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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number: 000-32335
HOM Corporation
(Exact name of small business issuer as specified in its charter)
Georgia 58-2558702
(State or other jurisdiction of (Employer
incorporation or organization) Identification No.)
4210 Columbia Road, Suite 10C, Martinez, Georgia 30907-0401
(Address of principal executive offices)
(706) 228-5087
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of February 3, 2002: 3,833,182 shares of common stock were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x ]
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
2001 2001
---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,759 $ 22,055
Accounts receivable 400 850
Trading securities 9,093 612
---------- ----------
Total current assets 19,252 23,517
PROPERTY AND EQUIPMENT - NET 23,815 27,691
OTHER ASSETS 2,095 3,327
---------- ----------
$ 45,162 $ 54,535
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 43,474 $ 43,457
Accounts payable to related parties 99,881 86,780
Accrued wages 58,131 38,880
Deferred revenues 3,481 4,530
Short-term notes payable 21,201 21,425
Shareholder advances 108,657 54,000
---------- ----------
Total current liabilities 334,825 249,072
---------- ----------
STOCKHOLDERS' DEFICIT
Paid in capital - 1,000,000 preferred shares authorized; 0 shares
issued and outstanding - -
Paid in capital - no par common - 50,000,000 shares authorized;
issued and outstanding 3,508,667 shares at December 31, 2001
and September 30, 2001 687,524 687,524
Accumulated deficit (977,187) (882,061)
---------- ----------
(289,663) (194,537)
---------- ----------
$ 45,162 $ 54,535
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
2
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED DECEMBER 31,
------------------------------
2001 2000
------------ ------------
(UNAUDITED) (UNAUDITED)
REVENUES $ 18,197 $ 16,597
------------ ------------
OPERATING EXPENSES
Salaries, commissions and benefits 32,633 21,720
Professional fees 19,329 632
Office expense 5,519 6,537
Travel 5,353 6,043
Rent 4,118 7,742
Magazine printing 3,952 2,681
Depreciation 3,876 3,890
Closing costs 2,873 -
Utilities and telephone 2,542 7,289
Advertising 1,395 4,191
Website maintenance - 4,800
Other 3,016 3,208
------------ ------------
84,606 68,733
------------ ------------
Operating loss (66,409) (52,136)
------------ ------------
OTHER INCOME (EXPENSE)
Unsuccessful business combination costs (27,104) -
Interest (2,198) (642)
Realized gains on trading securities 379 -
Unrealized gains on trading securities 206 -
------------ ------------
(28,717) (642)
------------ ------------
Loss before income taxes (95,126) (52,778)
PROVISION FOR INCOME TAXES - -
------------ ------------
Net loss $ (95,126) $ (52,778)
============ ============
PER SHARE INFORMATION:
Basic net loss per common share $ (0.03) $ (0.02)
============ ============
Weighted average shares outstanding 3,508,667 3,017,001
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK TOTAL
------------------------- STOCKHOLDERS'
PAID IN ACCUMULATED EQUITY
SHARES CAPITAL DEFICIT (DEFICIT)
---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2000 2,901,667 $ 535,774 $(535,662) $ 112
Common stock issued as settlement for accounts
payable related to professional services received 63,000 15,750 - 15,750
Common stock issued for cash 368,000 92,000 - 92,000
Common stock issued as repayment for
cash advances 176,000 44,000 - 44,000
Net loss - - (346,399) (346,399)
---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2001 3,508,667 687,524 (882,061) (194,537)
Net loss (unaudited) - - (95,126) (95,126)
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 2001
(UNAUDITED) 3,508,667 $ 687,524 $(977,187) $(289,663)
========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
4
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED DECEMBER 31,
------------------------
2001 2000
--------- ---------
UNAUDITED UNAUDITED
OPERATING ACTIVITIES
Net loss $(95,126) $(52,778)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 3,876 3,890
Realized and unrealized gains from trading securities (585) -
Changes in deferred and accrued amounts:
Accounts receivable 450 1,026
Prepaid expenses - 25,250
Other assets 1,232 -
Accounts payable and accrued expenses 17 1,245
Accounts payable to related parties 13,101 -
Accrued wages 19,251 -
Deferred revenues (1,049) (4,092)
--------- ---------
Net cash used in operating activities (58,833) (25,459)
--------- ---------
INVESTING ACTIVITIES
Purchase of trading securities (31,433) -
Proceeds from sale of trading securities 58,194 -
--------- ---------
Net cash provided by investing activities 26,761 -
--------- ---------
FINANCING ACTIVITIES
Proceeds, net of repayments, from short-term notes payable
and stockholder advances 19,776 1,801
Proceeds from the sale of common stock - 30,000
--------- ---------
Net cash provided by financing activities 19,776 31,801
--------- ---------
Net increase (decrease) in cash (12,296) 6,342
CASH, BEGINNING OF PERIOD 22,055 689
--------- ---------
CASH, END OF PERIOD $ 9,759 $ 7,031
========= =========
(Continued)
5
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------
2001 2000
--------- ---------
UNAUDITED UNAUDITED
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for interest $ 353 $ 465
========= ========
Noncash financing activities
Trading securities received as advances from stockholders $ 34,657 $ -
========= ========
Common stock issued as settlement for accounts
payable related to professional services received $ - $15,750
========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
6
HOM CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements of HOM
CORPORATION AND SUBSIDIARIES (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The Company's
management believes that all adjustments considered necessary for a fair
presentation have been included in the consolidated financial statements.
Operating results for the three months ended December 31, 2001, are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto for the fiscal year ended September
30, 2001, included in the Company's registration statement on Form 10-SB/A-3 and
Form 10-KSB, both of which were filed on January 15, 2002 with the Securities
and Exchange Commission.
Certain reclassifications have been made to the financial information of
previous periods to conform to the presentation of the financial statements as
of and for the three months ended December 31, 2001.
NOTE B - TRADING SECURITIES
---------------------------
Management has classified all financial instruments, which are equity
securities, as trading securities. Realized gains and losses resulting from the
sale of securities are reported in current earnings based on proceeds received
from the sale and the actual cost of the securities sold. Unrealized gains and
losses on the securities are reported in current earnings based on the estimated
fair values as reported on public exchanges. The fair values of the Company's
financial instruments reported in the financial statements approximate their
carrying values.
NOTE C - ACCOUNTS PAYABLE TO RELATED PARTIES
--------------------------------------------
The Company receives substantially all of its legal counsel from a firm
related through common ownership (aggregate ownership by the firm and one of its
partners of approximately 9.5% of the Company's outstanding stock at December
31, 2001). Amounts payable to this firm for services rendered totaled $99,881 at
December 31, 2001 and $86,780 at September 30, 2001.
NOTE D - UNSUCCESSFUL BUSINESS COMBINATION COSTS
------------------------------------------------
During 2001, the Company entered into negotiations for a business
combination with Connectivity, Inc. and Econo-Comm, Inc., two closely-held
Florida corporations. In conjunction with the negotiations, the Company
contracted with various professionals to perform due diligence, to audit the
financial statements of Connectivity, Inc. and to draft the various contracts
for the proposed business combination(s). The Company was unsuccessful in
reaching an agreement on the terms of the business combination(s) and believes
the proposed business combination(s) will not be consummated. The unsuccessful
business combination costs incurred for the three months ended December 31, 2001
were $27,104 and are reported as other expense in the statement of operations.
(Continued)
7
NOTE D - UNSUCCESSFUL BUSINESS COMBINATION COSTS, CONTINUED
-----------------------------------------------------------
The total costs incurred on the unsuccessful business combination(s)
through December 31, 2001 are as follows:
Legal fees $ 45,508
Accounting fees 16,043
Other professional fees 18,000
Other 4,700
--------------
$ 84,251
==============
Management does not anticipate additional costs will be incurred with
respect to the unsuccessful business combination(s) with Connectivity, Inc. and
Econo-Comm, Inc.
NOTE E - SEGMENT INFORMATION
----------------------------
The Company provided services through two industry segments during the
three months ended December 31, 2001 and 2000. The Company's advertising segment
provides advertising services for For Sale By Owner (FSBO) real estate and for
businesses. The Company's mortgage segment provides mortgage services to
individuals and small business as a mortgage broker. The basis for identifying
and measuring the results of the segment activities is consistent within the
periods presented and is consistent with the basis used in the audited financial
statements for the year ended September 30, 2001 and 2000, included in the
Company's registration statement on Form 10-SB/A-3 and Form 10-KSB.
The accompanying financial statements include the following business
segment information:
FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------------------
2001 2000
--------------- ---------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Mortgage $ 6,752 $ 7,241
Advertising 11,445 9,356
--------------- ---------------
$ 18,197 $ 16,597
=============== ===============
OPERATING LOSS:
Mortgage $ 25,452 $ 19,639
Advertising 40,957 32,497
--------------- ---------------
$ 66,409 $ 52,136
=============== ===============
DEPRECIATION:
Mortgage $ 523 $ 540
Advertising 3,353 3,350
--------------- ---------------
$ 3,876 $ 3,890
=============== ===============
(Continued)
8
NOTE E - SEGMENT INFORMATION, CONTINUED
---------------------------------------
FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------------------
2001 2000
--------------- ---------------
(UNAUDITED) (UNAUDITED)
PURCHASE OF PROPERTY AND EQUIPMENT:
Mortgage $ - $ -
Advertising - -
--------------- ---------------
$ - $ -
=============== ===============
PROPERTY AND EQUIPMENT - NET:
Mortgage $ 7,452 $ 9,918
Advertising 16,363 32,193
--------------- ---------------
$ 23,815 $ 42,111
=============== ===============
NOTE F - SUBSEQUENT EVENTS
--------------------------
Subsequent to December 31, 2001, the Company issued Common shares as
payment for advances from certain shareholders, including interest accrued
thereon. Total shares issued and the fair value exchanged (advances paid plus
interest) are summarized as follows:
FAIR
SHARES VALUE
------------- ------------
Shareholder advances 308,291 $ 77,073
Accrued interest on shareholder advances 12,224 3,056
------------- ------------
320,515 $ 80,129
============= ============
In addition, the Company agreed to settle $39,069 of the accrued
compensation payable to the Company's chairman and chief executive officer of
$54,000, as of December 31, 2001, in exchange for 156,276 Common shares. The
156,276 Common shares are to be issued on or before June 30, 2002, and the
balance payable of $14,931 will be settled with cash.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Form 10-QSB.
Reference is also made to other filings by the Company with the Securities and
Exchange Commission, financial statements therein and management's discussion
and analysis related to such financial statements, particularly the financial
statements and management's discussion and analysis contained in the Company's
Form 10-KSB with filing date of January 15, 2002.
The Company's financial position is not good. It has never earned a
profit, has incurred an accumulated deficit of $977,187 as of December 31, 2001
and has limited access to material additional capital. Revenues of the magazine,
FOR SALE BY OWNER AND BUILDER, will need to improve substantially and/or the
number of mortgage closings will need to increase substantially for the Company
to survive in its present form. If the Company is unable to do this, it will not
be able to continue as a going concern without materially changing its business
in a way to produce positive operating cash flow. The Company currently has no
arrangements for any such change. The Company has reduced its annual expenses an
estimated $50,000 a year since December 2000, (i) by moving to smaller and less
expensive premises and (ii) by replacing the employee who handled the production
of FOR SALE BY OWNER AND BUILDER through the performance of his functions by
other Company personnel. These expense reductions, however, do not eliminate the
Company's current operating deficits. Although there has been a recent increase
in customer interest in mortgage financings, believed to be a result of
declining interest rates, and the Company has closed 8 financings this year
through February 11, 2002, a material increase over any full quarter in fiscal
2001; there can be no assurance that the Company can survive with its present
operations. The Company, therefore, is seeking a merger or other business
combination or strategic alliance with a stronger partner that would be
attracted by the business potential and/or the business structure of the
Company, including its situation as an entity whose common stock has been
registered under Section 12(g) of the Securities Exchange Act of 1934. In this
regard, negotiations with Robert S. Sauls and his company, Factory Built Homes,
Inc. ("Factory"), to acquire Factory, which the Company believes would put HOM
in a position to obtain additional financing, have been suspended indefinitely,
in view of financing uncertainties, although the Company hopes ultimately to
acquire Factory if the financing uncertainties can be resolved. There is no
merger, other business combination or strategic alliance as to which the Company
has any commitments or agreements, although discussions continue to be held with
various persons in an attempt to develop business opportunities for the Company.
LIQUIDITY
The Company currently and throughout its existence has lacked liquidity
as a result of its lack of initial financing and its continuing operating
losses. It has maintained its ability to pay expenses through the sale of its
common stock from time to time, principally to its directors, who have made
multiple investments. It is anticipated that the Company will remain dependent
on such funding, as to which there is no assurance that it will continue, until
it is able to arrange a financing of the Company or it is able to arrange a
merger, joint venture or other strategic alliance with a financially sound
entity, as to which there is no assurance.
CAPITAL EXPENDITURES
The Company has no material commitments for capital expenditures and
has no need, in its present operations, to make material capital expenditures.
RESULTS OF OPERATIONS
o Quarter ended December 31, 2001 compared with Quarter ended
December 31, 2000.
Revenue increased $1,600 from $16,597 TO $18,197, or 9.6%, as a result
of an increase in advertising revenue partially offset by a decline in mortgage
revenues.
10
The operating loss increased $14,273 from $52,136 to $66,409, or 27.4%,
principally as a result of (1) an increase in professional fees of $18,697 from
$632 to $19,329, or 2,958%, principally as a result of accounting and legal
services relating to the preparation of audited financial statements for the
year ended September 30, 2001 and the preparation of filings with the Securities
and Exchange Commission (which services were not required in the previous
period) and an increase in other legal services; (2) an increase in salaries,
commissions and benefits of $10,913, or 22%, from $21,720 to $32,633, as a
result of the salary of the Chairman and Chief Executive Officer of $18,000
during the period, which salary did not exist in the prior period, partially
offset by a reduction in compensation to others; (3) $2,873 in closing costs
(which were not incurred in the prior period), and (4) an increase in magazine
printing cost of $1,271, or 49%, from $2,681 to $3,952, which increases were
partially offset by the elimination of web maintenance costs, which were $4,800
in the prior period, a reduction in rent of $3,624, or 47%, from $7,742 to
$4,118 and lesser reductions in advertising, office expense, travel, other and
depreciation, together with the increase in revenue of $1,600 noted above.
OTHER INCOME (EXPENSE)
The net other expense for the Quarter ended December 31, 2001 was
$28,717, as compared with $642 for the Quarter ended December 31, 2000,
substantially all of such $28,075 increase resulting from unsuccessful business
combination costs of $27,104, which costs did not exist in the previous quarter.
Interest expense increased from $642 to $2,198, partially offset by realized and
unrealized gains on trading of $585, which did not exist in the earlier period.
It is contemplated that there will be no material unsuccessful business
combination expenses or gains or losses on trading in the current quarter, and
interest expenses will not materially increase.
NET OPERATING LOSS CARRYFORWARDS FOR TAX PURPOSES
The Company has net operating loss carryforwards as at September 30,
2001 totaling $894,324 that may be offset against future taxable income until
2018, 2019, 2020 and 2021. In view of the losses sustained in the three months
ended December 31, 2001, the net operating loss carryforwards will have
increased as of that date. This amount, net of tax (assuming an estimated net
federal and state tax rate of 29.5%), together with $7,979 relating to
intangible assets and $11,470 relating to accrued wages resulting from
differences in reporting for income tax and financial statement purposes, or a
total of $260,335 as of September 30, 2001, are assets of the Company that may
be used against future income tax. For financial statement purposes, a valuation
allowance of $259,426, or 100%, has been taken against net deferred taxes as of
September 30, 2001. A larger equivalent valuation will be taken against the
larger amount of such assets as of December 31, 2001. There can be no assurance
that these deferred tax assets can ever be used. A deferred tax asset can be
used only if there is future taxable income, as to which there can be no
assurance in the case of the Company. The deferred tax asset, therefore, is not
reflected as an asset of any value in HOM's Consolidated Balance Sheet as of
December 31, 2001 but it nevertheless is a valuable asset that can be utilized
if the Company becomes profitable.
ACCOUNTING AND REPORTING CHANGES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 addresses accounting and reporting for all business
combinations and defines the purchase method as the only acceptable method. The
statement is effective for all business combinations initiated after June 30,
2001. The Company plans to account for business combinations in accordance with
SFAS No. 141.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses how goodwill and other intangible
assets should be accounted for at their acquisition (except for those acquired
in a business combination) and after they have been initially recognized in the
financial statements. The statement is effective for all fiscal years beginning
after December 15, 2001. The Company believes the effect of SFAS No. 142 will
not have a material impact on the financial position of the Company.
11
In August 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes prior
pronouncements associated with impairment or disposal of long-lived assets and
establishes methodologies for assessing impairment of long-lived assets,
including assets to be disposed of by sale or other means. The statement is
effective for all fiscal years beginning after December 15, 2001. The Company
believes that the adoption of SFAS No. 144 will not have a material impact on
the Company's financial statements.
Other accounting standards that have been issued or proposed by the
FASB that do not require adoption until a future date are not expected to have a
material impact on the consolidated financial statements upon adoption.
OTHER
Certain items discussed in this quarterly report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements speak only as of the
date of this quarterly report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
PART II -- OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
NA
ITEM 2. CHANGES IN SECURITIES
NA
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NA
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NA
ITEM 5. OTHER INFORMATION
NA
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30,
2001.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HOM CORPORATION
Date: February 13, 2002 By: /s/ Robert S. Wilson
----- ----------------- --------------------------
Robert S. Wilson, Chairman and
Chief Executive Officer
13