U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to________________
Commission File Number: 0-23835
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HOMESEEKERS.COM, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0397464
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6490 S. McCarran Boulevard, Suite 28, Reno, NV 89509
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(Address of principal executive offices)
(775) 827-6886
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Issuer's telephone number
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(Former address, if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 18,449,432 shares of common
stock, $.001 par value, outstanding as of May 8, 2000.
<PAGE>
HOMESEEKERS.COM, INCORPORATED
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Form 10-QSB for the quarter ended March 31, 2000
<TABLE>
<CAPTION>
Part I Financial Information Page
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<S> <C> <C>
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets as of
March 31, 2000 and June 30, 1999 3
Consolidated Condensed Statements of Operations
for the quarters and nine months ended March 31, 2000
and 1999 5
Consolidated Condensed Statements of Cash Flows for the nine
months ended March 31, 2000 and 1999 7
Notes to Consolidated Condensed Financial Statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II Other Information
Item 1 Legal Proceedings 19
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
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HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, June 30
2000 1999
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 6,327 $ 10,617
Accounts receivable, net of allowance for doubtful
accounts of $218 and $38 2,029 1,697
Accounts receivable, related parties 83 158
Notes receivable, related parties - 125
Prepaid expenses 658 309
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Total Current Assets 9,097 12,906
Investments, related party stock 861 400
Other investments 5,730 -
Property and equipment, net 4,572 1,170
Goodwill and other intangible assets, net of
accumulated amortization of $3,140 and $602 15,461 2,377
Other assets 60 36
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Total Assets $ 35,781 $ 16,889
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 452 $ 630
Accrued liabilities 3,263 454
Current portion of capital lease obligations 99 26
Notes payable 1,097 13
Deferred revenue 5,110 2,693
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Total Current Liabilities 10,021 3,816
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</TABLE>
See notes to consolidated condensed financial statements.
(Continued)
3
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HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
(Continued)
<TABLE>
<CAPTION>
March 31, June 30
2000 1999
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(Unaudited) (Audited)
<S> <C> <C>
Long-Term Liabilities
Capital lease obligations - 50
Deferred revenue 196 333
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Total Long-Term Liabilities 196 383
Stockholders' Equity
Class A preferred stock, $.001 par value;
5,000,000 shares authorized; no shares
issued and outstanding - -
Class B preferred stock, $10.00 par value;
200,000 shares authorized; no shares
issued and outstanding - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 18,126,193 and 14,946,283
shares issued and outstanding 18 15
Additional paid-in capital 53,950 28,337
Investment in LLC - (450)
Notes receivable, officer/stockholder (320) -
Accumulated deficit (27,933) (15,212)
Accumulated other comprehensive loss (151) -
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Total Stockholders' Equity 25,564 12,690
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Total Liabilities and Stockholders'
Equity $ 35,781 $ 16,889
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</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Revenues $ 4,312 $ 1,130
Cost of revenues 1,189 128
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Gross Profit 3,123 1,002
Operating expenses 8,326 1,995
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Loss from operations (5,203) (993)
Other Income (Expense):
Interest expense (8) (7)
Interest income 53 74
Gain on sale of assets - 200
Other gain 56 1
Minority interest income 1 -
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102 268
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Loss Before Provision for Income Taxes (5,101) (725)
Income tax expense - 1
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Net Loss (5,101) (726)
Other comprehensive income 83 700
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Net Comprehensive Loss $ (5,018) $ (26)
============ ===========
Preferred stock dividends - (552)
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Net Loss Applicable to Common Shares $ (5,101) $ (1,278)
============ ===========
Basic and Diluted Net Loss per Common Share $ (.29) $ (.11)
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Shares Used in Computing Basic and Diluted
Net Loss Per Share 17,665,329 11,506,886
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</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Revenues $ 8,467 $ 2,572
Cost of revenues 2,500 344
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Gross Profit 5,967 2,228
Operating expenses 19,040 4,775
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Loss from Operations (13,073) (2,547)
Other Income (Expense):
Interest expense (22) (28)
Interest income 238 74
Gain on sale of assets - 226
Other gain 56 -
Minority interest income 79 -
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351 272
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Loss Before Provision for Income Taxes (12,722) (2,275)
Income tax expense - 1
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Net Loss (12,722) (2,276)
Other comprehensive income (loss) (151) 700
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Net Comprehensive Loss $ (12,873) $ (1,576)
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Preferred stock dividends - (595)
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Net Loss Applicable to Common Shares $ (12,722) $ (2,871)
=========== ===========
Basic and Diluted Net Loss per Common Share $ (.77) $ (.32)
=========== ===========
Shares Used in Computing Basic and Diluted
Net Loss Per Share 16,544,979 $ 8,974,221
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Operating Activities
Net Loss $ (12,722) $ (2,276)
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Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 3,590 279
(Gain) on asset sales (8) (200)
(Gain) on sale of securities (46) -
Forfeit purchase deposit - (53)
Common stock issued for employee compensation 73 79
Common stock issued for services 188 100
Increase in bad debt allowance 178 27
Changes in operating assets and liabilities net of
effects from acquisitions - 18
Accounts receivable (188) (1,530)
Prepaid expenses (323) (166)
Other assets 12 17
Accounts payable (476) (54)
Accrued liabilities 1,426 (125)
Deferred revenue 365 1,548
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Net adjustments 4,791 (60)
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Net Cash Used in Operating Activities (7,931) (2,336)
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Investing Activities
Purchase of property and equipment (1,395) (554)
Proceeds from asset sales 12 57
Proceeds from securities sales 101 600
Proceeds from Finet settlement agreement 287 -
Purchase of intangible assets (1,339) (450)
Change in deposits (30) (22)
Acquisitions, net of cash acquired (1,205) -
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Net Cash Used in Investing Activities (3,569) (369)
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Financing Activities
Net payments on capital lease obligations (22) -
Net (payments) proceeds from notes payable - related parties (110) (31)
Proceeds from notes payable - 250
Payments on notes payable (50) (275)
Net proceeds from sale of common stock 7,637 11,535
Deferred offering costs paid - (90)
Payment (issuance) of notes receivable (245) (50)
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Net Cash Provided by Financing Activities 7,210 11,339
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Net (Decrease) Increase in Cash and Cash Equivalents (4,290) 8,634
Cash and Cash Equivalents at Beginning of Period 10,617 198
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Cash and Cash Equivalents at End of Period $ 6,327 $ 8,832
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</TABLE>
See notes to consolidated condensed financial statements.
(Continued)
7
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(Amounts in Thousands) 2000 1999
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Cash paid for interest $ 22 $ 11
=========== ============
Cash paid for income taxes $ 0 $ 1
=========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Nine months ended March 31, 2000
- --------------------------------
During the nine months ended March 31, 2000, the Company received 800,000 shares
of BuySellBid.com common stock valued at $2.50 per share as compensation for
advertising. Other investments and deferred revenues increased by $2,000,000.
During the nine months ended March 31, 2000 the Company purchased intangible
assets by issuing 13,077 shares of the Company's common stock valued at
$200,000.
During the nine months ended March 31, 2000, accrued liabilities in the amount
of $200,000 were satisfied by the issuance of 25,000 shares of the Company's
common stock.
During the nine months ended March 31, 2000, the Company purchased intangible
assets for $262,320 by issuing 28,000 shares of the Company's common stock.
During the nine months ended March 31, 2000, the Company purchased intangible
assets by issuing 25,000 shares of the Company's common stock valued at
$215,625.
During the nine months ended March 31, 2000, the Company acquired IMCO. The
consideration paid was $2,000,000 consisting of 81,090 shares of the Company's
common stock.
During the nine months ended March 31, 2000, the Company purchased 1,200,000
common shares of BuySellBid.com, Inc. for 250,000 shares of the Company's common
stock valued at $3,000,000.
During the nine months ended March 31, 2000, the Company acquired intangible
assets from BuySellBid.com, Inc. for 257,615 shares of the Company's common
stock valued at $3,091,380.
During the nine months ended March 31, 2000, the Company acquired Terradatum.
The consideration paid included 640,000 shares of the Company's common stock
valued at $7,960,000.
See notes to consolidated condensed financial statements.
(Continued)
8
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
Nine Months Ended March 31, 1999
- --------------------------------
During the nine months ended March 31, 1999, 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 nine months ended March 31, 1999, $110,000 of debt was converted into
55,000 shares of the Company's common stock.
During the nine months ended March 31, 1999, a stockholder converted
approximately 34,000 shares of Series A preferred stock into 69,000 shares of
the Company's common stock.
During the nine months ended March 31, 1999, a stockholder converted
approximately 623,000 shares of Series A Preferred Stock into approximately
1,245,000 shares of the Company's common stock.
During the nine months ended March 31, 1999, the Company paid accumulated
dividends of $595,190 on the converted shares of Series A preferred stock by the
issuance of the Company's common stock.
During the nine months ended March 31, 1999, 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.
See notes to consolidated condensed financial statements.
9
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All adjustments that, in the opinion of
management, are necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for the quarter and nine
months ended March 31, 2000 are not necessarily indicative of the results that
will be realized for the fiscal year ending June 30, 2000. The financial and
other information contained herein should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1999.
Certain prior period amounts have been reclassified to conform to the current
period's presentation.
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which
among other guidance clarifies certain conditions to be met in order to
recognize revenue. The Company is currently assessing the guidance contained in
SAB 101, and has not determined the impact, if any, that SAB 101 will have on
its revenue recognition policies and on its consolidated financial statements.
NOTE 2 - EQUITY TRANSACTIONS
- ----------------------------
During the nine months ended March 31, 2000, the Company received approximately
$3,028,000 from the exercise of warrants to purchase 1,026,039 shares of the
Company's common stock and approximately $1,409,000 from the exercise of options
to purchase 613,509 shares of the Company's common stock.
On February 11, 2000 the Company sold 206,450 shares of its common stock to
three accredited investors in a private placement for an aggregate purchase
price of approximately $3,200,000.
On May 4, 2000 the Company sold 43,956 shares of its common stock to an
accredited investor in a private placement for an aggregate purchase price of
$250,000.
10
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - INVESTMENTS
- --------------------
On October 28, 1999, the Company sold its 50% interest in an LLC to Finet.com,
Inc. (Finet) for 600,000 common shares. The Company recorded its investment
based on Finet's quoted market price less a discount since the shares are
unregistered. The investment in the LLC had been accounted for as an offset to
stockholders' equity as the primary asset of the LLC was HomeSeekers common
stock. This offset was eliminated and equity increased by the sale of the LLC.
March 2000, the Company entered into a settlement agreement and release with
Finet.com, Inc. whereby both parties are effectively released from the May 1999
Licensing Agreement. The Company received a settlement payment of $485,000
consisting of $183,000 in revenue associated with click-throughs provided,
$287,000 for a refund of the purchased technology and a refund of $15,000 in
legal fees.
On March 31, 2000, the Company held a total of $1,537,000 of available-for-sale
securities consisting of 745,700 common shares of WebQuest International,
Incorporated presented as investments, related party stock, and 600,000 common
shares of Finet included in other investments. The fair market value of the
investments at March 31, 2000, based on market quotations or recent private
placements is reflected in the financial statements with the resulting
unrealized decrease in value of approximately $151,000 recorded as a separate
component of other comprehensive loss. The Company's investment of 2,000,0000
common shares of BuySellBid.com, Inc. is included in other investments at
$5,000,000, the purchase price of the investment. The Company is accounting for
the BuySellBid.com, Inc. investment as available-for-sale securities; however
the company has not included a comprehensive income component, as there
currently is not a public market for this stock.
At various dates throughout the quarter ending March 31, 2000, the Company sold
54,300 shares of Webquest International, Incorporated common stock at an average
sales price of $1.85 per share. The Company recorded a net gain of approximately
$46,000 related to the sale of the Webquest securities.
11
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - ACQUISITIONS
- ---------------------
Home Seekers Magazines
On February 8, 2000, the Company completed the acquisition of Home Seekers
Magazines, Inc (HMI) for approximately $1,053,000 in cash. The Company also
incurred $26,000 of related professional fees. HMI is a non-public real estate
magazine publication company located in Idaho. The parties also executed a
Mutual Release of All Claims which terminates a complaint which had been filed
in the United States District Court for the Eastern District of Washington
against the Company by Home Seekers Magazines, Inc. that alleged violations of
claimed trademark rights in certain real estate markets in Washington and Idaho.
The acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair values as of the acquisition date. A preliminary
allocation of the purchase price resulted in approximately $1,858,000 of
goodwill, which is being amortized over 15 years and approximately $206,000 for
customer lists, which are being amortized over 36 months. The fair values of
assets acquired and liabilities assumed were approximately $2,268,000 and
$1,189,000, respectively.
Terradatum
On September 30, 1999, the Company acquired 100% of Terradatum, a developer,
marketer, and licensor of Internet based multiple listing service systems.
Consideration consisted of 640,000 shares of the Company's common stock valued
at approximately $7,960,000, liabilities of $1,500,000 and $200,000 in cash. The
Company also incurred $54,000 of related professional fees. The acquisition
agreement calls for additional cash consideration if the market price of the
Company's common stock is below certain levels prior to the first anniversary of
the closing date. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values as of the acquisition date. A
preliminary allocation of the purchase price resulted in approximately
$7,966,000 of goodwill, which is being amortized over 5 years. The fair values
of assets acquired and liabilities assumed were approximately $9,905,000 and
$191,000, respectively.
12
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
IMCO
On September 30, 1999, the Company completed its acquisition of IMCO, a provider
of electronic publishing and software development for the real estate listing
management industry. The purchase price consisted of 81,090 shares of the
Company's common stock valued at $2,000,000. The merger agreement provides for
additional consideration payable in the Company's common stock depending on the
closing prices of the Company's common stock on specified days preceding the
first and second anniversaries of the closing date. The sellers may also receive
additional common shares if they resell their shares below the initial average
closing price during established periods. The acquisition was accounted for
using the purchase method of accounting. A preliminary allocation of the
purchase price resulted in goodwill of $1,000,000, which is being amortized over
five years and approximately $918,000 of computer software, which is being
amortized over 3 years. The fair values of assets acquired and liabilities
assumed were approximately $2,221,000 and $221,000, respectively.
Pro Forma Information
The following unaudited pro forma information presents the results of operations
of the Company for the quarters and nine months ended March 31, 2000 and 1999 as
if the Terradatum, IMCO, Holloway Publications, Inc. and Home Seekers Magazines
acquisitions had taken place on July 1, 1999 (in thousands, except per share
data):
Quarter ended Nine Months ended
March 31, March 31,
2000 2000 1999
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Revenues $ 4,434 $ 9,320 $ 5,856
============ ========== =========
Net Loss $ (5,101) $ (13,105) $ (4,065)
============ ========== =========
Net Loss Per Common Share:
Basic and Diluted $ (.29) $ (.78) $ (.41)
============ ========== =========
These pro forma results of operations have been prepared for comparative
purposes only and may not be indicative of the results of operations had the
acquisitions occurred on the date indicated or of future results of operations
of the Company.
13
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - AGREEMENTS WITH BUYSELLBID.COM, INC. ("BuySellBid")
- -------------------------------------------------------------
On September 30, 1999, the Company signed an agreement with BuySellBid for the
Company to serve as the exclusive provider of residential real estate,
apartments for rent, resort, foreclosure and commercial listings and information
for the BuySellBid web sites and web and portal sites covering approximately 470
radio stations owned by Clear Channel Communications Inc. In addition, for a
period of 18 months BuySellBid will provide the Company banner advertising on
such web and portal sites. Total consideration paid by the Company consisted of
$1,000,000 in cash and 257,615 common shares valued at approximately $3,100,000.
The purchase price was allocated to intangible assets, which are being amortized
over periods from 18 months to 3 years.
On September 30, 1999, the Company also purchased 1,200,000 shares, representing
approximately 4%, of BuySellBid's common stock. The consideration paid by the
Company consisted of 250,000 shares of its common stock valued at $3,000,000.
On November 24, 1999, the Company signed an agreement with BuySellBid to provide
BuySellBid advertising on the channel bar of the Company's Realty 2000 desktop
productivity software and a graphic link on the HomeSeekers site for a period of
18 months. The Company received compensation consisting of 800,000 shares of
BuySellBid's common stock. The stock has been valued at $2.50 per share for a
total of $2 million. The advertising revenue is being deferred and recognized
over the 18 month term of the agreement.
NOTE 6 - LOAN TO RELATED PARTIES
- --------------------------------
On February 7, 2000, the Board of Directors approved making a loan to Douglas
Swanson, Vice Chairman, related to the exercise of options. On March 31, 2000,
the Company loaned Mr. Swanson approximately $320,000 for the payment of his
Federal Withholding, FICA and Medicare taxes related to the exercise of 100,000
shares of HomeSeekers.com, Incorporated options at $1.47. The loan is
collateralized with full recourse at an effective interest rate of 12% per annum
and has been reflected as a decrease to the stockholder's equity on the
accompanying balance sheets. The loan is due June 30, 2000.
14
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
On April 21, 2000, Terry Pullan a former employee of the Company who also
sold certain assets of a website development company to the Company in 1998,
filed a claim against the Company in Douglas County, Nevada District Court.
The claim relates to alleged breaches by the Company of Mr. Pullan's employment
agreement with the Company. The claim seeks the payment of certain compensation,
benefits and compensatory and punitive damages in excess of $1.2 million.
ISG/Formulator Acquisition
On April 3, 2000, the Company completed the acquisition of privately held ISG
Inc., an electronic forms and systems integration company operating under the
name of Formulator. The consideration was stock-for-stock.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenues for the quarter ended March 31, 2000 increased 282% to $4,312,000 from
$1,130,000 for the quarter ended March 31, 1999. Revenues for the nine months
ended March 31, 2000 increased 229% to $8,467,000 from $2,572,000 for the nine
months ended March 31, 1999. The increases of $3,182,000 and $5,895,000
respectively, are attributable to increased sales of web sites and web pages to
real estate agents as the Company significantly expanded its sales efforts,
revenues related to the inclusion of results of operations related to the
Holloway Publications, Inc., IMCO, Terradatum and Home Seekers Magazines
businesses, and increased prospect advertising revenues from the
HomeSeekers.com site.
Costs of revenues for the quarter ended March 31, 2000 increased 829% to
$1,189,000 from 128,000 for the quarter ended March 31, 1999 in support of the
higher sales levels. The gross profit percentage declined from 89% for the
quarter ended March 31, 1999 to 72% for the quarter ended March 31, 2000,
primarily due to the inclusion of results of operation attributable to the lower
margin services of the Holloway and Home Seekers Magazine Publication businesses
and the IMCO and Terradatum acquisitions, which have lower gross margin
percentages. Costs of revenues increased to $2,500,000 for the nine months ended
March 31, 2000 from $344,000 in the comparable period of the prior year, while
the gross profit percentage decreased from 87% in 1999 to 70% in 2000. The
changes result from the same items discussed for the quarter to quarter
comparison.
Operating expenses for the quarter ended March 31, 2000 increased 317% to
$8,326,000 from $1,995,000 for the quarter ended March 31, 1999. For the nine
months, operating expenses increased 299% from $4,775,000 in 1999 to $19,040,000
in 2000. The Company has increased its expenditures on sales and marketing
activities associated with the sale of web sites, web pages, the new
Internet-based Multiple Listing Service software and the recently launched
REInnovators program for real estate brokers. Brand marketing has been increased
through advertising, the BuySellBid agreement, and the distribution of free
Internet Marketing Kits to real estate professionals. In addition,
administrative costs are higher to support this increased activity and the
integration of the acquired companies.
Interest income increased to $53,000 for the quarter and to $238,000 for the
nine months ended March 31, 2000 through the investment of cash from the
Company's private placements of common stock.
The Company's net loss for the quarter ended March 31, 2000 increased 603% to
$5,101,000 from $726,000 for the quarter ended March 31, 1999. The Company's net
loss for the nine months ended March 31, 2000 increased 459% to $12,722,000 from
$2,276,000 for the nine months ended March 31, 1999 due to the dollar growth in
operating expenses outpacing the dollar revenue growth.
16
<PAGE>
Depreciation and amortization totaled $1,865,000 during the quarter ended March
31, 2000, which equaled $.11 per share.
Liquidity and Capital Resources
At March 31, 2000 the Company's cash balance was $6,327,000, a decrease of
$4,290,000 from June 30, 1999. The decrease results primarily from negative cash
flows from operations, acquisition of Home Seekers Magazines and the cash
portion of the payment to BuySellBid in connection with the transactions
described in Note 5, partially offset by proceeds from stock warrant and option
exercises and private placements. The Company currently anticipates that it will
require additional cash to fund its operations and investment plans during
fiscal 2000. In the past the Company has funded its cash flow deficit through
the issuance of equity securities and warrants to purchase equity securities.
The Company has experienced negative cash flows from operations since inception.
Operations have been funded primarily through cash provided by sales of equity
securities. The ability of the Company to meet its liquidity requirements is
predicated upon the Company's ability to access the public and private equity
markets at acceptable prices and rates. Additional financing may not be
available on terms acceptable to the Company, or at all. If the Company is
unable to raise sufficient capital to fund its future liquidity requirements
there would be a material adverse effect on its business, financial results and
results of operations.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Form 10-QSB regarding matters that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties, and actual results may differ
materially from those expressed or implied by such forward-looking statements.
All statements that address operating performance, liquidity issues, or events
or developments that management expects or anticipates to occur in the future,
including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. These 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. Some of these
17
<PAGE>
factors are adverse economic conditions, competitive pressures, inadequate
capital, changes in interest rates that adversely affect the real estate market,
changes in the market value of the Company's equity securities, levels of usage
of the Company's web sites and other products and services, the Company's
ability to access the public or private markets for equity securities,
availability of alternative financing sources, difficulties associated with
integrating the operations of acquired companies and businesses with the
Company's operations, unanticipated expenses, seasonal fluctuations and other
volatility in the Company's operating results, inability to carry out marketing
and sales plans and loss of key executives.
18
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings
On April 21, 2000, Terry Pullan a former employee of the Company who also sold
certain assets of a website development company to the Company in 1998, filed a
claim against the Company in Douglas County, Nevada District Court. The claim
relates to alleged breaches by the Company of Mr. Pullan's employment agreement
with the Company. The claim seeks the payment of certain compensation, benefits
and compensatory and punitive damages in excess of $1.2 million.
Item 2 Changes in Securities and Use of Proceeds
During the quarter ended March 31, 2000, the Company issued 400,883
shares of its common stock upon the exercise of outstanding warrants to purchase
common stock for an aggregate exercise price of $1,269,000. These shares of
common stock were issued to the warrantholders pursuant to the exemption from
the registration requirements of the Securities Act of 1933 (the "Securities
Act") provided by Section 4(2) thereof.
During the quarter ended March 31, 20000, the Company issued 321,845
shares of its common stock upon the exercise of outstanding options to purchase
common stock for an aggregate exercise price of $929,000. These shares of common
stock were issued to the optionholders pursuant to the exemptions from the
registration requirements of the Securities Act provided by Section 4(2) thereof
or Rule 701 thereunder.
On January 31, 2000 the Company issued 1,200 shares of its common stock
to BMC Communications (BMC) in exchange for consulting services. These shares of
common stock were issued to BMC pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof or Rule 506
of Regulation D thereunder.
On January 31, 2000 the Company issued 1,500 shares of its common stock
to The Trout Group LLC in exchange for consulting services. These shares of
common stock were issued pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof or Rule 506
of Regulation D thereunder.
On January 31, 2000, the Company issues 13,077 shares of its common
stock to extinguish liabilities of $200,000 related to the purchase of
intangible assets. These shares of common stock were issued to Terry Pullan
pursuant to the exemption from registration requirements of the Securities Act
provided by Section 4(2) thereof.
On February 28, 2000 the Company issued 1,702 shares of its common
stock to The Wall Street Investor Relations Corp. in exchange for consulting
services. These
19
<PAGE>
shares of common stock were issued pursuant to the exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof or Rule 506 of Regulation D thereunder.
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 2000.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized.
HomeSeekers.com, Incorporated
(Registrant)
/s/ Gregory L. Costley
- -----------------------------
Gregory L. Costley
Chairman of the Board
Chief Executive Officer
Secretary/Treasurer
Principal Financial Officer
Dated: May 15, 2000
21
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