanding account receivable with WebQuest International
("WebQuest"), a company related by common shareholders, in the amount of
$700,000 by receipt of 700,000 shares of restricted common stock of WebQuest. At
June 30, 1998, a writedown to the estimated fair market value of the investment,
expected to be temporary in nature, was recorded for the entire amount of
$700,000. The account receivable was related to the sale of a software license
to WebQuest, which has been recorded as deferred income until collectiblity is
assured.
Revenues
During the fiscal years ended June 30, 1998 and 1997, the Company received
revenues from related parties in the amounts of $215,297 and $300,000,
respectively.
F-32
<PAGE>
HOMESEEKERS.COM, INC.
(FORMERLY NDS SOFTWARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 17 - RELATED PARTY TRANSACTIONS - Continued
- ------------------------------------
Deferred Revenue
In accordance with Statements of Position 97-2 and 91-1, the Company has
deferred revenue received from WebQuest in the amount of $700,000 for the sale
of a software license due to collectibility issues. Since the collectibility of
this revenue relates to the 700,000 shares of WebQuest restricted common stock
that the Company accepted as payment on the license fee, and the probability of
the collection of cash from the ultimate sale of this stock cannot be determined
as of this date, the revenues related to this sale are recognized on the basis
of cash received.
NOTE 18 - LIABILITIES SUBJECT TO COMPROMISE
- -------------------------------------------
Prior to the fiscal year ended June 30, 1998, the Company had an unsecured
trade creditor account payable in the amount of $46,750, which represented
advances of equipment received from a customer as part of a joint venture with
the Company. No request for payment or return of the equipment has been received
by the Company to date, and none is expected. The reduction of this liability
resulted in an extraordinary gain of $46,750 for the year ended June 30, 1998.
NOTE 19 - SUBSEQUENT EVENTS
- ---------------------------
Equity & Debt Transactions
During July and August 1998, convertible debt holders converted $85,000 of
the Company's outstanding debt into 42,500 shares of common stock.
During August 1998, warrant holders exercised warrants to purchase 112,500
shares of common stock for $281,250.
During August and September 1998, Company Officers exercised stock options
to purchase 108,875 shares of common stock for $160,046.
During September 1998, the Company issued 20,000 shares of common stock to
complete the August 1997 acquisition of FOCUS Publications.
Acquisition
On August 4, 1998 the Company purchased certain assets of Genstar Media
("Genstar"), an Internet web site sales and production company for 50,000 shares
of common stock. Genstar's products have been integrated into the Company's
product offerings and their employees have been merged into the Company's sales
staff.
F-33
<PAGE>
HOMESEEKERS.COM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash $ 221,453 $ 198,410
Accounts receivable, net of allowance for uncollectible
accounts of $4,413 2,323,058 54,883
Accounts receivable, related parties 87,137 193,289
Note receivable from employee 50,000 -0-
Inventories -0- 16,712
Prepaid expenses 47,700 13,120
------------ ------------
Total Current Assets 2,729,348 476,414
Investments, related party stock, net of valuation
allowance of $700,000 as of 12/31/98 and 6/30/98 -0- -0-
Property and equipment, net 546,888 490,575
Goodwill, net of accumulated amortization of $395,495
as of 12/31/98 and $317,701 as of 6/30/98 493,915 361,359
Other assets 578,769 570,145
------------ ------------
Total Assets $ 4,348,920 $ 1,898,493
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 652,440 $ 323,918
Accrued liabilities 477,941 292,970
Note payable 27,698 29,698
Notes payable - related parties 558,595 31,595
Deferred revenue 3,134,114 1,147,654
----------- -----------
Total Current Liabilities 4,850,788 1,825,835
----------- -----------
</TABLE>
See notes to consolidated, condensed financial statements.
F-34
<PAGE>
HOMESEEKERS.COM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
Long-Term Liabilities
Note Payable 250,000 -0-
Convertible Debt 30,000 140,000
------------- --------------
Total Long-Term Liabilities 280,000 140,000
------------- --------------
Stockholders' Deficit
Series A convertible preferred stock, $0.001 par value, 5,000,000 shares
authorized; 657,000 shares and 692,000 shares issued and outstanding
at December 31, 1998 and at June 30, 1998, respectively 657 692
Common stock; $.001 par value, 50,000,000 shares
authorized; 7,924,329 shares and 7,460,703
shares issued and outstanding at December 31,
1998 and at June 30, 1998, respectively 7,924 7,461
Additional paid in capital 11,991,313 11,112,776
Dividends on Series A convertible preferred stock (161,933) (118,725)
Accumulated deficit (11,919,829) (10,369,546)
Unrealized loss on securities (700,000) (700,000)
------------- --------------
Total Stockholders' Deficit (781,868) (67,342)
------------- --------------
Total Liabilities and Stockholders'
Deficit $ 4,348,920 $ 1,898,493
============= ==============
</TABLE>
See notes to consolidated, condensed financial statements.
F-35
<PAGE>
HOMESEEKERS.COM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
Revenues: 1998 1997 1998 1997
----- ---- ----- ----
<S> <C> <C> <C> <C>
Web Sites and Web Pages $ 253,778 $ 114,799 $ 428,230 $ 190,411
Prospect Revenues 651,299 254,316 656,031 254,316
Advertising 56,299 46,790 189,605 98,640
Programming, Support and License Fees (1) 93,255 3,781 134,823 25,305
Other 12,979 13,108 33,531 28,268
------------- ------------ ------------ ------------
Total Revenues 1,067,610 432,794 1,442,220 596,940
Cost of Sales 132,696 50,817 216,575 104,429
------------- ------------ ------------ ------------
Gross Profit 934,914 381,977 1,225,645 492,511
Operating Expenses 1,532,264 1,002,040 2,779,635 1,685,935
------------- ------------ ------------ ------------
Net Loss from Operations (597,350) (620,063) (1,553,990) (1,193,424)
Other Income (Expense)
Interest expense (15,408) (43,195) (21,412) (90,677)
Other 25,455 742 25,120 410
------------- ------------ ------------ ------------
Loss Before Provision for Income Taxes (587,303) (662,516) (1,550,282) (1,283,691)
Provision for Income Taxes -0- -0- -0- -0-
------------- ------------ ------------ ------------
Net Loss (587,303) (662,516) (1,550,282) (1,283,691)
Other Comprehensive Income, Net of Tax:
Increase in market value of marketable securities -0- 330,775 -0- 330,775
------------- ------------ ------------ ------------
Net Comprehensive Loss $ (587,303) $ (331,741) $(1,550,282) $ (952,916)
============= ============ ============ ============
Basic and Diluted Net Loss per Common $ (.08) $ (.12) $ (.22) $ (.26)
============= ============ ============ ============
Shares Used in Computing Basic and
Diluted Share Data 7,852,662 5,789,022 7,726,043 5,334,075
============= ============ ============ ============
</TABLE>
(1) Programing, Support and License Sales include net sales to related parties
of $48,955 and $11,700 for the six months ending December 31, 1998 and
1997, respectively.
See notes to consolidated, condensed financial statements.
F-36
<PAGE>
HOMESEEKERS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $(1,550,282) $(1,283,691)
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 186,065 138,230
(Gain) loss on asset sales (53,544) -0-
Allocated loss on investments 555 -0-
Common stock issued for employee compensation 27,407 46,779
Common stock issued for interest 587 35,658
Changes in assets and liabilities net of effect from
purchase of Genstar
Accounts receivable (2,162,909) 11,735
Inventories 16,712 2,951
Prepaid expenses (34,580) (6,941)
Other assets (10,085) (1,094)
Accounts payable 328,522 106,982
Accrued liabilities 234,971 (138,244)
Deferred revenue 1,986,460 (211,550)
------------ -------------
Net adjustments 520,161 (15,494)
------------ -------------
Net Cash Used in Operating Activities (1,030,121) (1,299,185)
------------ -------------
Cash Flows From Investing Activities
Purchase of property and equipment (151,639) (70,550)
Proceeds from asset sales 57,040 -0-
Deposit refunds -0- 5,000
Payment of acquisition deposit -0- (100,000)
Issuance of note receivable (50,000) -0-
------------ -------------
Net Cash Used in
Investing Activities (144,599) (165,550)
------------ -------------
Cash Flows From Financing Activities
Principal payments on capital lease obligations -0- (12,259)
Proceeds from notes payable - related parties 535,000 128,000
Payments on notes payable - related parties (8,000) (138,000)
Proceeds from notes payable 250,000 250,000
Payments on notes payable (2,000) (28,210)
Net proceeds from sale of common stock 490,555 1,291,000
Deferred offering costs paid (67,792) -0-
------------ -------------
Net Cash Provided by Financing Activities 1,197,763 1,490,531
------------ -------------
Net Increase in Cash 23,043 25,796
Cash at Beginning of Period 198,410 32,222
------------ -------------
Cash at End of Period $ 221,453 $ 58,018
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
------------ ------------
Cash paid for interest $ 7,387 $ 62,144
============ ============
Cash paid for income taxes $ -0- $ -0-
============ ============
</TABLE>
See notes to consolidated, condensed financial statements.
F-37
<PAGE>
HOMESEEKERS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1998
- ----
During the six months ended December 31, 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 six months ended December 31, 1998, $110,000 of debt was
converted into 55,000 shares of the Company's common stock.
During the six months ended December 31, 1998, a stockholder converted
35,000 shares of Series A preferred stock into 70,000 shares of the Company's
common stock.
During the six months ended December 31, 1998, the Company paid accumulated
dividends on the converted shares of Series A preferred stock by the issuance of
20,290 shares of the Company's common stock.
During the six months ended December 31, 1998 50,000 shares of the
Company's common stock were issued to acquire certain assets of a company in a
purchase transaction valued at $225,000.
1997
- ----
During the six months ended December 31, 1997, the Company issued 18,237
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 six months ended December 31, 1997, 1,658,500 of debt was
converted into 829,250 shares of the Company's common stock.
During the quarter ended December 31, 1997, 45,000 shares of Series A
preferred stock were issued in exchange for satisfaction of a note payable in
the amount of $87,708.
During the quarter ended December 31, 1997, the Company reversed the
allowance on marketable securities recorded in the prior year in the amount of
$330,775 to reflect current market value prior to their sale. In addition, 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.
F-38
<PAGE>
HOMESEEKERS.COM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
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
670,000 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, condensed financial statements as of
December 31, 1998 and for the three months and six months ended December 31,
1998 and 1997 are unaudited. These financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial statements and in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and regulations.
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 operations for the six months ending December 31,
1998, the Company raised $491,000 from the proceeds from the exercise of stock
warrants and options, and obtained loans totaling $785,000 at an average annual
interest rate of 13%. $535,000 of these loans were from related parties at
market rates of interest.
The Company has not yet generated revenues sufficient to cover operating
expenses and has funded its operations primarily through the issuance of equity
and debt. 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. During January 1999
the Company raised $12 million through the sale of common stock to accredited
investors pursuant to Rule 506 of Regulation D. This equity transaction is a
significant step to fund the Company's business plan. Ultimately, however, the
Company will need to achieve profitable operations in order to continue as a
going concern.
NOTE 3 - LIMITED LIABILITY COMPANY ("LLC")
- ------------------------------------------
On January 16, 1998 the Company formed a LLC with an unrelated company to
develop a new Internet Web site. The Company owns 50% of this LLC. The Company
accounts for this investment based on the equity method. Through December 31,
1998 there has been no activity in this LLC, therefore there has been no impact
on the earnings of the Company.
F-39
<PAGE>
HOMESEEKERS.COM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 4 - 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 valued at
$225,000 based on the current market value of the stock. 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.
This acquisition was accounted for by the purchase method and Genstar's
results of operations from August 5, 1998 on were included in the Company's
results of operations. The purchase price was allocated $14,650 to tangible
assets and $210,350 to goodwill. Goodwill 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 six months ended December 31, 1998 were
not materially affected by the acquisition of Genstar.
NOTE 5 - NOTES PAYABLE
- ----------------------
During the three months ended December 31, 1998 the Company borrowed
$445,000 from related parties and $50,000 from unrelated parties to fund
operations. Interest on the notes average 13% per annum. All but $5,000 of these
notes were paid in January 1999.
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
During January 1999, the Company raised $12 million through the sale of
common stock, netting the company approximately $10.6 million after deducting
commissions of approximately $1.2 million and other offering expenses. The
Company used $1.5 million of these proceeds to retire debt, accounts payable and
accrued liabilities. The balance of the proceeds will be used primarily for
working capital, for strategic business acquisitions and to fund increases in
sales and marketing operations.
During January 1999, as a condition of this equity transaction, holders of
95% of the outstanding Series A Convertible Preferred Stock ("Preferred Stock")
converted their shares into common stock of the Company. It is expected that the
balance of the Preferred Stock will be converted into common stock during the
quarter ending March 31, 1999.
F-40
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
Page
----
Available Information......................................................
Prospectus Summary.........................................................
Risk Factors...............................................................
Capitalization.............................................................
Use of Proceeds
Price Range of Common Stock and
Dividend Policy..........................................................
Management's Discussion and
Analysis or Plan of Operation............................................
Business...................................................................
Management.................................................................
Executive Compensation
Certain Transactions.......................................................
Principal Shareholders.....................................................
Description of Securities..................................................
Selling Securityholders....................................................
Legal Matters..............................................................
Experts....................................................................
Index to Financial Statements..............................................
Consolidated Financial Statements..........................................
7,922,782 SHARES
HOMESEEKERS.COM, INCORPORATED
PROSPECTUS
________________, 1999
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law, provides as
follows:
1. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a Director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a Director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a Director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, he must be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court or
advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper under the circumstances. The
determination must be made:
(a) By the stockholders;
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<PAGE>
(b) By the board of Directors by majority vote of a quorum
consisting of Directors who were not parties to the act,
suit or proceeding;
(c) If a majority vote of a quorum consisting of Directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written opinion;
or
(d) If a quorum consisting of Directors who were not
parties to the act, suit or proceeding cannot be obtained,
by independent legal counsel in a written opinion.
5. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and Directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the Director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than Directors or
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw,
agreement, vote of stockholders or disinterested Directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to
subsection 2 or for the advancement of expenses made pursuant
to subsection 5, may not be made to or on behalf of any
Director or officer if a final adjudication establishes that
his acts or omissions involved intentional misconduct, fraud
or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a Director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
Article IX of the Company's Revised Bylaws provides as follows:
Every person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a Director or officer of the
Corporation or is or was serving at the request of the Corporation or for its
benefit as a Director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such Directors,
officers or representatives may have or hereafter acquire and, without limiting
the generality of such statement, they shall be entitled to their respective
rights of indemnification under any by-law, agreement, vote of Shareholders,
provision of law or otherwise, as well as their rights under this Article.
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<PAGE>
The Board of Directors may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a Director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
Director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Corporation would have the power to indemnify
such person.
The indemnification provisions above provided shall include, but not be
limited to, reimbursement of all fees, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred, in connection with the defense
or settlement of any action or suit if such party to be indemnified acted in
good faith and in a matter reasonably believed to be in or not opposed to the
best interests of the Corporation. Indemnification may not be made for any
claim, issue or matter as to which the person claiming after exhaustion of all
appeals therefrom to be liable to the Corporation or for amounts paid in
settlement to the Corporation unless and only to the extent that the court in
which the action or suit was brought or other court of competent jurisdiction
determines upon application that the person is fairly and reasonably entitled to
indemnify for such expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as express in the act and is therefore
unenforceable.
In accordance with the foregoing, the Company is seeking and intends to
obtain officers and directors liability insurance with an aggregate coverage of
$3,000,000.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered (other than underwriting
discounts and commissions and the Representative's non-accountable expense
allowance and advisory fee) are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration and Filing Fee................................................. $ 9,093
Legal Fees and Expenses*........................................................ 20,000
Accounting Fees and Expenses*................................................... 22,000
Financial Printing*............................................................. 10,000
Transfer Agent Fees*............................................................ 3,000
Blue Sky Fees and Expenses*..................................................... 3,000
Miscellaneous*.................................................................. 5,407
--------
TOTAL................................................................. $72,500
</TABLE>
* Estimated
None of the foregoing expenses are being paid by the Selling Securityholders.
II-3
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Between July 1, 1997 and December 31, 1997, the Company issued an
aggregate of 37,230 Shares to certain persons in connection with certain
business, advisory and other consulting services performed by each of them on
behalf of the Company. Inasmuch as each consultant had a pre-existing
relationship with the Company and access to relevant information concerning the
Company, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
Between June 1997 and November 1997, 57 convertible redeemable
promissory note holders converted approximately $1,800,000 of debt and accrued
interest into 885,367 shares. These holders had access to or otherwise were
provided with information, including financial, of the Company and accordingly,
the securities were exempt from the registration requirements pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
In August 1997, the Company sold a total of 100,000 shares and warrants
to three investors for $300,000. The warrants are exercisable for three years,
at $3.00 per share. The purchasers were accredited or otherwise qualified
investors based on their financial resources and knowledge of investments. In
addition, each of the investors were provided with information and had access to
relevant information concerning the Company. Accordingly, the issuance of these
securities was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of the Securities Act.
In August 1997, the Company issued 12,934 Shares to 29 employees as
consideration for a temporary salary decrease. Inasmuch as the employees had a
pre-existing relationship with the Company and access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
During September and October 1997, employees exercised options to
purchase 23,100 shares at option prices from $2.00 per share to $5.62 per share,
and the Company received gross proceeds of $124,300. Inasmuch as the employees
had a preexisting relationship with the Company and access to relevant
information concerning the Company, the issuance of such securities was exempt
from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During October 1997, Thomas Payne, a principal of CB Consulting and a
consultant to the Company, exercised an option to purchase 70,000 shares at
$3.00 per share, with the Company receiving $210,000 in gross proceeds. Inasmuch
as the option holder had a pre-existing relationship with the Company and access
to relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Securities Act pursuant to
the exemption set forth in Section 4(2) of the Securities Act.
During November 1997, two investors purchased an aggregate of 90,000
shares for $270,000. Inasmuch as the investors had a preexisting relationship
with the Company and access to relevant information concerning the Company, the
issuance of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
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<PAGE>
During December 1997, two investors purchased 20,000 shares and
warrants for $60,000. The warrants are exercisable for three years, at $2.50 per
share. The investors were accredited or otherwise qualified investors based on
their financial resources and knowledge of investments. In addition, each of the
investors were provided with information and had access to relevant information
concerning the Company. Accordingly, the issuance of the shares was exempt from
the registration requirements of the Securities Act pursuant to the exemption
set forth in Section 4(2) of the Securities Act.
During December 1997, Mr. William Tomerlin, the former Chairman of the
Board and a principal stockholder of the Company purchased 134,500 shares of
Series A Preferred Stock for $269,000. Inasmuch as Mr. Tomerlin had a
pre-existing relationship with the Company and access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
During December 1997, an investor was issued 45,000 shares of Series A
Preferred Stock upon conversion of a $90,819 debt of the Company to such
investor. Inasmuch as the investor had a pre-existing relationship with the
Company and access to relevant information concerning the Company, the issuance
of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
In September 1997 and January 1998, the Company issued warrants to
purchase 19,000 shares of common stock, exercisable for three years, at $3.50
per share, in connection with a loan made to the Company. Inasmuch as the lender
had access to relevant information concerning the Company, the issuance of these
warrants was exempt from the registration requirements of the Securities Act by
reason of Section 4(2) thereof.
During February 1998 Mr. William Tomerlin, the former Chairman of the
Board and a principal stockholder of the Company converted 150,000 shares of
Series A Preferred Stock into 300,000 common shares. Inasmuch as Mr. Tomerlin
had a pre-existing relationship with the Company and access to relevant
information concerning the Company, the issuance of such securities was exempt
from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During February 1998, the Company issued warrants to purchase 150,000
shares, exercisable at $1.47 per share, to a public relations firm as partial
consideration for services rendered. The warrants expire on various dates
between September 28, 1998 and October 30, 2001. 17,001 of these warrants were
exercised in February 1998. Inasmuch as this firm had a preexisting relationship
with the Company and was provided access to relevant information concerning the
Company, the issuance of these securities was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof.
During March 1998, the Company issued a three year warrant to purchase
75,000 shares of common stock, exercisable at $3.00 per share, for a purchase
price of $5,000. The purchaser was accredited or otherwise had such experience
in financial and business matters so that he was able to evaluate the risks and
merits of an investment in the Company, and was provided access to relevant
information concerning the Company. The investor also had a pre-existing
business relationship with
II-5
<PAGE>
the Company. Accordingly, this transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof and the
rules and regulations thereunder.
Between April 30, 1998 and May 15, 1998, the Company issued 458,000
shares of common stock and warrants to purchase 45,800 shares of common stock at
$2.00 per share, for a period of three years. These securities were sold to 13
individuals or entities for an aggregate of $916,000. Each of the investors was
provided with and had access to relevant information concerning the Company.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
Between May 1998, and August 1998, convertible redeemable promissory
note holders converted $358,121 of debt and accrued interest into 174,871
shares. These holders had access to or otherwise were provided with information,
including financial, of the Company and accordingly, the transaction was exempt
from the registration requirements pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
During August 1998, warrant holders exercised warrants to purchase
112,500 shares of common stock for $281,250. These holders had access to or
otherwise were provided with information, including financial, of the Company
and accordingly, the transaction was exempt from the registration requirements
pursuant to the exemption set forth in Section 4(2) of the Securities Act.
On August 4, 1998 the Company purchased certain assets of Genstar
Media, an Internet web site sales and production company for 50,000 shares of
common stock. These holders had access to or otherwise were provided with
information, including financial, of the Company and accordingly, the
transaction was exempt from the registration requirements pursuant to the
exemption set forth in Section 4 (2) of the Securities Act.
During August and September 1998, Company officers exercised incentive
stock options to purchase 108,875 shares of common stock for $160,046. Inasmuch
as these officers had a pre-existing relationship with the Company and access to
relevant information concerning the Company, the issuance of such securities was
exempt from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During September 1998, the Company issued 20,000 shares of common stock
to complete the August 1997 acquisition of FOCUS Publications. These holders had
access to or otherwise were provided with information, including financial, of
the Company and accordingly, the transaction were exempt from the registration
requirements pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
During December 1998, the Company issued 20,000 shares of Common Stock
as partial consideration under a Consulting Agreement to which the Company is a
party. The consultant had access to or otherwise was provided with information,
including financial, of the Company and accordingly, the transaction was exempt
from the registration requirements pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
No underwriters were involved in any of the transactions described
above, nor were any commissions paid in connection therewith except as indicated
above.
II-6
<PAGE>
During January 1999, the Company raised $12 million through the sale of
common stock, netting the company approximately $10.6 million after deducting
commissions of approximately $1.2 million (paid to two placement agents who
assisted the Company in this financing) and other offering expenses. The
offering was conducted pursuant to Rule 506 of Regulation D and sales were made
to approximately 75 purchasers, each of whom was an "accredited investor" within
the meaning of Regulation D. The Company used $1.5 million of these proceeds to
retire debt, for accounts payable and to satisfy accrued liabilities. The
balance of the proceeds will be used primarily for working capital, for
strategic business acquisitions and to fund increases in sales and marketing
operations. As a condition of this equity transaction, holders of 95% of the
outstanding Class A, Series A Convertible Preferred Stock converted their shares
into common stock of the Company. It is expected that the balance of such
Preferred Stock will be converted into Common Stock during the quarter ending
March 31, 1999.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ---------- -----------------------
<S> <C>
3.1(a) Articles of Incorporation of Aurora Energy, Inc. dated January 13, 1983(1)
3.1(b) Amendment to Articles of Incorporation of Aurora Energy, Inc. dated March 23, 1983
to change name to Aurora Tech, Inc.(1)
3.1(c) Amendment to Articles of Incorporation of Aurora Tech, Inc. dated June 25, 1984
re: governance(1)
3.1(d) Amendment to Articles of Incorporation of Aurora Tech, Inc. dated May 12, 1988
changing the name to XRF Corporation(1)
3.1(e) Articles of Incorporation of NDS Software, Inc. dated September 29, 1994(1)
3.1(f) Amendment to the Articles of Incorporation of NDS Software, Inc. dated November
15, 1995(1)
3.1(g) Articles of Incorporation of Nevada Data Systems, Inc. dated October 28, 1987(1)
3.1(h) Amendment to Articles of Incorporation of Nevada Data Systems, Inc. dated February
27, 1989 changing name to NDS Software(1) 3.1(i) Amendment to Articles of Incorporation
of NDS Software dated May 3, 1990 changing authorized stock(1)
3.1(j) Amendment to Articles of Incorporation of NDS Software dated December 31, 1990
changing authorized stock(1)
3.1(k) Amendment to Articles of Incorporation of NDS Software dated September 15, 1993
changing authorized stock(1)
3.1(l) Amendment to Articles of Incorporation of NDS Software dated June 20, 1994
changing authorized stock(1)
3.1(m) Amendment to Articles of Incorporation of XRF Corporation dated July 26, 1994
changing name(1)
3.1(n) Amendment to Articles of Incorporation of NDS Software dated July 15, 1997
changing authorized stock(1)
3.1(o) Amendment to Articles of Incorporation of NDS Software dated July 1, 1998 changing name(1)
3.2 Bylaws of NDS Software(1)
4.1 Certificate of Designation for Class A, Series A Preferred Stock(1)
4.2 Amendment to Certificate of Designation for Class A Series A Preferred Stock(1)
II-7
<PAGE>
4.3 Certificate of Designation for Class B Convertible Preferred Stock(1)
4.4 Certificate of Designation for Class C Convertible Cumulative Preferred Stock(1)
5 Opinion and Consent of Atlas, Pearlman, Trop & Borkson, P.A.(3)
10.1 Stock Option Plan dated October 9, 1996 (Exhibit 6.1)(1)
10.2 Articles, Plan and Agreement of Merger between XRF Corporation and NDS Software
dated June 13, 1994 (Exhibit 6.2)(1)
10.3 Agreement and Plan of Reorganization between NDS Software and Visual Listings,
Inc. dated May 8, 1996 (Exhibit 6.3)(1)
10.4 Agreement and Plan of Reorganization between the Company and Focus Publications,
Inc. dated August 11, 1997 including Articles of Exchange filed December 31, 1997
(Exhibit 6.4)(1)
10.5 Articles, Plan and Agreement of Merger between NDS Software, Inc., a Utah
Corporation and NDS Software, Inc., a Nevada Corporation, dated September 26, 1994
(Exhibit 6.5)(1)
10.6 Employment Agreement between the Company and John Giaimo dated May 8, 1996
(Exhibit 6.6)(1)
10.7 Employment Agreement between the Company and Greg Johnson dated June 13, 1996
(Exhibit 6.7)(1)
10.8 Employment Agreement between the Company and Doug Swanson
dated June 13, 1996 (Exhibit 6.8)(1)
10.9 Amendment to Stock Option Plan dated October 9, 1996 (Exhibit 6.9)(1)
10.10 Form of MLS Agreement (Exhibit 6.10)(1)
10.11 LLC Operating Agreement with Finet Holdings Corporation (Exhibit 6.11)(1)
10.12 Licensing and Marketing Agreement re:IPONG International, Inc. (Exhibit 6.12)(1)
10.13 Harte-Hanks Shoppers, Inc. Marketing Alliance (Exhibit 6.13)(1)
16 Accountant's Letter(1)
23(i) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (see Exhibit 5)(3)
23(ii) Consent of Albright, Persing & Associates, Limited(3)
21 Subsidiaries of Registrant(2)
27 Financial Data Schedule(3)
</TABLE>
- -------------------------
(1) Incorporated by reference to Exhibits with the referenced numbers from the
Company's Form 10-SB Registration Statement, as amended, as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to Exhibits with corresponding numbers from the
Company's Form 10-KSB for the year ended June 30, 1998, as filed with the
Securities and Exchange Commission.
(3) Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to
participating broker-dealers, at the closing, certificates in such denominations
and registered in such names as required by the participating broker-dealers, to
permit prompt delivery to each purchaser.
The undersigned Registrant also undertakes:
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<PAGE>
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant also undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h)
II-9
<PAGE>
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Minden, Nevada, on March 5, 1999.
HOMESEEKERS.COM, INCORPORATED
By: /s/ GREG JOHNSON
--------------------
Greg Johnson
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GREG JOHNSON Chairman of the Board, Chief Executive March 5, 1999
- ---------------------------------- Officer and Director
Greg Johnson (Principal Executive Officer)
/s/ JOHN GIAIMO President, Chief Operating March 5, 1999
- ---------------------------------- Officer and Director
John Giaimo
/s/ DOUG SWANSON Vice Chairman of the Board, Executive March 5, 1999
- ---------------------------------- Vice President and Director
Doug Swanson
/s/ SCOTT BERRY Chief Financial Officer (Principal Financial March 5, 1999
- ---------------------------------- and Accounting Officer)
Scott Berry
/s/ LARRY ROSS Vice President - Marketing March 5, 1999
- ----------------------------------
Larry Ross
</TABLE>
II-11
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
March 5, 1999
HomeSeekers.com, Incorporated
2241 Park Place
Suite E
Minden, NV 89423
Re: Registration Statement on Form SB-2; HomeSeekers.com, Incorporated
(the "Company")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration for public
sale of 7,922,782 shares (the "Registerable Shares") of Common Stock, $.001 par
value ("Common Stock"), including up to 2,879,494 shares of Common Stock
reserved for issuance upon exercise of certain outstanding options and warrants
(the "Reserved Shares").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and the issuance of
the Common Stock and related matters; (iii) the Registration Statement and the
exhibits thereto; and (iv) such other matters of law as we have deemed necessary
for the expression of the opinion herein contained. In all such examinations, we
have assumed the genuineness of all signatures on original documents, and the
conformity to originals or certified documents of all copies submitted to us as
conformed, photostat or other copies. In passing upon certain corporate records
and documents of the Company, we have necessarily assumed the correctness and
completeness of the statements made or included therein by the Company, and we
express no opinion thereon. As to the various questions of fact material to this
opinion, we have relied, to the extent we deemed reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments.
<PAGE>
Based upon the foregoing, we are of the opinion that (i) the currently
outstanding Registerable Shares have been legally issued and are fully paid and
non-assessable, and (ii) the Reserved Shares, when issued and upon payment of
the agreed upon consideration therefore, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Sincerely,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
----------------------------------------
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of HomeSeekers.com,
Incorporated on Form SB-2 of our report dated September 24, 1998 on the
consolidated balance sheets of HomeSeekers.com, Incorporated (formerly NDS
Software, Inc.) as of June 30, 1998 and 1997, and the related statements of
operations, stockholders' deficit and cash flows for the years then ended.
We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ Albright, Persing & Associates, Ltd.
- ----------------------------------------
ALBRIGHT, PERSING & ASSOCIATES, LTD.
Reno, Nevada
March 5, 1999
