U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number
HomeZipR Corp.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-0682860
State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
33161 Camino Capistrano, Suite F, San Juan Capistrano, California
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(949) 487-4992
--------------
(Issuer's telephone number)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
As of December 27, 2001, the Company had 15,749,866 shares of its no par value
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
HOMEZIPR CORP.
--------------
INDEX TO FORM 10-QSB
--------------------
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
----------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheet as of September 30, 2001.........3
Condensed Consolidated Statements of Operations for the three months
and six months ended September 30, 2001 and 2000 and the period
March 14, 2000 (inception) through September 30, 2001.................4
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 2001 and 2000 and the period
March 14, 2000 (inception) through September 30, 2001...............5-6
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation............18
PART II OTHER INFORMATION...........................................19
Signatures..................................................20
2
HOMEZIPR CORP.
--------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
SEPTEMBER 30, 2001
------------------
(UNAUDITED)
-----------
ASSETS
------
PROPERTY AND EQUIPMENT, net (Note 3) $ 107,963
--------------
Total assets $ 107,963
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable and other accrued expenses $ 89,285
Accrued payroll and related liabilities 251,362
Stock subscriptions refund payable 45,000
Common stock redemption liability (Note 6) 729,167
--------------
Total current liabilities 1,114,814
--------------
REDEEMABLE COMMON STOCK (Note 6)
214,293 shares issued and outstanding 750,000
--------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' DEFICIT
Preferred stock, no par value,
10,000,000 shares authorized no shares issued
Common stock, no par value,
50,000,000 shares authorized, 15,535,573 shares issued and outstanding
exclusive of 214,293 shares of redeemable common stock issued and
outstanding 1,700,723
Deficit accumulated during the development stage (3,457,574)
--------------
Total stockholders' deficit (1,756,851)
--------------
Total liabilities and stockholders' deficit $ 107,963
==============
See the accompanying notes to these condensed consolidated financial statements
3
HOMEZIPR CORP.
--------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
MARCH 14, 2000
(INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000 2001
--------------- --------------- ---------------- ---------------- ----------------
REVENUES
Loan origination fees $ --- $ 65,876 $ --- $ 65,876 $ 131,599
--------------- --------------- ---------------- ---------------- ----------------
OPERATING EXPENSES:
Commissions, compensation and
benefits --- 647,209 --- 647,209 1,528,182
General and administrative 179,421 293,928 433,836 332,549 1,566,726
Loss on abandonment of fixed
assets (Note 2) --- --- --- --- 494,265
--------------- --------------- ---------------- ---------------- ----------------
Total expenses 179,421 941,137 433,836 979,758 3,589,173
--------------- --------------- ---------------- ---------------- ----------------
LOSS BEFORE INCOME TAXES (179,421) (875,261) (433,836) (913,882) (3,457,574)
PROVISION FOR INCOME TAXES (Note 4) --- --- --- --- ---
--------------- --------------- ---------------- ---------------- ----------------
NET LOSS $ (179,421) $ (875,261) $ (433,836) $ (913,882) $ (3,457,574)
=============== =============== =============== ================ ================
BASIC AND DILUTED LOSS PER SHARE $ (.01) $ (.06) $ (.03) $ (.07) $ (.24)
=============== =============== =============== ================ ================
SHARES USED TO COMPUTE BASIC AND
DILUTED LOSS PER SHARE
INCLUDING 214,293 SHARES OF
REDEEMABLE COMMON STOCK 15,749,866 14,549,889 15,749,866 12,672,063 14,379,848
=============== =============== =============== ================ ================
See the accompanying notes to these condensed consolidated financial statements
4
HOMEZIPR CORP.
--------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
MARCH 14, 2000
(INCEPTION)
SIX MONTHS ENDED SEPTEMBER 30, THROUGH
------------------------------ SEPTEMBER 30,
2001 2000 2001
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (433,836) $ (913,882) $(3,457,574)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 14,359 25,103 33,570
Costs provided in exchange for common stock --- 196,875 472,500
Rent provided by a stockholder in exchange for
addition to common stock equity 3,000 --- 3,000
Loss from abandonment of fixed assets --- --- 494,264
Non-cash charge for mandatory redemption liability 354,167 --- 729,167
Changes in operating assets and liabilities
Receivables --- (61,300) ---
Prepaid expenses 2,500 16,089 ---
Deposits --- (50,565) ---
Accounts payable and other accrued expenses 30,588 331,004 42,461
Accrued payroll and related liabilities 28,977 --- 251,362
------------ ------------ ------------
Net cash used in operating activities (245) (456,676) (1,431,250)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --- (4,117) (78,605)
------------ ------------ ------------
Net cash used in investing activities --- (4,117) (78,605)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to affiliates --- 278,070 ---
Proceeds from issuance of common stock --- 95,649 666,105
Increase in stock subscriptions refund payable --- --- 45,000
Proceeds from issuance of redeemable common stock --- --- 750,000
Funds received from stock subscription receivable --- 48,750 48,750
------------ ------------ ------------
Net cash provided by financing activities --- 422,469 1,509,855
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (245) (38,324) ---
CASH AND CASH EQUIVALENTS, beginning of period 245 81,350 ---
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ --- $ 43,026 $ ---
============ ============ ============
See the accompanying notes to these condensed consolidated financial statements
5
HOMEZIPR CORP.
--------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
MARCH 14, 2000
(INCEPTION)
SIX MONTHS ENDED SEPTEMBER 30, THROUGH
------------------------------ SEPTEMBER 30,
2001 2000 2001
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ --- $ --- $ 10,949
Cash paid during the period for income taxes $ --- $ --- $ ---
See the accompanying notes to these condensed consolidated financial statements
6
HOMEZIPR CORP.
--------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 2001 AND 2000
---------------------------
(UNAUDITED)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying condensed consolidated
financial statements include the accounts of HomeZipR Corp. (the "Company") and
its wholly owned subsidiary, HomeZipR.com Corp.
The management of HomeZipR Corp. without audit has prepared the
financial statements included herein. The accompanying unaudited financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted. In the opinion of the
management of the Company, all adjustments considered necessary for fair
presentation of the financial statements have been included and were of a normal
recurring nature, and the accompanying financial statements present fairly the
financial position as of September 30, 2001, and the results of operations for
the three months and six months ended September 30, 2001 and September 30, 2000
and its cash flows for the six months ended September 30, 2001 and September 30,
2000, and the period March 14, 2000 (inception) through September 30, 2001. The
interim results are not necessarily indicative of the results for the full year.
On July 31, 2000, MRI Medical Diagnostics, Inc. ("MRI") conducted a
reorganization with HomeZipR.com Corp. ("HomeZipR"), a Delaware Corp. Pursuant
to the terms of a Securities Purchase and Plan or Reorganization between MRI and
the stockholders of HomeZipR, MRI acquired all of the outstanding shares of
HomeZipR's common stock in exchange for 22,393,671 shares of MRI's common stock
and 5,000,000 shares of its Series A Preferred Stock (the "Reorganization").
Following the Reorganization, the former stockholders of HomeZipR owned
approximately 42% of the Registrant's outstanding common stock and approximately
94% of its outstanding preferred stock. Together, this accounted for
approximately 90% of the Registrant's total outstanding voting power. Effective
after the reverse acquisition, the Company approved a 1 for 18.85077263 reverse
split (the "Reverse Split") of its common stock. Also effective after the
reverse acquisition the stockholders of the Series A Preferred Stock converted
into common stock. Because the stockholders of HomeZipR owned approximately 90%
of the outstanding shares of the common stock of the Company after giving effect
to the Reorganization, the acquisition of HomeZipR was considered a reverse
merger, and HomeZipR has been deemed the acquirer for accounting purposes. In a
reverse merger, the historical stockholders' equity of the acquirer prior to the
merger is retroactively restated (a recapitalization) for the equivalent number
of shares received in the merger after giving effect to any difference in par
value of the issuers and acquirers stock by an offset to capital. All share and
per share information has been presented in the accompanying condensed
consolidated financial statements as if the recapitalization had occurred as of
the first day presented in the condensed consolidated financial statements.
Subsequent to the reorganization, the Company changed its name to HomeZipR Corp.
7
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION - The accompanying condensed consolidated
financial statements include the accounts of HomeZipR Corp. and its wholly owned
subsidiary, HomeZipR.com. All significant intercompany accounts and
transactions, if any, have been eliminated.
DESCRIPTION OF BUSINESS - HomeZipR Corp. a Colorado corporation
formerly known as MRI Medical Diagnostics, Inc. (the "Company") is a development
stage company. The Company plans to develop a consumer direct business that will
utilize e-commerce as a delivery mechanism dedicated to providing resources to
homeowners. The Company was engaged in the business of securing home equity and
residential mortgages in several states across the nation. In December 2000, the
Company ceased its mortgage brokerage activities and focused its efforts on
developing the consumer direct business and raising funds to finance its new
business strategy. Accordingly, the Company is classified as a development stage
company in accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises".
GOING CONCERN - The accompanying condensed consolidated financial
statements have been prepared assuming the Company will continue as a going
concern, which contemplates, among other things, the realization of assets and
satisfaction of liabilities in the normal course of business. As of Septemer 30,
2001, the Company has negative working capital, negative cash flows from
operations, liabilities from underpayment of payroll taxes and a stockholders'
deficit of $3,457,574. In addition, the Company has ceased its only revenue
producing activity, and the Company's subsidiary (HomeZipR.com) has filed for
voluntary Chapter 7 bankruptcy. All of these facts raise substantial doubt about
its ability to continue as a going concern.
The Company's continued existence is dependent upon several factors
including the Company's ability to fund its operations and its ability to
restructure its business plan. Management believes the Company will be able to
obtain the necessary funding for its operations through private placement
offerings of company stock. Management also believes that its future business
plan will materialize once the Company has the ability to fund its operations.
The successful outcome of future activities cannot be determined at this time,
and there are no assurances that if achieved, the Company will have sufficient
funds to execute its intended business plan or generate positive operating
results.
These circumstances raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
RISKS AND UNCERTAINTIES - The Company's operations are subject to
significant risks and uncertainties, including financial, operational,
technological and other risks associated with an emerging business, including
the risk of business failure.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities and changes therein, and
disclosure of contingent assets and liabilities. Accordingly, actual results
could differ materially from those estimates.
8
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
107 ("SFAS 107"), "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS". SFAS
107 requires disclosure of fair value information about financial instruments
when it is practicable to estimate that value. The carrying amounts of the
Company's financial instruments as of September 30, 2001 approximate their
respective fair values because of the short-term nature of these instruments.
Such instruments consist of accounts payable, accrued expenses, stock
subscriptions refund payable, common stock redemption liability and redeemable
common stock.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets, which range from three (3) to seven (7)
years. Management evaluates useful lives regularly in order to determine
recoverability taking into consideration current technological conditions.
Repairs and maintenance are charged to expense as incurred while improvements
are capitalized. Upon the sale or retirement of property and equipment, the
accounts are relieved of the cost and the related accumulated depreciation, with
any resulting gain or loss included in the statements of operations.
START-UP ACTIVITIES - The Company has adopted the provisions of
Statement of Position 98-5, "Reporting Costs of Start-up Activities" ("SOP
98-5"). SOP 98-5 requires that the costs of start-up activities including
organization costs be expensed as incurred.
CASH AND CASH EQUIVALENTS - For purposes of the balance sheet and
statements of cash flows, cash and cash equivalents consist of all cash balances
and highly liquid investments with an initial maturity of three (3) months or
less.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the
recoverability of long-lived assets in accordance with Statement of Financial
Accounting Standards No. 121 ("SFAS. 121"), "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. At September 30, 2001, management determined that
the Company's long-lived assets which consist of property and equipment are not
impaired. There can be no assurance, however, that market conditions will not
change which could result in additional future long-lived asset impairments.
REVENUE RECOGNITION - The Company recognizes service revenue upon
performance of services and customer acceptance.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "ACCOUNTING FOR INCOME
TAXES". Under SFAS 109, deferred tax assets and liabilities are recognized for
the expected tax consequences of attributable differences between the tax bases
and reported amounts of assets and liabilities. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities from a change in
tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is provided for significant deferred tax assets when
it more likely than not that such assets will not be recovered.
9
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE- The Company has adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "EARNINGS PER SHARE". Under
SFAS 128, basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares assumed to
be outstanding during the period of computation. Diluted earnings per share is
computed similar to basic earnings per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential shares had been issued and if the additional common
shares were dilutive. Stock options and warrants outstanding are not considered
common stock equivalents, as the effect on net loss per share would be
anti-dilutive.
STOCK BASED COMPENSATION - The Company accounts for non-employee stock
based compensation under Statement of Financial Accounting Standards No. 123
("SFAS 123"), SFAS 123 defines a fair value based method of accounting for stock
based compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES". Under APB
25, compensation cost, if any, is recognized over the respective vesting period
based on the difference, on the date of grant, between the fair value of the
Company's common stock and the grant price. Entities electing to remain with the
accounting method of APB 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value method of accounting defined in SFAS
123 had been applied. The Company has elected to account for its stock based
compensation to employees under APB 25.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION", an
interpretation of APB 25. FIN 44 clarifies the application of APB 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequences for various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain provisions cover specific events that occur after either December
15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a material
effect on the financial statements.
SEGMENT INFORMATION - The Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION", during fiscal 1999. SFAS 131 establishes
standards for the way that the public companies report information about
operating segments and related disclosures about products and services,
geographic areas and major customers in annual condensed consolidated financial
statements. The Company views its operations and manages its business as
principally one segment.
10
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WEB SITE DEVELOPMENT COSTS - In March 2000, the Emerging Issues Task
Force reached a consensus on Issue No. 00-2, ("EITF 00-2"), "ACCOUNTING FOR WEB
SITE DEVELOPMENT COSTS", to be applicable to all web site development costs
incurred for the quarter beginning after June 30, 2000. The consensus states
that for specific web site development costs, the accounts for such costs should
be accounted for under AICPA Statement of Position 98-1 ("SOP 98-1"),
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPMENT OR OBTAINED FOR
INTERNAL USE". The adoption of EITF 00-2 did not have a material impact on the
Company's financial position or results of operations.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Effective September 1,
2000, the Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", as
amended by SFAS 137 and 138. The new accounting standard requires that all
derivative instruments be recorded on the balance sheet at fair value. This
statement, as amended by SFAS 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
has determined that there is no impact on its results of operations or financial
position as a result of adopting this standard.
ACCOUNTING PRONOUNCEMENTS - In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "BUSINESS Combinations,"
which is effective for business combinations initiated after June 30, 2001. SFAS
141 eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring after July 1,
2001 are accounted for under the purchase method. The Company has not been
affected by SFAS 141.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "GOODWILL AND OTHER INTANGIBLE ASSETS," which is
effective for fiscal years beginning after December 15, 2001. Early adoption is
permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not been previously
issued. SFAS 142 addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in the financial
statements upon their acquisition and after they have been initially recognized
in the financial statements. SFAS 142 requires that goodwill and intangible
assets that have indefinite useful lives not be amortized but rather be tested
at least annually for impairment, and intangible assets that have finite useful
lives be amortized over their useful lives. SFAS 142 provides specific guidance
for testing goodwill and intangible assets that will not be amortized for
impairment. The Company has not been affected by SFAS 142.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS."
SFAS 143 established standards associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company does not expect SFAS 143 to have a material impact on its
financial statements.
11
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS." SFAS 144 addresses financial accounting and reporting for
the impairment of long-lived assets to be disposed of. The provisions of SFAS
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within these fiscal years, with
early adoption encouraged. The Company does not expect SFAS 144 to have a
material impact on its financial statements.
STOCK SPLIT - In September 2000, the Company completed a 18.85077263
for 1 reverse stock split of its common stock. Accordingly, all share and per
share amounts have been retroactively restated in the condensed consolidated
financial statements to reflect this split.
NOTE 2 - ACQUISITION OF ASSETS
On July 31, 2000, concurrent with the closing of the reorganization
described above, the Company acquired certain fixed assets in exchange for
320,463 shares of the Company's Series A Preferred Stock. The stockholders of
the Series A Preferred Stock have subsequently converted their shares into
850,000 shares of common stock.
The assets from this acquisition were used for the subsidiary's
operations in Atlanta, Georgia. Operations have subsequently ceased in Atlanta
and the subsidiary has filed for bankruptcy. The fixed assets from Atlanta have
been abandoned due to the shut down of the subsidiary. It is management's belief
that the assets cannot be retained. Therefore, the Company elected to remove the
assets and record a loss from abandonment. For the fiscal year ended March 31,
2001 the loss from abandonment was $494,264.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at September 30,
2001:
Office equipment $ 74,620
Furniture and fixtures 21,913
Computer equipment 45,000
---------------
141,533
Less: accumulated depreciation (33,570)
---------------
$ 107,963
===============
12
NOTE 4 - INCOME TAXES
The Company has incurred operating losses from the period March 14,
2000 (inception) through September 30, 2001. As a result, no income tax expense
has been recorded other than the minimum state tax provision, and the tax
benefit of net operating losses has been offset by valuation allowances.
The components of the provision for income taxes are summarized as
follows:
PERIOD MARCH 14
SIX MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
--------------------------------- SEPTEMBER 30,
2001 2000 2001
-------------- -------------- --------------
Current $ --- $ --- $ ---
Deferred 30,500 365,600 1,240,000
Change in valuation allowance (30,500) (365,600) (1,240,000)
-------------- -------------- --------------
Provision for taxes $ --- $ --- $ ---
============== ============== ==============
The following table reconciles the federal statutory income tax rate to
the effective tax rate of the provision for income taxes:
PERIOD MARCH 14
SIX MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
--------------------------------- SEPTEMBER 30,
2001 2000 2001
-------------- -------------- --------------
Federal statutory income tax rate (34.0%) (34.0%) (34.0%)
State income taxes, net of federal benefit (6.0%) (6.0%) (6.0%)
Valuation allowance on net operating losses 40.0% 40.0% 40.0%
-------------- -------------- --------------
Effective tax rate ---% ---% ---%
============== ============== ==============
The components of the net deferred tax asset at June 30, 2001 are
summarized below:
Deferred tax asset
Net operating losses $ 1,240,000
Less: valuation allowance (1,240,000)
----------------
$ ---
================
13
NOTE 4 - INCOME TAXES (CONTINUED)
The Company has fully reserved for the tax benefits of its net
operating losses at June 30, 2001 because of uncertainty about realization. As
of September 30, 2001, the Company had a net operating loss carryforward for
federal and state purposes available to offset future taxable income of
approximately $2,676,000 which expire at various times through 2020 and 2005,
respectively. For income tax purposes, only a portion of the net operating loss
can be utilized in any given year if the Company that generated the loss has
more than a fifty percent (50%) change in ownership in a three (3) year period.
Accordingly, there may be limitations on the use of the Company's net operating
loss carryforwards.
NOTE 5 - LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share:
PERIOD
MARCH 14
SIX MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
--------------------------------- SEPTEMBER 30,
2001 2000 2001
-------------- -------------- --------------
Numerator for basic and diluted loss
per common share:
Net loss $ (433,836) $ (913,882) $ (3,457,574)
============== ============== ==============
Denominator for basic and diluted loss
per common share:
Weighted average
Common shares outstanding 15,749,866 12,672,063 14,379,848
============== ============== ==============
Net loss per common share $ (.03) $ (.07) $ (.24)
============== ============== ==============
14
NOTE 6 - REDEEMABLE COMMON STOCK AND COMMON STOCK REDEMPTION LIABILITY
The Company has entered into certain agreements with investors for the
sale of its common stock. In October 2000, the Company issued to three investors
214,293 shares of its common stock at $3.50 a share in exchange for cash of
$750,000. The Company has guaranteed that each share can be sold on the open
markets at a price of $7.00 per share or more. If the market price does not meet
or exceed the $7.00 per share price the Company has agreed to repurchase the
shares at that price. The effective term of the guarantee is one year beginning
October 9, 2000. Any amounts payable may be made, at the option of the Company,
in cash or in additional shares of the Company's common stock, provided,
however, that in the event that the Company elects to make such payment in
shares of stock, such stock shall be registered for resale under the securities
act. The Company's majority shareholder has personally guaranteed the Company's
obligations. If the Company defaults on the guaranteed return the investor can
be remedied by proceeding against the Company and/or foreclosing on a mortgage
that was used as security for the agreement. The mortgage was pledged by a
Company shareholder. The shareholder has subsequently filed for personal
bankruptcy, and a sale of the underlying real estate associated with the
mortgage has occurred. Approximately $575,000 of proceeds related to the sale is
being held in escrow as potential collateral for the redeemable common stock
shareholders.
The Company has elected to amortize the difference between the
guaranteed stock price of $7.00 and the stock purchase price of $3.50 over a
twelve month period beginning October 9, 2000. The common stock redemption
liability as of September 30, 2001 is $729,167. The remaining redemption
liability that will be amortized through October, 2001 is $20,833.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On October 3, 2000, Household Commercial Financial Services, Inc.
("Household") filed a complaint against the Company's subsidiary (HomeZipR.com
Corp., a Delaware corporation, one of its former directors, Kenneth C. Ketner,
and Mortgage Capital Resource Corporation ("MCR"), among others. Household
alleged that it had provided a mortgage banking warehouse line of credit to MCR
and that the line of credit has been personally guaranteed by Mr. Ketner. The
Household complaint alleges that MCR committed certain acts of default under the
line of credit and seeks recovery of monies owed from MCR and Mr. Ketner. The
allegations in the Household complaint concerning HomeZipR.com Corp. are that
the sale of certain assets by MCR to HomeZipR.com Corp. constituted a fraudulent
conveyance based on the failure of HomeZipR.com Corp. to provide adequate
consideration to MCR for the purchased assets. The complaint seeks to set aside
the sale of the assets by MCR to HomeZipR.com Corp. and an accounting by
HomeZipR.com Corp. for all profits and proceeds earned or acquired in exchange
for the assets purchased from MCR. The Company intends to vigorously defend the
action.
In October 2000, Regions Bank filed a compliant against HomeZipR.com
Corp., Mr. Ketner and MCR. Regions alleged that it had provided a mortgage
banking warehouse line of credit to MCR and that the line of credit has been
personally guaranteed by Mr. Ketner. The Regions complaint includes allegations
against HomeZipR.com Corp. and Mr. Ketner similar to those included in the
Household compliant. The Company intends to vigorously defend the action.
15
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's subsidiary has recorded an accrual for unpaid federal and
state payroll tax liabilities. The tax liabilities have been unpaid for several
months. Because the taxes have not been paid, an accrual for penalties and
interest has also been made. As of September 30, 2001, accrued payroll tax
liabilities were approximately $251,000. As previously discussed the subsidiary
has filed for voluntary Chapter 7 bankruptcy. The Company has potential
liability for its subsidiary's liability relating to the unpaid payroll taxes
and penalties.
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK - The Company's articles of incorporation authorize up
to 10,000,000 shares of no par value preferred stock. Shares of preferred stock
may be issued in one or more classes or series at such time and in such
quantities the board of directors may determine. All shares of any one series
shall be equal in rank and identical in all respects.
In July 2000, the Company issued an aggregate of 320,463 shares of its
Series A Preferred Stock to Mortgage Capital Resource Corporation in
consideration for the purchase of certain fixed assets of Mortgage Capital
Resource Corporation. The shares were converted into 850,000 shares of common
stock giving effect to the previously disclosed reverse stock split. Upon
conversion the Series A Preferred stock reverted to its original preferred stock
status and is available for designation.
COMMON STOCK - During the period ended March 31, 2000, the Company sold
an aggregate of 2,113,392 shares of its common stock to investors for an
aggregate purchase price of $112,500.
During the year ended March 31, 2001, the Company sold an aggregate of
2,845,936 shares of its common stock to investors for an aggregate purchase
price of $602,355.
STOCK OPTION PLAN - The Company's Stock Option Plan (the "Plan") became
effective on September 5, 2000. The Plan provides for the issuance of incentive
and non-qualified stock options to the Company's employees, officers, directors,
consultants and independent contractors. The maximum number of shares which may
be issued pursuant to options was fixed at 2,000,000 by the Company's board of
directors.
The Plan is administered by the Company's board of directors.
Generally, the board may amend or terminate the Plan if it does not cause any
adverse effect on any then outstanding options or unexercised portions thereof.
The board of directors must obtain the consent of the stockholders to increase
the number of shares covered by the Plan, to change the class of persons
eligible to receive options, or to extend the term of the Plan beyond 10 years.
The board of directors sets the exercise price for each option award. Incentive
stock options must have an exercise price equal to at least 100% of the fair
value of the underlying common stock on the date of the grant, and options
granted to a person who owns more than 10% of the voting power of the
outstanding common stock and any outstanding common stock of our subsidiaries
must have an exercise price equal to at least 110% of the fair value of the
underlying common stock on the date of grant.
As of September 30, 2001 no options have been granted under the Plan.
16
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
STOCK WARRANTS - Pursuant to stock purchase agreements associated with
the redeemable common stock, the Company issued warrants to purchase 214,286
shares of the Company's common stock at an exercise price of $5.00 per share.
The warrants vested on the date of grant and are exercisable through December
2003. As these warrants were issued in connection with fundraising activities,
no consulting expense was recognized for these warrants in the statements of
operations.
The following represents a summary of the warrants outstanding at June
30, 2001:
WEIGHTED
AVERAGE
EXERCISE
WARRANTS PRICE
----------------- ----------------
Outstanding, March 31, 2001 214,286 $ 5.00
Granted --- ---
Exercised --- ---
Expired/forfeited --- ---
----------------- ----------------
Outstanding, September 30, 2001 214,286 $ 5.00
================= ================
Exercisable, September 30, 2001 214,286 $ 5.00
================= ================
Weighted average fair value of warrants granted $ 5.00
================
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
- -------
Results of Operations and Financial Condition
---------------------------------------------
During the fiscal year ended March 31, 2001, and pending the roll-out
of its Internet portal, the Company commenced providing mortgage brokerage
services on a limited basis. During the fiscal year ended March 31, 2001, the
Company generated $131,599 of revenue from loan origination fees against
$2,730,737 of expenses. The Company realized a net loss of $2,599,138 for the
year ended March 31, 2001. However, the Company had to cease all operations and
lay off all of its employees in December 2000 due to a lack of capital and its
operating subsidiary filed a petition under Chapter 7 of the Bankruptcy Code in
April 2001. The Company intends to launch its Internet portal when, if ever, it
receives the required additional capital.
As of September, 2001, the Company had negative working capital of
$(1,114,814). The Company expects to incur losses from operations for, at least,
the next several months and the Company will require significant additional
capital.
Plan of Operations
- ------------------
As of the date of this report, the Company has limited assets and no
revenue producing operations. The Company believes that it will require a
minimum of $2,000,000 over the next 12 months in order to implement its business
plan. The Company intends to raise the necessary capital from the sale of its
securities. However, there are no commitments, understandings or arrangements
for the purchase of the Company's securities by any third parties and there can
be no assurance that the Company will be able to raise the necessary capital as
and when needed. The Company's failure to raise the necessary capital on a
timely basis will prevent the Company from implementing its proposed business
plan and may cause the Company to terminate its operations. The report of the
Company's independent accountants for the fiscal year ended March 31, 2001
states that due to the absence of operating revenues and the Company's limited
capital resources, there is doubt about the Company's ability to continue as a
going concern.
Forward Looking Statements
- --------------------------
This report contains forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties including, but no limited to, the Company's present
financial condition and its ability to obtain additional capital as and when
needed; its ability to roll-out its Internet portal on a timely basis and the
commercial acceptance of the services and products offered through the portal;
litigation claims relating to its acquisition of certain assets from Mortgage
Capital Resource; technological changes; increased competition; and general
economic conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, or projected. The Company
cautions potential investors not to place undue reliance on any such
forward-looking statements all of which speak only as of the date made.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Inapplicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-19-
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HomeZipR Corp.
(Registrant)
Dated: December 27, 2001 By: /s/ Michael Reza
--------------------------
Michael Reza,
Chief Executive Officer
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