UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2002
Commission file number 0-32335
HOM Corporation
(Name of small business issuer in its charter)
Georgia 58-2558702
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4210 Columbia Road, Suite 10-C
Martinez, Georgia 30907-0401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (706) 228-5087
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
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. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
$166,054
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
On January 6, 2003, shares of common stock of the issuer, its only common
equity, were sold at $.25 a share. Based on such price, the aggregate market
value of the common stock of the issuer as of January 10, 2003, excluding
5,405,667 shares held by affiliates, or 3,412,984 shares, was $853,246.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
As of January 9, 2003, there were 8,818,651 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
CORPORATE STRUCTURE
HOM Corporation ("HOM"), a Georgia corporation incorporated May 4,
2000, is a holding company. HOM has had two operating wholly-owned subsidiaries,
Homes By Owners, Inc. ("Homes"), a Georgia corporation incorporated December 6,
1999, and Direct Lending, Inc. ("Direct"), a Georgia corporation incorporated
January 9, 1997 and formerly named Southern States Lenders, Inc. Homes publishes
and distributes a monthly magazine, FOR SALE BY OWNER AND BUILDER, known prior
to the January 2002 issue as HOMES BY OWNERS, listing residential properties in
the Augusta, Georgia/Aiken, South Carolina metropolitan area for sale by their
owners and containing advertisements, most, but not all, of which relate to the
real estate business. These listings are also carried on Homes' website,
WWW.HOMESBYOWNERS.NET. Direct is a licensed mortgage broker that worked with
various financial institutions and underwriters prior to the sale of
substantially all its business assets, including the name Direct Lending, Inc.,
on November 25, 2002. SEE FORMER BUSINESS OF DIRECT LENDING, INC. HOM, Homes and
Direct are collectively referred to as the "Company."
SUMMARY OF CURRENT SITUATION AND PARTICULAR DEVELOPMENTS
The Company is not currently profitable. As a result the management of
the Company sought acquisitions, joint ventures and business arrangements that
would include profitable operations, attractive business activities that would
enable HOM to raise additional funds and cost sharing ventures.
In implementation of this search, on December 12, 2002 HOM sold
4,647,626 shares of its common stock to MA&N LLC ("MA&N"), a Nevada limited
liability company, which represented 51% of the 9,112,992 shares of HOM common
stock issued or issuable as of that date. The consideration for this sale was
(a) the provision of ISP wireless service from not less than 5 nodes, (b)
consultation by MA&N for at least two years on financial and management matters,
(c) arranging for personnel to manage the Company, (d) causing the Company to
proceed with the business plan being developed by MA&N to acquire additional
business operations in the ISP wireless business and (e) funding accounting and
legal costs of specified filings with the U. S. Securities and Exchange
Commission, including this Form 10-KSB (which will include currently outstanding
accounting fees, estimated to be in the range of $75,000-$100,000). See Item 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - PARTICULAR TRANSACTIONS --
PERIOD FROM OCTOBER 1, 2002 TO JANUARY 9, 2003 and PROPOSED WI-FI SERVICE. The
continuation of the Company is dependant upon the success of such Wi-Fi service.
As a result of the change of control, the Company titled a Form 8-K
describing the change of control with the U. S. Securities and Exchange
Commission (filing date: December 27, 2002). The Company is required to
supplement that filing by amendment to be filed no later than February 25, 2003,
which will set forth pro forma financial statements showing the effect of the
assets acquired in connection with the change of control on the financial
statements of the Company.
The Company has included a statement in its financial statements
included herein to the effect that the Company's ability to continue as a going
concern is dependent upon its ability to raise sufficient capital to implement
its business plan and to generate profits sufficient to become financially
viable. See NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. In rendering its report on the
Company's financial statements as of September 30, 2001 and for the year then
ended. Elliott Davis L.L.C., the auditors of the Company's financial statements,
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referred to the statement of the Company as to the uncertainty of the ability of
the Company to continue as a going concern and stated that "[t]he financial
statements do not include any adjustments that might result from the outcome of
this uncertainty." Subsequent to September 30, 2002, because of the acquisition
of a controlling interest by MA&N, the Company and its auditors were able to
conclude that over the year ending September 30, 2003, MA&N will have the
ability to fund the contemplated operations of the Company and will make the
necessary funding available. As a result, Elliott Davis L.L.C. has not included
a reference to the going concern statement in the financial statements of the
Company as of September 30, 2002 and for the year then ended.
Apart from the proposed Wi-Fi service, the only business conducted by
the Company is through Home's monthly magazine, FOR SALE BY OWNER AND BUILDER,
and its related website. This business has not been profitable, although the
Company believes that current reductions in personnel and office space will
allow it to make a nominal profit from the magazine exclusive of any allocated
management costs.
CORPORATE DEVELOPMENT
Direct was acquired by Apple Homes Corporation ("Apple") on October 1,
1998. Thereafter Apple determined that it was not appropriate to continue to
engage in the mortgage business of Direct. The shareholders of Apple of record
March 1, 1999 received one share of Direct common stock for each 10 shares of
common stock of Apple that they then held, fractional shares being rounded up to
the next full share. Additional common stock of Direct was sold to private
investors. In late 1999, Direct determined that it would be desirable to use a
separate entity for the real estate for sale by owner business (or "FSBO"
business, as referred to in the industry) it wished to enter. Homes was
established for this purpose.
As interest rates rose in 2000 and the mortgage business of Direct (and
other mortgage businesses in the Augusta area) declined, the Company determined
that it would be preferable to reorganize so that the investor-owned company
would be Homes, rather than Direct. To facilitate this switch, Homes
incorporated a subsidiary, Augusta Lenders, Inc. ("Augusta") into which Direct
could merge. Subsequently it was decided that it would be preferable to
reorganize so that the investor owned company would be a holding company instead
of one of the operating companies.
To attain this structure, the Chairman of Direct and Homes, Robert S.
Wilson, organized HOM with a minimal initial investment. Homes transferred all
the outstanding stock of Augusta to HOM, and HOM contributed 2,632,776 shares of
its common stock, the same number of shares of its common stock as the number of
then outstanding shares of Direct common stock, to Augusta. Direct and Augusta
merged effective July 5, 2000. Pursuant to Georgia law, the shareholders of
Direct became shareholders of HOM, and Direct became a wholly owned subsidiary
of HOM. Direct then transferred all the outstanding common stock of Homes to
HOM. The result was an investor-owned HOM with two wholly-owned subsidiaries,
Homes and Direct. This business combination and the changes to the
organizational structure, in effect an internal reorganization, did not affect
the proportional interests of the shareholders or the businesses and operations
in which they were investing or their rights in the business, since HOM and
Direct are Georgia corporations with the same powers and rights of shareholders.
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On December 12, 2002, MA&N acquired control of the Company through
purchase of a majority interest in HOM and causing the majority of the directors
of HOM to be persons associated with MA&N.
PROPOSED WI-FI BUSINESS ACTIVITIES
The company is taking preparatory steps to enter the wireless fidelity,
more commonly known as Wi-Fi, business. Wi-Fi allows personal computers and
other hand held devices to connect to the Internet without wires at high speeds
comparable to DSL and Cable access, so that the Internet becomes easier to
connect to and more accessible to Internet users. Wi-Fi antennas act as wireless
Internet-access transmitters and receivers. Wi-Fi Internet Access is becoming an
increasingly popular method of accessing the web.
Users of the Wi-Fi network operate on a set of unlicensed radio
frequencies set aside by the government for everyone who follows a simple set of
design rules, formally known as 802.11 technology, operating at up to 11 million
bits per second. While Wi-Fi does not offer the same amount of mobility as a
cell phone (e.g. a moving car), it is far less expensive than the multi-billion
dollar mobile 3G high-speed wireless networks currently being rolled out by the
wireless phone companies.
The Company is arranging to build wireless sites, commonly known as
nodes, in the Borough of Manhattan in New York City. It is also seeking to make
acquisitions and form strategic alliances within the Wi-Fi industry. While the
Company believes that by rapidly establishing a Wi-Fi network, it will gain a
niche in the Wi-Fi business to exploit itself or to sell to others, the Company
understands that the Wi-Fi business has yet to be shown to be profitable.
Revenue can be produced by a Wi-Fi business through the provision of an
advertising medium, through fees for use of the Wi-Fi network, or both. Fee
charging Wi-Fi networks justify their cost through enhanced service and
security. The Company has not yet determined which revenue sources it will seek
for its Wi-Fi business. A potential problem for Wi-Fi providers arises from the
lack of control over Wi-Fi customers. Theoretically, after a small investment in
equipment, all the users in the same house or even neighborhood could use a
single stationary internal connection, while paying for a single back-up.
COMPETITIVE SITUATION OF THE WI-FI BUSINESS
Competition in the Wi-Fi business seems to be intense, although
statistics seem scarce in this developing industry. T-Mobile USA is reported to
have installed nodes in over 2,000 Starbucks Cafes and to be spending
$100,000,000 to build its own nationwide network. On December 5, 2002, AT&T,
Intel and IBM announced the establishment of Cometa Networks with a goal of
bundling thousands of Wi-Fi connections, such as these planned by the Company,
into one nationwide network. Existing phone and cable companies are entering the
Wi-Fi industry. These entities have resources vastly superior to those of the
Company.
BUSINESS OF HOMES BY OWNERS, INC.
FOR SALE BY OWNER AND BUILDER, Homes' monthly magazine, currently
contains 24 pages. It has listings of residential properties for sale in the
Augusta, Georgia and Aiken, South Carolina metropolitan area, and
advertisements, most, but not all, of which relate to the real estate business.
The residential listings usually take a horizontal quarter page and feature a
color photograph of the house. The advertisements are of local realtors, service
companies and providers and merchants, and have represented an increasing
proportion of the revenue of FOR SALE BY OWNER AND BUILDER magazine.
Basic rates for a standard quarter page residential listing are $199 to
present a color photograph and text for one month and $499 to present a color
photograph and text for four months plus internet listing. In each case a
durable sign with the legend "Homes By Owners" and a telephone number, usually
of the homeowner but, at his option, of Homes, is available to the listing home
owner for a fee of $30, refundable upon return of the sign. Most residential
listings are for four months in color. Commercial rates commence at $75 for
including a business card and $150 for a quarter page in one issue to $1,125 for
a full page in three issues. Homes has entered into an understanding with
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Business Marketing and Consulting, Inc. ("Business Marketing") to share in the
expenses of FOR SALE BY OWNER AND BUILDER. There is no written agreement in this
regard. Business Marketing made an initial payment of $1,000 in June 2001 and
further payments of $1,500 each in July 2001 through December 2002 other than
for November 2001, in which month the ads procured by Business Marketing were
not run. These monthly payments are approximately one-third the direct cost of
producing, printing and distributing an issue of FOR SALE BY OWNER AND BUILDER.
In consideration of the monthly payment of $1,500, Business Marketing is
entitled to solicit advertisements to be published in FOR SALE BY OWNER AND
BUILDER, the proceeds of which are retained by Business Marketing. Business
Marketing has been submitting two full pages, one half page and two business
cards of advertisements, the standard rates for which aggregate $1,300, which
have been published in FOR SALE BY OWNER AND BUILDER in each issue from July
2001 through January 2002, other than November 2001. The Company has imposed no
limit on the number of pages in FOR SALE BY OWNER AND BUILDER that Business
Marketing can use but would negotiate with Business Marketing as to the
arrangements for publication of advertisements procured by Business Marketing if
the standard rates for the pages published should materially exceed the payments
received from Business Marketing.
Homes' revenues for the last three fiscal years may be allocated
between residential property owners listing their homes for sale and other
advertisers as follows:
FISCAL YEAR ENDED RESIDENTIAL PROPERTY OWNERS OTHER ADVERTISING
----------------- --------------------------- -----------------
September 30, 2002 $17,033 $34,423
September 30, 2001 $14,628 $33,521
September 30, 2000 $12,704 $13,460
FOR SALE BY OWNER AND BUILDER is distributed throughout the
Augusta/Aiken metropolitan area in racks provided by Homes. Distribution sites
include supermarkets, drug stores, convenience stores, banks and commercial
establishments, and a modest fee is paid to some high traffic locations, such as
supermarkets. FOR SALE BY OWNER AND BUILDER is replaced with a new issue on a
monthly basis. Currently approximately 18,000 copies of an issue of FOR SALE BY
OWNER AND BUILDER are printed for distribution and distributed monthly to
approximately 280 locations.
Homes has established a website, WWW.HOMESBYOWNERS.NET, with
information concerning Homes and its services, support services such as a
calculator to help buyer determine what they can afford and color pictures and
summary information about the listings. While most internet residential property
presentations are in conjunction with a three month color listing in FOR SALE BY
OWNER AND BUILDER, a listing can be placed on the website only for $50. A
website listing will remain until the house is sold or the listing person
directs that it be removed, subject to the right of Homes to remove stale
listings.
In July 2001, Homes joined the FSBO Network. FSBO Network, through its
website, WWW.FSBONETWORK.COM, presents listings of FSBO's throughout the United
States. Previously Homes was a part of FSBO online and the National For Sale By
Owners Network, but ceased being a member of either in November 2001 since these
services are duplicative of FSBO Network. If one seeks home sale information for
Augusta, Georgia or Aiken, South Carolina, one finds a listing for Homes and can
then link to the Homes website with all its listings. In each case, the
identification of Homes and its website form the only presentation for Augusta,
Georgia or Aiken, South Carolina. Through these networks, Homes has attained
national coverage. Homes pays $175 on a monthly basis for its listing. Homes has
no individualized contract or arrangement in connection with the FSBO Network
website.
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COMPETITIVE SITUATION OF HOMES BY OWNERS, INC.
Currently there is no FSBO magazine in the Augusta/Aiken metropolitan
area other than FOR SALE BY OWNER AND BUILDER, although there is a magazine,
PHOTO BUYS, that contains photographs of any product for sale, including homes,
on one-eighth pages. Automobiles are the predominant product appearing in PHOTO
BUYS. The homes appear in black and white with brief descriptions at a cost of
$35 for four weeks, $75 until the product sells and $25 more to be put on the
Internet.
Homes must attract more listings and other advertising if FOR SALE BY
OWNER AND BUILDER is to become profitable. See MANAGEMENT'S DISCUSSION AND
ANALYSIS. The Company has examples of FSBO magazines from other areas that seem
to indicate that an area the size of the Augusta/Aiken metropolitan area can
support a successful FSBO magazine. However, management believes that the
maximum profit FOR SALE BY OWNER AND BUILDER can generate in the August/Aiken
metropolitan area, even if successful, is limited. The Company has determined
that it will not currently expand the operations of Homes sufficiently to
generate a substantial profit from these operations or attempt to expand outside
the Augusta/Aiken metropolitan area through franchises or joint ventures. As a
result, it is considering a sale of the magazine or, preferably, a joint venture
that would involve the funding of FOR SALE BY OWNER AND BUILDER until its
operation becomes profitable. Although the Company has been in discussions with
various persons concerning a sale or joint venturing of FOR SALE BY OWNER AND
BUILDER and its related website, and its current arrangement with Business
Marketing provides funding for approximately one-third the direct expenses of
producing FOR SALE BY OWNER AND BUILDER magazine, there are no commitments or
agreements for any such sale or joint venture.
Although the FSBO approach is competitive with realtor brokerage in the
sale of residential properties, it also can be complementary. The Company, based
on the observations of its personnel, believes that a substantial portion of
residential properties that it has listed for sale by owner, are not actually
sold by their owners. If a sale is still needed, the intervention of a broker is
sought. Thus FSBO residential listings ultimately can prove to be leads for real
estate brokers.
The Company has contemplated establishing or acquiring a realtor to
gain the full benefits of the synergy with a realtor. The Company has had
discussions with individuals with a view to establishing its own realty company
and with existing realty companies with a view to an acquisition or merger. None
of these discussions has led to an appropriate agreement. The Company believes
that, in fact, there is a natural affinity between realtors and FSBO magazines.
It believes a realty operation can otherwise benefit from access to the product
stream generated by a FSBO magazine operation. For example, a realtor has the
opportunity to identify distressed sale situations that can be acquired by the
realtor at favorable prices.
SALE OF THE ASSETS AND BUSINESS OF DIRECT
Direct has never been profitable. During Fiscal 2002, the Company
believed the sharp decline in interest rates and the resulting increase in the
mortgage business both because of the greater affordability of residential
housing through reduced monthly mortgage payments and the advantage of
refinancing mortgage, would enhance Direct's business. As a result it
substantially increased its personnel, taking additional space and otherwise
incurring additional costs. Although, as noted below, the number of mortgage
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closings and the resulting revenue substantially increased, so did expenses. In
addition, management determined that it lacked the management resources to
effectively promote and control the mortgage business. As a result, in October
2002 it was decided to dispose of the mortgage business, which was accomplished
on November 25, 2002 by the sale to Stuckey Enterprises, Inc., an unaffiliated
entity, of substantially all the assets of Direct (other than its corporate
records, but including the name, Direct Lending). Stuckey paid $5,000 down and
agreed to pay $484 per month for three years, a total of $20,000. HOM assumed
the past liabilities of Direct. Mortgage transactions originating prior to
October 25, 2002 were for the account of the Company and subsequent transactions
were for the account of Stuckey. Stuckey assumed responsibility for the
employees and premise and equipment costs from October 25, 2002, thus relieving
the Company of these expenses.
FORMER BUSINESS OF DIRECT LENDING, INC.
Direct was a mortgage company. It located sources of capital willing to
grant home mortgage loans to customers of Direct. Direct acted as a broker and
was paid a fee upon the closing of a loan to a customer. These payments resulted
from origination fees and yield spread income and totaled approximately $2,000
in the case of most of the loans closed by Direct, payable when, and only when,
the loan closed.
Sources of capital that provided home mortgage loans to customers of
Direct included finance companies, banks and wholesale lenders. When a lending
institution indicated an interest in providing a loan to a Direct customer,
Direct provided the appropriate documents and supervised their completion and
the various steps needed to complete the loan. Direct attended the closing of
the loan. Direct provided value by facilitating the entire loan process.
The mortgage business in the Augusta/Aiken metropolitan area was
adversely affected during much of 1999 and 2000 by rising mortgage rates. Rising
interest rates particularly affect the refinancing of mortgage loans.
Refinancings occur when interest rates drop, so that home owners can save money
through changing to mortgages with interest rates lower than those of the
mortgage to which their property is subject. Mortgage interest rates declined in
late 2000 and in 2001 and remained low in 2002. With the decline in rates,
Direct experienced substantially increased inquiries concerning mortgage
financing. Direct closed mortgage loans as follows:
NUMBER OF MORTGAGE
PERIOD LOANS CLOSED
------ ------------
January 1, 1999-September 30, 1999* 9
October 1, 1999-September 30, 2000 14
October 1, 2000- September 30, 2001 7
October 1, 2001 - September 30, 2002 52
---------------
* PRIOR RECORDS UNAVAILABLE
GOVERNMENT REGULATION OF DIRECT
As a mortgage broker, Direct is required to be licensed. It is licensed
in Georgia. Although it retains that license, it does not believe the license
has material value in view of the cessation of the mortgage business.
COMPANY EMPLOYEES AND OTHER WORKERS
The Company has no employees, and uses independent contractors for
various services when needed. Robert S. Wilson, HOM's former Chairman and Chief
Executive Officer, and now a director, is currently acting for the Company,
particularly for Homes, without receiving compensation other than from the
operations of Homes, which will be up to $1,000 a month to the extent the
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revenue of Homes By Owners exceeds its direct operating costs. Mr. Wilson has
agreed to accept options to purchase 294,341 shares of HOM common stock at $.01
per share in lieu of past salary claims and advances totaling $18,000, which
options have not been issued. He currently is supervising Home's magazine, FOR
SALE BY OWNER AND BUILDER, with the aid of independent contractors. Homes has an
independent contractor who distributes the magazine in the Augusta/Aiken
metropolitan areas. Homes has paid, and is willing to continue to pay,
commissions of 25% on advertisements and listings for FOR SALE BY OWNER AND
BUILDER magazine procured by third parties.
No determination has been made of who will become employees of HOM and
its subsidiaries and the extent to which employees, officers and directors of
HOM and its subsidiaries will be compensated. It is contemplated that both Mark
S. Neuhaus, now Chairman and President of HOM, and Ned Baramov, now Secretary
Treasurer of HOM, as well as others associated with MA&N who perform services
for HOM and its subsidiaries will receive appropriate compensation from HOM or
its subsidiaries for such services.
MISCELLANEOUS
The Company is not dependent on any particular customer or customers or
any particular supplier or suppliers. It currently holds no patents, trademarks,
licenses, franchises or concessions (other than the currently unused mortgage
banking license of Direct in Georgia), and it has no royalty agreements or labor
contracts. The Company has made no expenditures on research and development
activities, although it continually is attempting, with its limited resources,
to improve the quality of its products and services. It has had no costs of
compliance with, and has not been affected by, environmental laws.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS
Because of the recent inception, current lack of profitability and
nature of the Company's business, it encounters many risk factors. Each of these
factors, as well as matters set forth elsewhere in this Form 10-KSB, could
adversely affect the business, operating results and financial condition of the
Company.
BRIEF OPERATING HISTORY - NO ASSURANCE OF PROFITABILITY
The Company has a brief operating history. Although Direct commenced
its mortgage business in 1997, original management was replaced in the latter
part of 1998 and its present ownership dates from early 1999. See CORPORATE
DEVELOPMENT. Homes' magazine, FOR SALE BY OWNER AND BUILDER, commenced in
January 2000. The operations of neither Direct nor Homes have been profitable.
The Wi-Fi business contemplated in the acquisition of a controlling interest in
the Company by MA&N has not commenced, its exact nature is in the process of
definition and material expenses will be incurred before substantial revenues
are generated, if ever. The Company, has encountered unforeseen costs, expenses,
problems, difficulties and delays frequently associated with new ventures, and
these may continue. There is no assurance that the Company's business ventures
will be successful or that the Company will be able to attract and retain
sufficient customers to attain its goals. The Company anticipates that its
operating expenses will increase if and as its business expands, and it will
need to generate revenues sufficient to offset not only its present expenses but
these additional expenses to achieve profitability.
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COMPETITION COULD NEGATIVELY AFFECT REVENUES
The business of the Company is highly competitive. See COMPETITIVE
SITUATION OF THE WI-FI BUSINESS and COMPETITIVE SITUATION OF HOMES BY OWNERS,
Inc. Additional competitors may also enter the market and future competition may
intensify. Most of these competitors have substantially greater financial
resources than the Company, and they and their capital providers may be able to
accept more financial risk than the Company and its capital providers prudently
can manage.
CONCENTRATION OF SHARE OWNERSHIP GIVES INSIDERS CONTROL
MA&N owns 51% of HOM's outstanding common stock on a fully diluted
basis as of January 9, 2003. As a result, MA&N can determine the outcome on all
matters submitted to the shareholders. This concentration of share ownership
may: (i) delay or prevent a change in control of the Company; (ii) impede a
merger, consolidation, takeover or other business involving the Company; or
(iii) discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company.
NEED FOR, AND POSSIBLE DIFFICULTIES IN SECURING, FUTURE FUNDING, DIRECTLY OR
THROUGH AN ALTERNATIVE TRANSACTION
Although the Company believes that the resources of MA&N will be
sufficient and available to fund its operations over the current year, MA&N is
not contractually committed to fund the Company during that period and there is
no assurance that such current year funding will be made. Thereafter the Company
must secure future funding from MA&N or otherwise, either debt or equity, in
order to finance its activities. Such funding will continue to be needed unless
and until the operations of the Company become self-sustaining. There can be no
assurance that any such funding will be available to the Company or that, if it
is, it will be available on terms favorable to the Company. Prior to acquisition
of a controlling interest in the Company by MA&N, the Company financed much of
its operations from the sale of stock to Robert S. Wilson, former Chairman of
HOM, and to Bryce N. Batzer, a former director of HOM, and to a limited number
of principal investors, and borrowed funds from a bank with a guarantee by Mr.
Wilson, from Mr. Wilson personally, from Judith C. Wilson, Mr. Wilson's wife,
from Mr. Batzer and from David R. Baker, a partner of counsel to the Company. It
is not anticipated that these funding sources will be available in the future.
There can be no assurance that outside funding or an alternative transaction
will be available to the Company at the time and in the amount to satisfy the
Company's needs, or, if such funding or alternative transaction is available,
that it will be available on terms favorable to the Company. If HOM issues
additional shares of common stock, current shareholders may experience immediate
and substantial dilution in their ownership of HOM's shares, or, in the case of
an alternative transaction, will receive securities in a continuing entity
providing them relatively lesser rights than they now possess. In case of a
sale, shareholders' proceeds may be limited. In the event HOM issues securities
or instruments other than common stock, it may be required to issue such
instruments with greater rights than those currently possessed by holders of
HOM's common stock. If a transaction directly involved Homes or Direct, current
HOM shareholders might lose or be diluted in their indirect interests in Homes
or Direct.
POSSIBILITY THAT NO PUBLIC MARKET OR ONLY A LIMITED PUBLIC MARKET WILL BE
ESTABLISHED FOR THE COMMON STOCK OF HOM
On August 14, 2002, NASD Regulation, Inc. cleared a broker's request
for an unpriced quotation on the OTC Bulletin Board for HOM's common stock.
However, the public market for HOM's common stock has not been substantial or
sustained. Sales have been sporadic and have ranged from $.05 to $.45 a share.
See MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
LIMITED ACCESS TO QUALIFIED PERSONNEL
To be effective, the Company needs persons with the skills necessary to
conduct the Wi-Fi business and to produce the magazine and to maintain its
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website. It also needs persons with the ability to procure real estate listings
and advertisements for the magazine. The Company has had no experience in hiring
personnel to conduct the Wi-Fi business. The Company has lacked the resources to
train personnel, so it needed to find persons with the required experience,
understanding, ability and effectiveness. The Company's financial position has
made this difficult. See COMPANY EMPLOYEES AND OTHER WORKERS. The inability to
attract and retain appropriate personnel would have a materially adverse effect
upon the Company and its operations.
LEGAL AND REGULATORY RISK
In our modern society, the laws and regulations, including securities
laws and regulations, applicable to the Company's business and operations are
extensive and complex. As a start up business with limited personnel and
funding, the Company has taken actions without being able to fully ascertain
their legal effect and potential conflict with applicable law and regulation.
The Company believes that this situation often pertains to minimally funded new
businesses that are in the position of the Company. As a result, actions taken
by the Company could subject it to regulatory review and challenge, and involve
it in legal or administrative proceedings, that could have a material adverse
affect on the Company.
FORWARD LOOKING STATEMENTS AND CAUTIONARY WORDS
This Registration Statement contains forward-looking statements,
including such statements that 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 Registration Statement or the amendment
thereto in which they appear, as the case may be. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
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. In
addition, particular attention is called to cautionary words such as "may,"
"will," "expect," "anticipate," "estimate" and "intend" where they appear
herein.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company is in the process of moving its principal office from 4210
Columbia Road, Suite 10C, Martinez, Georgia, where it currently has no lease
arrangements, to New York City. The Company does not otherwise own, lease or
invest in real property. Company officers in New York City currently are working
from the offices of MA&N. The Company contemplates taking separate premises in
New York City, but no decision has been made on the timing thereof.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or to which any of its property is subject
and, to the best of its knowledge, no such action against the Company is
contemplated or threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
-11-
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The OTC Compliance Unit of NASD Regulations, Inc. cleared a brokers
request for an unpriced quotation on the OTC Bulletin Board on August 14, 2002.
From that date through December 31, 2002, the high and low sales prices for the
HOM Common Stock furnished by Divine Capital Markets LLC by were as follows:
PERIOD HIGH SALES PRICE LOW SALES PRICE
------ -------- -------
August 15-September 30, 2002 $0.45 $0.23
October 1-December 31, 2002 $0.20 $0.05
Actual sales have been sporadic, with the first reported sale on
September 16, 2002. The most current reported sale as of January 13, 2003 was on
January 6, 2003 at $.25 a share.
The ability of an individual shareholder to trade his or her shares in
a particular state may be subject to various rules and regulations of that
state. A number of states require that an issuer's securities be registered in
their state or appropriately exempted from registration before the securities
are permitted to trade in that state. The Company has no present plans to
register its securities in any particular state, although it may take action
that will allow it to receive appropriate exemption.
The shares of HOM's common stock are subject to the provisions of
Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), commonly referred to as the "penny stock" rule. The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to specified exceptions. Section
15(g) sets forth requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act. Rule 3a51-1 provides that any equity security is
considered to be a penny stock unless that security is registered and traded on
a national securities exchange meeting specified criteria set by the Commission;
authorized for quotation on The NASDAQ Stock Market; issued by a registered
investment company; excluded from the definition on the basis of price (at least
$5.00 per share) or the issuer's net tangible assets; or exempted from the
definition by the Commission. As a result, trading in HOM's common stock is
subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in HOM's common stock and may affect the ability
of shareholders to sell their shares.
-12-
As of January 9, 2003, there were approximately 106 holders of record
of HOM's common stock, which figure does not take into account the beneficial
ownership of those shareholders whose certificates are held in the name of
broker-dealers or other nominees.
As of January 9, 2003, HOM has issued and outstanding 8,818,651 shares
of common stock. Of this total, 5,880,302 shares are deemed "restricted
securities," as defined by the Act, whose sale is subject to Rule 144 under the
Act as having been held for less than two years. Certificates representing such
shares bear an appropriate restrictive legend.
Of HOM's total outstanding shares, as of January 9, 2003, approximately
2,938,349 shares may be sold, transferred or otherwise traded in the public
market without compliance with the resale limitations of Rule 144 under the Act
unless held by an affiliate of HOM. Of the 2,938,349 shares, 445,814 shares
which, if not held by an affiliate, would not be restricted, have been
identified as being held by Robert S. Wilson, a director, and his wife, Judith
C. Wilson, and are subject to compliance with the resale limitations of Rule 144
even though held for at least two years.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined under the Act),
is entitled to sell, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's common stock, as reported through the automated quotation system of a
registered securities association, during the four calendar weeks preceding such
sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be
an "affiliate" of the Company and has not been an affiliate for the most recent
three months, and who has held restricted shares for at least two years would be
entitled to sell such shares without regard to the resale limitations of Rule
144.
DIVIDEND POLICY
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings, if any, to finance its
operations.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
No equity securities were issued under any compensation plans or
arrangements during the year ended September 30, 2002. However, the conversion
into HOM common stock of $39,067 of the $54,000 salary obligation of the Company
to Robert S. Wilson, the former Chairman and Chief Executive of HOM, was
approved on January 9, 2002 at the rate of $.25 per share, which would have
resulted in the issuance of 156,268 shares. No payment was made or stock issued
in connection with Mr. Wilson's 2001 compensation, and on December 12, 2002, in
connection with the acquisition of control of the Company, Mr. Wilson agreed to
accept options to purchase 294,341 shares of HOM common stock at $.01 per share
in lieu of such compensation and specified other obligations of the Company to
him. No such options have yet been issued to Mr. Wilson.
-13-
SALES OF EQUITY SECURITIES OF HOM DURING FISCAL 2002
During the year ended September 30, 2002, HOM issued shares of its
common stock, its only securities sold, without registration under the
Securities Act as set forth below. References to investments are to cash
investments unless otherwise stated.
(a) On January 9, 2002, the transfer agent for HOM common stock was
instructed to issue (i) 4,000 shares of HOM common stock to Jeanette Drayer in
satisfaction of $1,000 payable to HOM's transfer agent, of which Ms. Drayer is
the owner; (ii) 47,206 shares to David R. Baker, now a holder of more than 5% of
the outstanding HOM common stock and a partner of a firm that is counsel to the
Company, in satisfaction of $1,386 of unpaid interest to January 9, 2002 and of
$10,416 principal amount of loans to the Company, or a total of $11,802; (iii)
178,681 shares to Bryce N Batzer, then a director of HOM, in satisfaction of
$1,670 of unpaid interest to January 9, 2002 and of $43,000 principal amount of
loans to the Company, or a total of $44,670, and (iv) 94,627 shares to Judith C.
Wilson, wife of Robert S. Wilson, then Chairman and CEO of HOM, for net advances
of $23,657, all on the basis of $.25 a share. Mr. Baker and Mr. Batzer were
accredited investors. It is not known if Ms. Drayer is an accredited investor,
but Ms. Drayer and Mrs. Wilson both are familiar with the operations of the
Company, Mrs. Wilson through her husband, Robert S. Wilson.
(b) On March 6, 2002, 40,000 shares of HOM common stock were issued to
Warren D. Bagatelle, an existing stockholder of HOM and an acquaintance of
Robert S. Wilson, then the Chairman of HOM, in the stock brokerage business, at
$.25 a share for an investment of $10,000. Mr. Bagatelle is an accredited
investor.
(c) On April 17, 2002, 12,500 shares of HOM common stock were issued to
Fred Thielke at $.40 a share for an investment of $5,000. Dr. Thielke is a
professional acquaintance of Robert S. Wilson, then Chairman of the HOM, and an
accredited investor.
(d) On June 27, 2002, 41,600 shares of HOM common stock were issued to
Robert S. Wilson, then Chairman and Chief Executive Officer of HOM, at $.25 a
share pursuant to a previous arrangement for the satisfaction of loans to HOM of
$8,000 on February 13, 2002 and $2,000 on February 21, 2002, plus interest to
the date of authorizing satisfaction of $400, for a total of $10,400, and 5,000
shares were issued to Betty Gibbs, an employee of Direct, at $.40 a share for an
investment of $2,000. Mr. Wilson was an accredited investor, and Ms. Gibbs, who
is not, is familiar with the operations of the Company.
(e) Effective August 28, 2002, 30,000 shares of HOM common stock were
issued to Howard Bronson, at $.40 a share for consulting services valued at
$12,000. Mr. Bronson is an accredited investor.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company's financial position is not good. It has never earned a
profit, and has incurred an accumulated deficit of $1,260,356 as of September
30, 2002. The recent acquisition by MA&N of a controlling interest in the
Company has given the Company access to additional funds directly from MA&N, and
the business plan envisioned by MA&N may elicit additional funds from third
parties, but the resources of MA&N are finite and there can be no assurance of
third party funding. See SUMMARY OF CURRENT SITUATION AND PARTICULAR
DEVELOPMENTS and ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS-PARTICULAR TRANSACTIONS-PERIOD FROM OCTOBER 1, 2002 TO JANUARY 9,
2003. The Company's original business, the mortgage banking business conducted
by Direct, has been disposed of. See SALE OF THE ASSETS AND BUSINESS OF DIRECT.
-14-
The magazine, FOR SALE BY OWNER AND BUILDER, is currently operating at a small
deficit, if there is no allocation of general corporate overhead to its
operation, and management believes it can be made, at best, marginally
profitable on such a basis. The Company, by terminating the mortgage banking
operations of Direct Lending and by reducing the expenses of producing the
magazine, FOR SALE BY OWNER AND BUILDER, has substantially reduced its operating
costs, but these expense reductions do not eliminate the Company's current
operating deficits. Development of the Wi-Fi business will substantially
increase the Company's operating costs, which will need to be funded.
LIQUIDITY
The Company currently and during its existence has lacked liquidity as
a result of its lack of initial financing and its continuing operating deficits.
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. See RECENT SALES OF UNREGISTERED SECURITIES. In view of the change
of control of the Company, such funding will not continue. The Company,
therefore, will need to rely on the resources of its new controlling
shareholder, MA&N, for its future liquidity until such time as it arranges other
financing or becomes profitable. The Company has reviewed its cash needs with
MA&N, and MA&N has indicated that over the next twelve months it will be able to
provide the necessary funds (to the extent not provided by HOM) to satisfy HOM's
current obligations and its ongoing operating and capital expenses.
CAPITAL EXPENDITURES
The Company has no material commitments for capital expenditures and
has had no need, in its previous operations, to make material capital
expenditures. The proposed Wi-Fi business will require capital expenditures, the
exact extent of which is not now known, although it is believed that necessary
equipment purchases, the principal anticipated capital expenditures, can be
financed to a substantial extent.
RESULTS OF OPERATIONS
o Year ended September 30, 2002 compared with year ended September 30,
2001.
Revenue increased $100,865 from $65,819 to $166,054, or 153.2%, as a
result of an increase in revenue from mortgage of $96,928 from $17,670 to
$114,598, or 548.5%, mortgages closed having increased from 7 in fiscal 2001 to
52 in fiscal 2002, and an increase in income from the magazine, FOR SALE BY
OWNER AND BUILDER, and its associated website of $3,307 from $48,149 to $51,456,
or 6.9%, as a result of an increase in advertisements by local realtors, service
companies and providers and merchants of $992 from $33,521 to $34,423, or 3.0%
and in residential property listings of $2,405 from $14,628 to $17,033, or
16.4%.
The operating loss increased $60,297 from $281,595 to $341,892, or
21.4%, principally as a result of an increase (i) in professional fees of
$69,889 from $92,916 to $162,805, or 75.2%, which increase reflected the
additional legal and accounting costs associated with filings required under the
Securities Exchange Act of 1934 and several proposed transactions that were not
consummated (such increase in operating professional fees was partially offset
by the decrease included in unsuccessful business combination costs referred to
in the next paragraph), (ii) in salaries, commissions and benefits of $48,714
from $103,308 to $152,022, or 47.2%, largely as a result of increased
commissions relating to the increased revenues from mortgages, (iii) in office,
travel and other expenses of $26,875 from $46,134 to $73,009, or 58.3%,
principally as a result of an increase in office expenses, and (iv) other
expenses of $13,086 for magazine expenses, of $12,235 for closing costs and $2
of depreciation, partially offset by reductions of $5,088 in utilities and
telephone, $4,730 in website maintenance, $901 in rent and $419 in advertising,
together with the $100,865 increase in revenue.
-15-
In addition, other expense reflected a decrease of $28,401 from $64,804
to $36,403, or 43.8%, principally as a result of a decrease in unsuccessful
business combination costs of $30,043 from $57,147 to $27,104, or 57.1%, as a
result of the reduction of incurred costs in connection with the Company's
proposed business combination with Connectivity, Inc. and Mobile.com. See NOTE
10-NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
o Year ended September 30, 2001 compared with year ended September 30,
2000:
Revenue increased $4,494 from $61,325 to $65,819, or 7.3%, as a result
of an increase in income from HOMES BY OWNERS, which was not published in the
first three months of fiscal 2000, and its associated website of $21,985 from
$26,164 to $48,149, or 84.0%, offset in part by a decrease in mortgage loans
closed from 14 to 7, resulting in a decrease of revenue from mortgages of
$17,491 from $35,161 to $17,670, or 49.77%. See BUSINESS OF HOMES BY OWNERS,
INC. for a breakdown of income between residential property owners and other
advertising.
The operating loss decreased $110,451 from $392,046 to $281,595, or
28.2%, principally as a result of decreases in advertising of $118,159, which is
attributable to a reduction in radio advertising. Lesser decreases occurred in
office expense $12,682; website maintenance $9,750, and rent $836, together with
the increase in revenue noted above. The decreases were partially offset by an
increase of $14,350 in professional fees and lesser increases in salaries and
commissions $7,260, magazine printing $4,862, depreciation $3,432, telephone and
utilities $2,309, travel $1,958 and miscellaneous $1,299.
In addition, the Company incurred costs in connection with its proposed
business combination with Connectivity, Inc. and Mobile.com, which, through
September 30, 2001 were $57,147. SEE NOTE 10 - NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS.
NET OPERATING LOSS CARRYFORWARDS FOR TAX PURPOSES
The Company has net operating loss carryforwards as at September 30,
2002 totaling $1,148,821 that may be offset against future taxable income until
2018 through 2022. In view of the anticipated losses sustained in the three
months ended December 31, 2002, 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 $7,179 relating to
intangible assets and $17,149 relating to accrued wages resulting from
differences in reporting for income tax and financial statement purposes, or a
total of $363,230 as of September 30, 2002, offset by deferred tax liabilities
relating to property and equipment in the amount of $1,017, leaves a net
deferred tax asset of $362,213 that may be used against the Company's future
income tax. For financial statement purposes, a valuation allowance of $362,213,
or 100%, has been taken against net deferred taxes as of September 30, 2002. A
larger equivalent valuation will be taken against the larger amount of such
assets as of December 31, 2002. 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. In addition, because of the change of control of the Company, under ss.
382 of the Internal Revenue Code the Company will be able to take only
approximately $45,000 of the available net operating loss in any year based on
an estimated value of $.25 a share of HOM Common Stock on December 12, 2002, the
date of change of control. The deferred tax asset, therefore, is not reflected
as an asset of any value in HOM's Consolidated Balance Sheet as of September 30,
2002, 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 Standards ("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
-16-
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.
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
adopted SFAS No. 144 in 2002 and believes that the adoption of SFAS No. 144 did
not have a material impact on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 supercedes prior
pronouncements associated with accounting treatment for exit activities and
establishes guidelines for the recognition of liabilities associated with an
exit or disposal activity. The statement is effective for exit or disposal
activities initiated after December 31, 2002. The Company believes that the
adoption of SFAS No. 146 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.
ITEM 7. FINANCIAL STATEMENTS.
The Company's consolidated balance sheets as of September 30, 2002 and
2001 and the related consolidated statements of operations, changes in
stockholders equity (deficit) and cash flows for the years ended September 30,
2002, 2001 and 2000 have been examined to the extent indicated in their report
by Elliott Davis, L.L.C., independent certified public accountants. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission and are included
herein in response to Part F/S of this Form 10-KSB. The financial statements
have been prepared assuming the Company will continue as a going concern. SEE
NOTE 1 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
-17-
HOM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
-18-
HOM CORPORATION AND SUBSIDIARIES
CONTENTS
Page
----------
REPORT OF ELLIOTT DAVIS, L.L.C.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 20
FINANCIAL STATEMENTS
Consolidated balance sheets 21
Consolidated statements of operations 22
Consolidated statements of changes in stockholders' equity (deficit) 23
Consolidated statements of cash flows 24 - 25
Notes to the consolidated financial statements 26 - 33
-19-
REPORT OF ELLIOTT DAVIS, L.L.C.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
HOM Corporation and Subsidiaries
Martinez, Georgia
We have audited the accompanying consolidated balance sheets of HOM
Corporation and Subsidiaries (the "Company") as of September 30, 2002 and 2001,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years ended September 30, 2002, 2001,
and 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HOM
Corporation and Subsidiaries as of September 30, 2002 and 2001, and the results
of their operations and their cash flows for the years ended September 30, 2002,
2001, and 2000, in conformity with accounting principles generally accepted in
the United States of America.
Augusta, Georgia
December 20, 2002
-20-
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
------------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,489 $ 22,055
Accounts receivable 3,123 850
Trading securities -- 612
------------ ------------
Total current assets 5,612 23,517
PROPERTY AND EQUIPMENT - NET 13,947 27,691
OTHER ASSETS 1,305 3,327
------------ ------------
$ 20,864 $ 54,535
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 103,294 $ 43,457
Accounts payable to related parties 202,276 86,780
Accrued wages 58,131 38,880
Deferred revenues 2,848 4,530
Short-term notes payable 20,448 20,200
Stockholder advances 86,170 54,000
Current maturities of long-term debt -- 1,225
------------ ------------
Total current liabilities 473,167 249,072
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Paid in capital - 1,000,000 preferred shares authorized; none
issued and outstanding -- --
Paid in capital - no par common - 50,000,000 shares authorized;
issued and outstanding 3,962,282 and 3,508,667 as of
September 30, 2002 and 2001, respectively 808,053 687,524
Accumulated deficit (1,260,356) (882,061)
------------ ------------
(452,303) (194,537)
------------ ------------
$ 20,864 $ 54,535
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
-21-
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
REVENUES $ 166,054 $ 65,819 $ 61,325
------------ ------------ ------------
OPERATING EXPENSES
Professional fees 162,805 92,916 78,566
Salaries, commissions and benefits 152,022 103,308 96,048
Office, travel and other expense 73,009 46,134 55,559
Magazine printing 38,086 24,131 19,269
Rent 25,465 26,366 27,202
Utilities and telephone 15,823 20,911 18,602
Depreciation 15,505 15,503 12,071
Advertising 12,926 13,345 131,504
Closing costs 12,235 -- --
Website maintenance 70 4,800 14,550
------------ ------------ ------------
507,946 347,414 453,371
------------ ------------ ------------
Operating loss (341,892) (281,595) (392,046)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Unsuccessful business combination costs (27,104) (57,147) --
Interest (10,270) (2,143) (1,993)
Realized gains (losses) on trading securities 971 (2,387) --
Unrealized losses on trading securities -- (2,206) --
Loss on disposal of equipment -- (921) --
------------ ------------ ------------
(36,403) (64,804) (1,993)
------------ ------------ ------------
Loss before income taxes (378,295) (346,399) (394,039)
PROVISION FOR INCOME TAXES - NET -- -- --
------------ ------------ ------------
Net loss $ (378,295) $ (346,399) $ (394,039)
============ ============ ============
PER SHARE INFORMATION:
Basic net loss per common share $ (0.10) $ (0.11) $ (0.16)
============ ============ ============
Weighted average shares outstanding 3,796,620 3,292,502 2,400,970
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
-22-
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, 1999 1,688,047 $ 264,369 $ (141,623) $ 122,746
Common stock issued in exchange for professional,
website design and other services 570,880 111,220 -- 111,220
Common stock issued for cash 530,000 133,000 -- 133,000
Common stock issued as repayment for cash advances 112,740 27,185 -- 27,185
Net loss -- -- (394,039) (394,039)
------------ ------------ ------------ ------------
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)
Common stock issued as settlement for accounts
payable related to professional services received 34,000 13,000 -- 13,000
Common stock issued as repayment for cash advances 362,115 90,529 -- 90,529
Common stock issued for cash 57,500 17,000 -- 17,000
Net loss -- -- (378,295) (378,295)
------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2002 3,962,282 $ 808,053 $(1,260,356) $ (452,303)
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
-23-
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------
2002 2001 2000
---------- ---------- ----------
OPERATING ACTIVITIES
Net loss $(378,295) $(346,399) $(394,039)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 15,505 15,503 12,071
Realized and unrealized (gains) losses from trading securities, net (971) 4,593 --
Loss on disposal of equipment -- 921 --
Expenses settled by issuance of common stock -- -- 78,703
Changes in deferred and accrued amounts:
Accounts receivable (2,273) 775 (1,625)
Prepaid expenses -- 4,800 116,197
Other assets 2,022 (3,077) 250
Accounts payable and accrued expenses 211,040 141,824 34,522
Deferred revenues (1,682) (7,648) 12,178
---------- ---------- ----------
Net cash used in operating activities (154,654) (188,708) (141,743)
---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of trading securities (33,927) (161,395) --
Proceeds from sale of trading securities 70,167 160,700 --
Purchase of property and equipment (1,761) (2,313) (10,466)
Proceeds from sale of property and equipment -- 4,200 --
---------- ---------- ----------
Net cash provided by (used in) investing activities 34,479 1,192 (10,466)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds, net of repayments, from short-term notes payable
and stockholder advances 84,834 118,041 21,401
Repayment of long-term debt (1,225) (1,159) (2,043)
Proceeds from the sale of common stock 17,000 92,000 133,000
---------- ---------- ----------
Net cash provided by financing activities 100,609 208,882 152,358
---------- ---------- ----------
Net increase (decrease) in cash (19,566) 21,366 149
CASH, BEGINNING OF YEAR 22,055 689 540
---------- ---------- ----------
CASH, END OF YEAR $ 2,489 $ 22,055 $ 689
========== ========== ==========
(Continued)
-24-
HOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
2002 2001 2000
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for interest $ 10,606 $ 1,517 $ 529
========= ========= =========
Cash paid for income taxes $ -- $ -- $ --
========= ========= =========
Noncash financing activities
Common stock issued in exchange for professional, website
design, advertising, and other services $ -- $ -- $111,220
========= ========= =========
Common stock issued as repayment for cash advances
and notes payable $ 90,529 $ 44,000 $ 27,185
========= ========= =========
Trading securities received as advances from stockholders $ 34,657 $ 4,510 $ --
========= ========= =========
Common stock issued as settlement for accounts
payable related to professional services received $ 13,000 $ 15,750 $ --
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
-25-
HOM CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
------------------------------------------------------------------
BUSINESS ACTIVITIES
HOM Corporation, incorporated May 4, 2000 in the State of Georgia,
operates as a holding company for its two wholly owned subsidiaries,
Homes By Owners, Inc. ("Homes") and Direct Lending, Inc. ("Direct").
Homes was incorporated in the State of Georgia in December, 1999 and
operates in the real estate market as an advertiser of real estate
listed as "for sale by owner" ("FSBO") by publishing a monthly
magazine, which contains FSBO and other advertising, and hosting an
Internet web page that serves as an advertising venue for FSBO
residential and commercial real estate in the Central Savannah River
Area.
Direct (formerly Southern States Lenders, Inc.) was incorporated in the
State of Georgia in January, 1997 and operated as a licensed mortgage
broker for various financial institutions and underwriters (See Note 11
- Subsequent Events).
HOM Corporation, with its subsidiaries, (the "Company") has suffered
recurring losses while devoting substantially all of its efforts to
raising capital and developing markets for its FSBO advertising and
mortgage services (See Note 11 - Subsequent Events). Additionally, the
Company's total liabilities exceed its total assets. The accompanying
consolidated financial statements have been prepared on a going concern
basis, which contemplates continuing operations, realization of assets
and liquidation of liabilities in the ordinary course of business. The
Company's ability to continue as a going concern is dependent upon its
ability to raise sufficient capital to implement its business plan and
to generate profits sufficient to become financially viable. The
consolidated financial statements do not include adjustments relating
to the recoverability of recorded assets or liabilities that might be
necessary should the Company be unable to continue as a going concern.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The consolidated financial statements include estimates and assumptions
that affect the Company's financial position and results of operations
and disclosure of contingent assets and liabilities. Actual results
could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(Continued)
-26-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
betterments are capitalized, while maintenance and repairs that do not
materially improve or extend the useful lives of the assets are charged
to expense as incurred. Costs relating to the initial design and
implementation of the Internet web page have been capitalized while the
costs of web page maintenance are expensed as incurred. Assets are
depreciated over their estimated useful lives using the straight-line
method. The estimated useful lives are as follows:
Office equipment and furniture 5-7 years
Automobile 5 years
Internet web page and software 3 years
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.
START-UP ACTIVITIES
Costs associated with the organization and start-up activities of the
Company are expensed as incurred.
REVENUE RECOGNITION
Mortgage origination revenues are recognized at loan closing.
Advertising revenues from commercial advertisers are recognized ratably
over the agreed upon advertising period. Advertising revenues from FSBO
advertisers are recognized ratably over the agreed upon advertising
period, unless the FSBO property is sold prior to the end of the agreed
upon advertising period, at which time the revenue is recognized in
full. Management believes the Company's revenue recognition policy is
consistent with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 -- "Revenue Recognition in Financial
Statements."
INCOME TAXES
Income taxes are estimated for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the financial
reporting basis and income tax basis of assets and liabilities.
Deferred tax assets and liabilities represent future tax consequences
of those differences, which will either be taxable or deductible when
the assets and liabilities are recovered or settled. Deferred taxes may
also be recognized for operating losses that are available to offset
future taxable income. Deferred taxes are adjusted for changes in tax
laws and tax rates when those changes are enacted.
(Continued)
-27-
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
INCOME TAXES, CONTINUED
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during periods in which temporary differences become
deductible. Management considers the reversal of any deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
BASIC NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the
period. Diluted net loss per share is not presented because there were
no potential common shares.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 anticipates that the adoption of SFAS No. 142
will not have a material impact on the Company's financial statements.
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. Early adoption of this standard is
encouraged. The Company adopted SFAS No. 144 in 2002 and it did not
have a material impact on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 supercedes
prior pronouncements associated with accounting treatment for exit
activities and establishes guidelines for the recognition of
liabilities associated with an exit or disposal activity. The statement
is effective for exit or disposal activities initiated after December
31, 2002. The Company anticipates that the adoption of SFAS No. 146
will not have a material impact on the Company's financial statements.
Other accounting standards that have been issued or proposed by the
Financial Accounting Standards Board that do not require adoption until
a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.
-28-
NOTE 2 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consist of the following at September 30:
2002 2001
-------------- --------------
Internet web page and software $ 36,650 $ 36,650
Office equipment and furniture 21,206 19,446
-------------- --------------
57,856 56,096
Less accumulated depreciation (43,909) (28,405)
-------------- --------------
$ 13,947 $ 27,691
============== ==============
NOTE 3 - SHORT-TERM NOTES PAYABLE
---------------------------------
Short-term notes payable consist of the following at September 30:
2002 2001
-------------- --------------
A short-term note payable to a financial institution with a current
maturity of December, 2002. Interest only payments are due monthly at
prime plus 1.0% (5.75% on September 30, 2002). The note is guaranteed
and is secured by the primary residence of the Company's
president who is also a significant stockholder. $ 20,448 $ 20,200
============== ==============
NOTE 4 - LONG-TERM DEBT
-----------------------
Long-term debt consists of the following at September 30:
2002 2001
-------------- --------------
A note payable for office equipment, payable in monthly installments of
principal and interest of $182, maturing in February, 2002.
Interest is calculated at 4.0% per annum. $ - $ 1,225
Less current maturities of long-term debt - (1,225)
-------------- --------------
$ - $ -
============== ==============
-29-
NOTE 5 - INCOME TAXES
---------------------
The tax effects of temporary differences that give rise to deferred taxes
are as follows at September 30:
2002 2001
-------------- --------------
Deferred tax assets:
Net operating loss carryforwards $ 338,902 $ 240,886
Accrued wages 17,149 11,470
Intangible assets 7,179 7,979
-------------- --------------
363,230 260,335
Deferred tax liabilities:
Property and equipment (1,017) (909)
-------------- --------------
Net deferred tax assets 362,213 259,426
Valuation allowance (362,213) (259,426)
-------------- --------------
$ - $ -
============== ==============
The Company has net operating loss carryforwards totaling $1,148,821 that
expire in 2018 through 2022.
The provision (benefit) for income taxes is as follows for the years ended
September 30:
2002 2001
-------------- --------------
Deferred income tax benefit $ (102,787) $ (101,704)
Change in valuation allowance 102,787 101,704
-------------- --------------
$ - $ -
============== ==============
There were no income taxes due or receivable from the current year's
operations, and the Company's reported provision for income taxes differs from
the amount computed by applying statutory tax rates to loss before income taxes
due to the differences in amounts recorded for income tax purposes and financial
reporting purposes. The principal differences relate to expense items or
portions of items not deductible, such as meals and entertainment.
NOTE 6 - OPERATING LEASE COMMITMENTS
------------------------------------
The Company leases office space for $2,000 per month on a lease agreement
expiring in September 2003 (See Note 11 - Subsequent Events).
The Company also leases certain office equipment for $232 per month under a
three year lease agreement that will expire in April 2004.
-30-
NOTE 7 - NON-CASH TRANSACTIONS
------------------------------
During the years ended September 30, 2002, 2001, and 2000, the Company
issued shares of common stock in exchange for services and as repayment for
accounts payable and for cash advances from significant shareholders. The
non-cash transactions involving stock are summarized in the consolidated
statement of changes in stockholders' equity (deficit). The transactions are
recorded based on management's estimate of the fair value received or an
estimated value of the shares exchanged.
NOTE 8 - SEGMENT INFORMATION
----------------------------
The Company provided services through two industry segments during the
years ended September 30, 2002, 2001 and 2000. The Company's advertising
segment, Homes, provides advertising services for FSBO real estate and for
businesses. The Company's mortgage segment, Direct, provides mortgage services
to individuals and small business as a mortgage broker (See Note 11 - Subsequent
Events). The basis for identifying and measuring the results of the segment
activities is consistent within the periods presented.
The accompanying financial statements include the following business
segment information for the years ended September 30:
2002 2001 2000
--------------- -------------- ---------------
REVENUES:
Mortgage $ 114,598 $ 17,670 $ 35,161
Advertising 51,456 48,149 26,164
--------------- -------------- ---------------
$ 166,054 $ 65,819 $ 61,325
=============== ============== ===============
OPERATING LOSS:
Mortgage $ 147,236 $ 132,131 $ 170,710
Advertising 194,656 149,464 221,336
--------------- -------------- ---------------
$ 341,892 $ 281,595 $ 392,046
=============== ============== ===============
DEPRECIATION:
Mortgage $ 2,091 $ 2,114 $ 2,057
Advertising 13,414 13,389 10,014
--------------- -------------- ---------------
$ 15,505 $ 15,503 $ 12,071
=============== ============== ===============
PURCHASE OF PROPERTY AND EQUIPMENT:
Mortgage $ - $ - $ 1,559
Advertising 1,761 2,313 45,557
--------------- -------------- ---------------
$ 1,761 $ 2,313 $ 47,116
=============== ============== ===============
(Continued)
-31-
NOTE 8 - SEGMENT INFORMATION, CONTINUED
PROPERTY AND EQUIPMENT - NET:
Mortgage $ 5,883 $ 7,974 $ 10,458
Advertising 8,064 19,717 35,543
--------------- -------------- ---------------
$ 13,947 $ 27,691 $ 46,001
=============== ============== ===============
NOTE 9 - RELATED PARTY TRANSACTIONS
-----------------------------------
The Company receives legal counsel through a firm that is related to the
Company through common ownership (aggregate ownership by the firm and one of its
partners of 9.6% of the Company's outstanding stock at September 30, 2002).
Legal fees incurred from this related party approximated $129,500, $82,800, and
$63,000 in the years ended September 30, 2002, 2001, and 2000, respectively.
Additionally, the Company's accounts payable include $202,276, $86,780, and
$33,489 at September 30, 2002, 2001, and 2000, respectively, for legal services
received from this related party.
NOTE 10 - 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 the
proposed business combination(s) were not consummated. The costs incurred
through September 30, 2002 and 2001 on the proposed business combination(s) are
reported as other expense in the statement of operations and consist of the
following costs:
2002 2001 TOTAL
--------------- -------------- ---------------
Legal fees $ 8,406 $ 37,102 $ 45,508
Accounting fees 9,698 6,345 16,043
Other professional fees 9,000 9,000 18,000
Other - 4,700 4,700
--------------- ------------ ---------------
$ 27,104 $ 57,147 $ 84,251
=============== ============== ===============
NOTE 11 - SUBSEQUENT EVENTS
---------------------------
On November 25, 2002, the Company sold substantially all of the assets and
the name, Direct Lending, of its wholly owned subsidiary, Direct Lending, Inc.,
to Stuckey Enterprises, Inc. ("Stuckey") for $20,000. A gain of approximately
$17,400 will be recognized on the sale in 2003. Proceeds from the sale of $5,000
were received at closing with the remaining $15,000 receivable over three years
at 10% interest per annum. Under SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets," the aforementioned assets of Direct did not meet
the criteria to be classified as available for sale as of September 30, 2002,
and, therefore, the results of Direct's operations were not reported as
discontinued operations in the Company's financial statements.
(Continued)
-32-
NOTE 11 - SUBSEQUENT EVENTS, CONTINUED
--------------------------------------
Pursuant to the Direct Lending sale on November 25, 2002, the Company's
monthly operating lease commitment was reduced from $2,000 to $800. The
reduction is the result of Stuckey occupying space that was previously leased by
the Company. The Company's obligations under the original lease agreement were
terminated and the Company entered into a new lease agreement.
On December 12, 2002, MA&N, LLC ("MA&N") a Nevada limited liability
company, acquired 4,647,626 shares of the Company's common stock, representing
51% of the total of 8,685,164 shares outstanding following such acquisition plus
427,828 shares issuable (294,341 pursuant to options to be granted and 133,487
in settlement of loans to the Company), for a total of 9,112,992 shares.
Consideration given to the Company in exchange for the 51% ownership interest
included certain wireless web service assets, an agreement to provide certain
professional and management services to the Company and cash. Management
believes the transaction with MA&N is consistent with its efforts to raise
additional capital and believes that the resources of MA&N will be sufficient
and available to fund its operations over the 2003 year.
-33-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT. EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of HOM are as follows:
NAME AGE POSITION
---- --- --------
Mark S. Neuhaus 46 Chairman of the Board of Directors
and President
(Chief Executive Officer)
Ned Baramov 28 Secretary-Treasurer
(Chief Financial Officer)
Nicole Bloom Neuhaus 30 Director
Robert W. Wilson 79 Director
The terms of each of the directors expires at the next annual meeting
of the stockholders, the date for which has not been set by the Board of
Directors. The officers serve at the pleasure of the Board of Directors.
Bryce N. Batzer, a former director, was killed in an automobile
accident on December 15, 2002. No arrangements have been made to fill the
vacancy created by his death or otherwise or for any other person to become a
director of HOM. All directors hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified.
Directors will be elected at the annual meetings to serve for one-year terms.
The Company does not know of any agreements with respect to the election of
directors. The Company has not compensated its directors for service on the
Board of Directors of HOM or any of its subsidiaries or any committee thereof.
Any non-employee director of HOM or its subsidiaries is reimbursed for expenses
incurred for attendance at meetings of the Board of Directors and any committee
of the Board of Directors, although no such committee has been established. Each
executive officer of HOM is appointed by and serves at the discretion of the
Board of Directors.
None of the officers or directors of HOM is currently an officer or
director of a company required to file reports with the Securities and Exchange
Commission, other than HOM.
The business experience of each of the persons listed above during the
past five years is as follows:
Mark S. Neuhaus has been the founder of several startup companies,
including Solar Electric Engineering in 1997, which later became US Electric
Car. Mr. Neuhaus was one of the founding shareholders of Interactive Motorsports
and Entertainment. Mr. Neuhaus manages several funds which specialize in
financing small cap public companies, owned by himself and his wife, Nicole
Bloom Neuhaus, a director of HOM, which has been his principal occupation since
1995. MA&N, which acquired a controlling interest in HOM on December 12, 2002,
is jointly owned by Mr. and Mrs. Neuhaus.
-34-
Ned Baramov currently (and has since mid 2002) works at a privately
held hedge fund in New-York-City which specializes in small-cap and penny stocks
and which is owned by Mark S. and Nicole Bloom Neuhaus, directors of HOM who
also own MA&N which controls the Company. Mr. Baramov will continue at his
position with the hedge fund while he serves as Secretary Treasurer of HOM. From
2000 until 2002 he was enrolled in the Fuqua School of Business at Duke
University, from which he received his MBA. Mr. Baramov spent the previous two
years in the Bulgarian Ministry of Industry, working as a senior associate in
the Privatization Department, helping attract foreign investors to this small,
Eastern European country, and assisting in selling state-owned companies, which
raised capital for the Bulgarian government.
Nicole Bloom Neuhaus manages a fund which specializes in financing
public small cap companies. She has been engaged in sales and marketing
endeavors for over 6 years and has been the lead negotiator in several
acquisitions. Mrs. Neuhaus is co-owner of MA&N, the controlling entity of HOM,
with her husband, Mark S. Neuhaus, who is Chairman of the Board and President
(Chief Executive Officer) of HOM. Mrs. Neuhaus has studied throughout Europe and
the United States and is multi-lingual, speaking 5 languages fluently. Mrs.
Neuhas rsides in Ketchum, Idaho, with her husband, Mark, and their two year old
daughter.
Robert S. Wilson was Chairman of the Board and Chief Executive Officer
of HOM since its incorporation in July 2000 until December 12, 2002, has been a
director and Chairman of the Board of Directors of Direct since September 30,
1998, becoming Chief Executive Officer on July 31, 2000 following the
resignation of the then President of Direct, and has been Chairman of the Board
and Chief Executive Officer of Homes from April 22, 2000, having been the sole
director of Homes from its incorporation in December 1999. Mr. Wilson has
submitted resignations from all his positions with the Company, which the
Company may act upon in its discretion. Mr. Wilson was Chairman of Apple Homes
Corporation, the former parent of Direct, from 1993 until his resignation on
June 30, 1999. Prior thereto, he was, for many years, a stockbroker.
Robert S. Wilson may be deemed to be a promoter of the Corporation. See
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - PROMOTER AND
CONTROLLING PERSONS. Robert S. Wilson and Bryce N. Batzer may have been deemed
the controlling persons of the Company in view of their positions as directors
and the largest shareholders of the Company, until the control of the Company
was changed on December 12, 2002. Thereafter, MA&N, which holds a majority of
the outstanding HOM Common Stock, and Mark S. Neuhaus and Nicole Bloom Neuhaus,
the owners of MA&N and directors of HOM, may be deemed the controlling persons
of the Company, along with the two other directors, Ned Baramov and Robert S.
Wilson.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Based solely upon a review of Forms 3 and 4 (there have been no
amendments) furnished to the Company during the year ended September 30, 2002
(no Forms 5 having been furnished with respect to such year) and written
representation furnished to the Company as provided in paragraph (b)(2)(i) of
Item 405 of Form 10-KSB, there are no persons who need to be identified under
this Item as having failed to file on a timely basis reports required by Section
-35-
16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.
In determining the timeliness of filing, a Form 3 received from Jeremy Collins,
a former officer and director, was received by the Company within 3 days of its
required filing date, so that Mr. Collin's Form 3 was deemed to be timely filed
under Item 405 of Regulations S-B under the Securities and Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION.
As of September 30, 2002, no employee of the Company had earned in
excess of $50,000 per annum.
Robert S. Wilson, Chairman and CEO of HOM, received minimal
compensation in cash and common stock of Direct, which has become common stock
of HOM, or common stock of HOM, as set forth in the following table. The Board
of Directors of HOM authorized compensation to Mr. Wilson of $72,000 a year
effective April 1, 2001. It was not contemplated that compensation would be paid
to Mr. Wilson until the cash flow of the Company could accommodate such payment,
although the Company accrued the authorized salary and related benefits on a
monthly basis beginning April 1, 2001. Mr. Wilson indicated his willingness to
convert his salary through December 31, 2001 into HOM common stock at $.25 a
share. That salary of $54,000 ($36,000 in fiscal 2001 and $18,000 in fiscal
2002), which would net to $39,062 after estimated withholding of income and FICA
taxes of $14,931, would have resulted in 156,276 shares issuable to him, which
were to be issued not later than June 30, 2002, subsequently extended to
December 31, 2003. On December 12, 2002, at the time of change of control of the
Company, Mr. Wilson agreed to accept 5 year options, exercisable at $.01 per
share, to purchase 294,341 shares of HOM common stock in lieu of such $54,000
and $18,000 of funds advanced by Mr. Wilson to, or on behalf of, the Company,
and all interest thereon. The options have not been issued to Mr. Wilson.
The following table sets forth all compensation paid by the Company for
services rendered to the Company for the fiscal years ended September 30, 2002,
2001 and 2000 to the persons indicated. All stock compensation has been made on
the basis of $.25 per share.
SUMMARY COMPENSATION TABLE
FISCAL
------ CASH STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR COMPENSATION COMPENSATION (1) COMPENSATION
------------------ -------- ---- ------------ ---------------- ------------
Karen Stein
President and C.E.O.
Direct Lending, Inc. (3) 2000 $7,685 $2,875(2) $-0-
Theresa A. Varin
Secretary - Treasurer and CFO, 2001 $27,816
HOM Corporation(4) 2002 $20,097 $400 -0-
Robert S. Wilson 2002 $4,977 $13,016(5) $-0-
Chairman and C.E.O. 2001 $9,954 $26,046(5) -0-
HOM Corporation (6) 2000 $5,192 $-0- -0-
---------------
(1) Stock issuances and common stock of Direct until July 5, 2000, when the
merger of Direct into a subsidiary of HOM was effective and HOM became the
investor owned company.
-36-
(2) The stock compensation shown for Karen Stein in 2000 consisted of 11,500
shares of Direct common stock valued at $0.25 per share. These shares have been
purchased by Robert S. Wilson, Chairman and Chief Executive Officer of HOM, at
the valuation price.
(3) Karen Stein was the President and Chief Executive Officer of Direct, which
was then the investor owned company, from September 30, 1998 until her
resignation effective July 31, 2000.
(4) Theresa A. Varin has been Secretary-Treasurer of HOM Corporation since April
27, 2001 and an executive officer and Chief Financial Officer of HOM Corporation
since June 27, 2001, until December 12, 2002.
(5) Mr. Wilson had agreed to accept shares of HOM common stock for his salary
through December 31, 2001, of which $36,000 was earned during fiscal 2001 and
$18,000 was earned during fiscal 2002. On December 12, 2002, Mr. Wilson agreed
to accept options to purchase 294,341 shares of HOM common stock in lieu of
obligations for compensation and funds loaned to, or advanced on behalf of, the
Company. Such options have not been issued.
(6) Robert S. Wilson has been Chairman and Chief Executive Officer of HOM since
its Consent of Directors of HOM Corporation in lieu of a first meeting of
directors, effective June 16, 2000, until December 12, 2002. HOM became the
investor owned company, with Direct as a subsidiary, when Direct merged with a
subsidiary of HOM effective July 5, 2000.
The preceding table does not include any amounts for noncash
compensation, including personal benefits, paid to Mr. Wilson, the Company's
Chief Executive Officer during the periods covered herein. The Company believes
that the value of such noncash benefits and compensation paid during the periods
presented did not exceed the lesser of $50,000 or 10% of the cash compensation
reported for them.
EMPLOYMENT AGREEMENTS
As of the date hereof, the Company has not entered into any employment
contracts with any of its employees, officers or directors. The Company has not
had a bonus, profit sharing, stock option, or other compensation or deferred
compensation plan for the benefit of its employees, officers or directors. ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information, to the best of the
Company's knowledge, as of January 9, 2003 with respect to each person known by
the Company to own beneficially (as such term is defined in Item 403 of
Regulation S-B under the Securities Exchange Act of 1934) more than 5% of the
outstanding HOM common stock, each director, each executive officer and all
directors and officers as a group.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS (2)
--------------------------------------- -------------------- --------------------
Mark S. Neuhaus(a)
PO Box 5629
Ketchum, ID 83340 4,647,626(3) 52.7%
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Ned Baramov(a)
2025 Broadway, 23F
New York, NY 10023 0 _
Nicole Bloom Neuhaus (b)
PO Box 5629
Ketchum, ID 83340 4,647,626(4) 52.7%
Robert S. Wilson(b)
4210 Columbia Road, Suite 10C
Martinez, GA 30907 758,041 (5) 8.6%
David R. Baker
One Independence Plaza, Suite 322
Birmingham, AL 35209 512,972 (6) 5.8%
MA&N LLC 4,647,626 52.7%
All directors and executive officers as a group 5,385,667 61.1%
-------------
(a) Director and executive officer
(b) Director
(1) Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole investment and voting power over the
shares indicated above.
(2) Based upon 8,818,651 shares of common stock outstanding as of January 9,
2003.
(3) Represents shares held by MA&N, in which Mr. Neuhaus has a 50% equity
interest and his wife, Nicole Bloom Neuhaus, also has a 50% equity interest. Mr.
Neuhaus disclaims any beneficial interest in the 2,323,813 shares allocable to
his wife's beneficial interest.
(4) Represents shares held by MA&N in which Mrs. Neuhaus has a 50% equity
interest and her husband, Mark S. Neuhaus, also has a 50% equity interest. Mrs.
Neuhaus disclaims any beneficial interest in the 2,323,813 shares allocable to
her husband's beneficial interest.
(5) Includes 107,727 shares registered in the name of Judith C. Wilson, Mr.
Wilson's wife, as to which Mr. Wilson disclaims beneficial ownership. It does
not include 88,000 shares registered in the name of Bradley C. Wilson; 40,290
shares registered in the name of Jeffrey R. Wilson and 40,000 shares registered
in the name of Keith M. Wilson, Mr. Wilson's adult sons who do not reside with
him, and 2,000 shares registered in the name of Keith M. Wilson, custodian for
Brett M. Wilson, Mr. Wilson's grandson, as to all of which Mr. Wilson disclaims
beneficial ownership, and in none of which he has voting or dispositive power.
It also does not include 5 year options to purchase 294,341 shares of HOM common
stock at $.01 per share. None of these options has been issued.
(6) Includes 92,279 shares registered in the name of BJW Investments, LLC, which
is wholly-owned by Baker, Johnston & Wilson LLP, of which Mr. Baker is a
partner. BJW Investments, LLC, which Mr. Baker, with his partners, jointly
direct, has investment and voting power over such shares. Mr. Baker's partners
have majority power in effecting such directions. Mr. Baker has a proportional
beneficial interest in such 92,279 shares, which is not fully determined but
will not exceed 50%.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PARTICULAR TRANSACTIONS
There have been no transactions during the last two years between the
Company and any officer, director, nominee for election as director, or any
shareholder owning more than 5% of the Company's outstanding shares, or any
member of any such individual's immediate family, as to which the amount
involved in the transaction or a series of similar transactions exceeded
$60,000, except as set forth below.
FISCAL YEAR ENDED SEPTEMBER 30, 2001
Sale of, or, if indicated, compensation for services or expenses by,
common stock of HOM included:
INDIVIDUAL NUMBER OF SHARES DATE OF ISSUE VALUE
---------- ---------------- ------------- -----
Robert S. Wilson 124,000 11/15/2000 $31,000
40,000 1/31/2001 10,000
72,000 2/16/2001 18,000 (1)
64,000 4/27/2001 16,000
------ ------
Total 300,000 75,000
-------- ------
Bryce N. Batzer 2,468 11/14/2000 617(2)
20,000 1/2/2001 5,000
100,000 2/6/2001 25,000
------- ------
Total 122,468 30,617
------- ------
David B. Batzer 100,000 6/18/2001 25,000
Son of Bryce N. Batzer
David R. Baker 40,000 4/27/2001 10,000
BJW Investments, LLC 50,000(3) 12/28/2000 12,500
------ ------
Total 90,000 22,500
------ ------
----------------
(1) Represents $18,000 for conversion of previous advances to the Company.
(2) Expense reimbursement.
(3) Subsidiary of Baker, Johnston & Wilson LLP, of which David R. Baker is a
partner, for legal services and charges.
David R. Baker, a partner of Baker, Johnston & Wilson LLP, counsel to
the Company, loaned $15,000 to the Company on July 16, 2001 and another $15,000
on September 27, 2001. Bryce N. Batzer, a director of HOM, loaned to the Company
$15,000 on July 23, 2002 and $9,000 on September 6, 2001. Each loan was on a
demand basis and was evidenced by a note bearing interest at 12% per annum.
FISCAL YEAR ENDED SEPTEMBER 30, 2002
On October 27, 2002, Bryce N. Batzer, a director of HOM, loaned $19,000
to the Company. In late November and early December 2001, Judith C. Wilson, the
wife of Robert S. Wilson, Chairman and CEO of HOM, transferred to a brokerage
account of Homes marketable securities that were sold forthwith upon transfer
for aggregate net proceeds of $34,657, resulting in an advance to the Company by
Mrs. Wilson in that amount. Mrs. Wilson has been reimbursed $11,000 of such
amount, leaving $23,657. Both the loan by Mr. Batzer and the advance by Mrs.
Wilson were on a demand basis, Mr. Wilson's loan was evidenced by a note bearing
interest at 12% per annum.
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On January 9, 2002, the Company authorized the issuance of HOM common
stock upon conversion of loans by David R. Baker, a partner of Baker, Johnston &
Wilson, counsel to the Company, and Bryce N. Batzer, a director of HOM,
including the unpaid interest on such loans to January 9, 2002, and advances by
Judith C. Wilson, wife of Robert S. Wilson, a director of HOM, to the Company,
on the basis of $.25 per share
To limit his ownership in the Company to meet guidelines set by the
professional liability insurers of his firm, Mr. Baker's loans were not to be
converted to the extent and so long as such conversion would cause his
beneficial ownership of HOM common stock, including HOM common stock owned by
his law firm, to exceed 9.9% of the outstanding shares of HOM common stock.
As a result of such authorization, the following shares of HOM common stock have
been issued:
(a) 178,682 shares to Bryce N. Batzer in conversion of his $43,000 in
loans to the Company and $1,670interest thereon to January 9, 2002, or a total
of $44,670, and
(b) 94,627 shares to Judith C. Wilson in conversion of her $23,657 in
net advances to the Company.
(c) 47,206 shares to David R. Baker in conversion of interest to
January 9, 2002 of $1,386 on his $30,000 principal amount of loans to the
Company, and $10,416 principal amount, or a total of $11,802, leaving a
remaining unpaid principal amount of Mr. Baker's loans to the Company of $19,584
with interest thereon of 12% payable from January 9, 2002, which was agreed to
be converted when and to the extent such conversion would not cause Mr. Bakers
beneficial ownership of HOM common stock to exceed 9.9% of the total HOM common
stock outstanding.
Through December 31, 2001, the Company accrued $54,000 of salary for
Robert S. Wilson, Chairman and CEO of HOM. Mr. Wilson had indicated his
willingness to accept HOM common stock on the basis of $.25 a share in payment
of his salary, after deduction of withholding of income and FICA taxes, such
stock to be issued to him not later than June 30, 2002, and on January 9, 2002,
the Company authorized such issuance. The Company and Mr. Wilson subsequently
agreed to extend that deadline to December 31, 2003. estimated that such
withholding payments would be $14,931 and that Mr. Wilson, therefore, would be
granted 156,276 shares in payment of the remaining $39,069 of his salary.
On June 27, 2002, 41,600 shares of HOM common stock were issued to
Robert S. Wilson, Chairman and Chief Executive Officer of HOM, at $.25 a share
pursuant to a previous arrangement for the satisfaction of loans to HOM of
$8,000 on February 13, 2002 and $2,000 on February 21, 2002, plus interest to
the date of authorizing satisfaction of $400, for a total of $10,400.
PERIOD FROM OCTOBER 1, 2002 TO JANUARY 9, 2003
On December 12, 2002, MA&N acquired 4,647,626 shares ("Purchase
Shares") of HOM common stock, representing 51% of the total of 8,685,164 shares
outstanding following such acquisition plus 427,828 shares issuable (294,341
pursuant to options to be granted to Robert S. Wilson, then Chairman and Chief
Executive Officer of HOM, and 133,487 in settlement of loans to the Company by
David R. Baker, a partner of Baker, Johnston & Wilson LLP, counsel to the
Company), or a total of 9,112,992 shares. MA&N is managed by Mark Neuhaus and
his wife, Nicole Bloom Neuhaus, each of whom has a 50% equity interest in MA&N.
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The consideration for the Purchase Shares was:
a. All rights relating to the provision of ISP wireless service from
not less than five nodes, including effective lease or other authorization to
use the locations involved and all necessary equipment.
b. Consultation with the Company for at least two years on financial
and management matters with a view to materially enhancing the Company's
performance.
c. Arranging for personnel who can effect the management of the
Company.
d. Causing the Company to proceed with the contemplated business plan
of acquiring additional entities or business operations in the ISP wireless
business.
e. Funding of current payment of accounting and legal fees to enable
upcoming filings with the U.S. Securities and Exchange Commission to be made on
Form 8-K with respect to this transaction and other relevant transaction and on
Form 10-KSB with respect to the Company's fiscal year ended September 30, 2002
(which will include currently outstanding accounting fees), estimated to be in
the range of $75,000 - $100,000.
MA&N acquired control of the Company as a result of its 51% ownership
of the issued and issuable HOM common and from its control of the Board of
Directors of the Company resulting from the addition of three designees of MA&N,
Mark S. Neuhaus, Nicole Bloom Neuhaus and Ned Baramov, an employee of MA&N and
its affiliates, as directors along with the two existing directors of the
Company, Robert S. Wilson and Bryce N. Batzer (who subsequently was killed in an
automobile accident). In addition, all directors and officers of the Company and
its subsidiaries prior to the change of control are submitting their
resignations from all such positions (although MA&N undertook to cause Robert S.
Wilson and Bryce N. Batzer to continue to be directors of the Company for a
year), and Mark S. Neuhaus was appointed Chairman and President, serving as
chief executive officer, in replacement of Robert S. Wilson, and Ned Baramov was
appointed Secretary and Treasurer of the Company in lieu of Theresa A. Varin,
who had ceased being an employee of the Company.
On December 12, 2002, in connection with the change in control of the
Company, (a) Mr. Wilson agreed to accept in lieu of $54,000 in compensation
during calendar 2001, $8,000 in indebtedness of the Company and an additional
$10,000 in advances to the Company together with any interest on any of these
amounts, 5 year options to purchase 294,341 shares of HOM common stock at $.01 a
share and (b) Mr. Baker agreed to accept in lieu of indebtedness of $29,584,
together with any interest, 133,487 shares of HOM common stock.
PROMOTER AND CONTROLLING PERSONS
Robert S. Wilson may be deemed to be a promoter of the Company in view
of his role in arranging the spin off of one share of the common stock of Direct
for each 10 shares of common stock of Apple Homes, Inc. Mr. Wilson received no
compensation or other payments related thereto, although, as a shareholder of
Apple Homes, Inc., he received 19,414, and members of his immediate family
received 5,390, shares of the common stock of Direct. See Item 5. DIRECTORS,
OFFICERS, PROMOTERS AND CONTROL PERSONS. MA&N may be deemed a parent of HOM in
view of its ownership of 51% of the outstanding HOM common stock.
-41-
MA&N, through its majority ownership of the outstanding HOM common
stock, and Mark S. Neuhaus and Nicole Bloom Neuhaus as the owners of MA&N and
directors of HOM (Mr. Neuhaus is the Chairman and President (Chief Executive
Officer) of HOM) may be deemed the controlling persons of HOM, along with Ned
Baramov, a director and Secretary-Treasurer of HOM, and Robert S. Wilson, a
director of HOM and owner (with shares owned by his wife, in which he disclaims
beneficial interest, but not including 294,341 shares subject to options to be
granted him) of 758,041 shares of HOM, representing 8.6% of the outstanding
shares of HOM common stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
The following exhibits are filed with this Registration Statement:
EXHIBIT NO. EXHIBIT NAME
----------- ------------
2.1 Stock Acquisition Agreement for 51% of the outstanding and
issuable Common Stock of HOM Corporation dated December 12,
2002 by and between MA&N LLC and HOM Corporation (Exhibit B
omitted, to be furnished upon request of the Commission) (1)
2.2 Sale of Assets Agreement dated November 15, 2002 by and
between HOM Corporation and Stuckey Enterprises (list of
assets omitted, to be furnished upon request of the
Commission) (1)
3.1 Articles of Incorporation of HOM Corporation (2)
3.2 By-Laws of HOM Corporation (1)
3.3 By-Laws of HOM Corporation as adopted December 12, 2002
4. Instrument defining rights of holders (See Exhibit No. 3.1,
Articles of Incorporation - Article Four)
10.1 Agreement with B. Michael Pisani (2)
10.3 Agreement dated June 22, 2001 between Howard Bronson and HOM
Corporation (3)
21.1 List of Subsidiaries of HOM Corporation (2)
99.5 Consent of Elliott Davis, L.L.C.
(1) Incorporated by reference to the exhibit as filed with Form 8K of HOM
Corporation, with Securities and Exchange Commission filing date of December 27,
2002.
(2) Incorporated by reference to the exhibit as filed with Form 10-SB of HOM
Corporation, with Securities and Exchange Commission filing date of February 9,
2001.
(3) Incorporated by reference to the exhibit as filed with Form 10-SB/A2 of HOM
Corporation, with Securities and Exchange Commission filing date of August 31,
2001.
REPORTS ON FORM 8K
No reports on Form 8-K were filed during the last quarter of the year
ended September 30, 2002.
ITEM 14. CONTROLS AND PROCEDURES
As set forth herein, on December 12, 2002, there was a change of
control of the issuer. Mark S. Neuhaus was appointed Chairman of the Board and
President (Chief Executive Officer), and Ned Baramov was appointed
Secretary-Treasurer (Chief Financial Officer), of HOM. They have learned that,
as of December 12, 2002, there were no formal controls or procedures that were
designed to ensure that information that is required to be disclosed by the
Company in the reports that it files or submits under the Securities and
-42-
Exchange Act of 1934, as amended ("Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the rules and
regulations of the Securities and Exchange Commission. See "disclosure controls
and procedures" as defined in Rule 13a-14(c) of the Exchange Act. Because of the
limited staff of the Company, the former Chairman of the Board and Chief
Executive Officer of the Company, Robert S. Wilson, was personally involved in
all significant transactions of the Company, so that he would have personal
knowledge of the matters as to which Messrs. Neuhaus and Baramov make
certification following the signatures to this annual report. Mr. Wilson has
been involved in the preparation and review of this annual report, including the
financial statements herein, and has certified the accuracy of the facts set
forth herein to the best of his knowledge.
While the informal procedures heretofore may have been sufficient and
effective under prior circumstances, particularly in view of Mr. Wilson's
regular consultation with outside accountants and legal counsel, as the Company
increases in size and complexity, they will be inadequate. The Company,
therefore, is reviewing controls and other procedures appropriate to the
evolving situation of the Company to assure that the information required to be
disclosed by the Company in the reports it files under the Exchange Act is
timely disclosed and made available to the management of the Company and will
implement such controls and other procedures as necessary.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HOM CORPORATION
(Registrant)
By /s/ Mark S. Neuhaus
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: January 14, 2003
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Mark S. Neuhaus
Mark S. Neuhaus, Chairman and President (Chief Executive Officer)
Date: January 14, 2003
/s/ Ned Baramov
Ned Baramov, Secretary-Treasurer, (Chief Financial Officer)
Date: January 14, 2003
-43-
CERTIFICATIONS
Pursuant to Section 302 of the Public Company Accounting Reform and Investor
Protection Act of 2002 (18 U.S.C. ss. 1350, as adopted), I, Mark S. Neuhaus,
certify that:
1. I have reviewed this annual report on Form 10-KSB of HOM Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annaul report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 14, 2003 /S/ MARK S. NEUHAUS
-------------------
Mark S. Neuhaus
Chairman and President
(Chief Executive Officer)
HOM Corporation
-44-
Pursuant to Section 302 of the Public Company Accounting Reform and Investor
Protection Act of 2002 (18 U.S.C. ss. 1350, as adopted), I, Ned Baramov, certify
that:
1. I have reviewed this annual report on Form 10-KSB of HOM Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: January 14, 2003 /S/ NED BARAMOV
---------------
Ned Baramov
Secretary and Treasurer
(Chief Financial Officer)
HOM Corporation
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