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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-29204
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HOMECOM COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 58-2153309
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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BUILDING 14, SUITE 100,
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
(Address of principal executive offices and zip code)
(404) 237-4646
(Registrant's telephone number, including area code)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) and has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
As of November 11, 1999, there were _______ 6,673,203 outstanding shares of
the Registrant's Common Stock, par value $.0001 per share.
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HOMECOM COMMUNICATIONS, INC.
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
1) Balance Sheets as of September 30, 1999 and December 31,
1998...................................................... 3
2) Statements of Operations for the three and nine months
ended September 30, 1999 and 1998......................... 4
3) Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998............................... 5
4) Notes to Financial Statements............................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................... 18
Signatures.................................................. 19
Exhibit Index............................................... 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
1999 1998
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,582,670 $ 2,291,932
Restricted cash........................................... -- 250,000
Accounts receivable, net of allowance for uncollectible
accounts of $214,930 and $95,384 as of September 30,
1999 and December 31, 1998, respectively................ 1,707,035 680,790
Loans to shareholders..................................... 370,000
Other current assets...................................... 413,464 4,796
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Total current assets.................................... 5,073,169 3,227,518
FURNITURE, FIXTURES AND EQUIPMENT, NET...................... 1,036,582 797,263
DEPOSITS.................................................... 242,182 80,231
DEFERRED ACQUISITION COSTS.................................. -- 109,158
INTANGIBLE ASSETS, NET...................................... 5,445,864 351,320
OTHER ASSETS................................................ 245,974 --
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Total assets............................................ $ 12,043,771 $ 4,565,490
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 1,397,909 $ 424,094
Accrued payroll liabilities............................... 426,213 300,927
Unearned revenue.......................................... 155,221 128,345
Current portion of obligations under capital leases....... 109,442 108,427
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Total current liabilities............................... 2,088,785 961,793
OTHER LIABILITIES........................................... 72,019 67,006
OBLIGATIONS UNDER CAPITAL LEASES............................ 126,353 88,242
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2,287,157 1,117,041
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REDEEMABLE PREFERRED STOCK $.0001 par value, 125 shares
authorized, Series B, 125 issued and outstanding at
September 30, 1999, respectively and 0 shares outstanding
on December 31, 1998, convertible, participating;
liquidation preference.................................... 1,649,469 --
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STOCKHOLDERS' EQUITY:
Preferred stock $0.001 par value, 1,000,000 authorized,
Series C and Series D 175 and 75 authorized, issued, and
outstanding at September 30, 1999, respectively, and 0
shares outstanding on December 31, 1998, convertible,
participating, liquidation value........................ 3 --
Common stock, $.0001 par value, 15,000,000 shares
authorized, 6,669,765 and 5,072,397 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively............................................ 667 507
Additional paid-in capital.................................. 21,798,069 10,355,724
Subscriptions receivable.................................... (98,440) (196,878)
Accumulated deficit......................................... (13,593,154) (6,710,904)
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Total stockholders' equity................................ 8,107,145 3,448,449
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Total liabilities and stockholders' equity................ $ 12,043,771 $ 4,565,490
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The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1999 1998 1999 1998
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NET SALES:
Service sales............................ $ 1,958,275 $ 464,493 $ 4,760,878 $ 1,854,708
Equipment sales.......................... 101,405 13,879 118,084 30,219
Total net sales........................ 2,059,681 478,372 4,878,962 1,884,927
COST OF SALES:
Cost of services......................... 1,450,941 398,108 3,289,155 1,176,045
Cost of equipment sold................... 50,407 98,565 115,573 197,957
Total cost of sales.................... 1,501,348 496,673 3,404,728 1,374,002
GROSS PROFIT............................... 558,333 (18,301) 1,474,234 510,925
OPERATING EXPENSES:
Sales and marketing...................... 1,348,107 136,678 2,787,569 439,045
Product development...................... 426,871 167,556 691,004 291,420
General and administrative............... 1,305,141 1,171,988 3,489,424 3,421,972
Depreciation and amortization............ 485,139 124,110 1,010,236 302,906
Total operating expenses............... 3,566,258 1,600,332 (7,928,233) 4,455,343
OPERATING (LOSS)........................... (3,007,925) (1,613,633) (6,503,999) (3,944,418)
OTHER EXPENSES (INCOME)
Gain on sale of division................. (4,402,076)
Interest expense......................... 9,262 5,494 25,416 444,023
Other expense (income), net.............. (8,839) (58,421) (48,749) (125,577)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES...................... (3,008,349) (1,565,706) (6,480,666) 139,212
INCOME TAX PROVISION (BENEFIT).............
INCOME (LOSS) FROM CONTINUING OPERATIONS... (3,008,329) (1,565,706) (6,480,666) 139,212
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS............................... (115,275) (50,610) (401,584) (34,670)
----------- ----------- ----------- -----------
NET INCOME (LOSS).......................... (3,123,624) (1,616,316) (6,882,250) 104,542
PREFERRED STOCK DIVIDEND................... (522,841) (1,315,231) (666,667)
----------- ----------- ----------- -----------
LOSS APPLICABLE TO COMMON SHAREHOLDERS..... $(3,646,465) $(1,616,316) $(8,197,481) $ (562,125)
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE--BASIC AND
DILUTED..................................
CONTINUING OPERATIONS...................... $ (0.53) $ (0.32) $ (1.27) $ (0.13)
DISCONTINUED OPERATIONS.................... (0.02) (0.01) (0.06) (0.01)
----------- ----------- ----------- -----------
TOTAL.................................... $ (0.55) $ (0.33) $ (1.33) $ (0.14)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING--BASIC AND DILUTED........... 6,667,639 4,830,779 6,166,695 4,039,832
=========== =========== =========== ===========
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The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(6,682,250) $ 104,542
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization........................... 1,119,802 381,592
Amortization of debt discount........................... 122,778
Amortization of debt issue costs........................ 283,754
Gain on sale of division................................ (4,402,076)
Provision for bad debts................................. 168,500 140,000
Deferred rent expense................................... (26,619) (52,784)
Change in operating assets and liabilities:
Accounts receivable................................... (955,957) (380,093)
Prepaid expenses...................................... (350,260)
Accounts payable and accrued expenses................. 385,465 176,343
Accrued payroll liabilities........................... 90,099 (1,153)
Unearned revenue...................................... 26,876 (181,542)
Other................................................. (407,705) (28,167)
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Net cash used in operating activities................... (6,632,049) (3,696,183)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment............. (306,900) (345,278)
Proceeds from sale of division............................ 4,500,000
Cash from acquisition..................................... 136,938
Loans to shareholders..................................... (370,000)
Payment of acquisition costs.............................. (213,461)
Other..................................................... -- (46,540)
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Net cash (used in) provided by investing activities..... (753,423) 4,108,182
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred offering costs........................ (28,937)
Payment of deferred debt issue costs...................... 109,158 (35,395)
Proceeds from issuance of preferred shares and warrants,
net of offering costs................................... 7,031,251
Repayment of capital lease obligations.................... (192,197) (76,364)
Proceeds from issuance of common shares and exercise of
warrants................................................ 477,998
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Net cash provided by (used in) financing activities..... 7,426,210 (140,696)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 40,738 271,303
CASH AND CASH EQUIVALENTS at beginning of period............ 2,541,932 3,187,948
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CASH AND CASH EQUIVALENTS at end of period.................. $ 2,582,670 $ 3,459,251
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON CASH INVESTING AND
FINANCING ACTIVITIES:
During the nine-month periods ended September 30, 1999 and 1998, capital
lease obligations of $93,242 and $159,391, respectively, were incurred when the
Company entered into leases on computer equipment.
During the nine months ended September 30, 1999, the Company issued
1,252,174 shares of common stock for the net assets of First Institutional
Marketing, Inc. and certain of its affiliates.
During the nine months ended September 30, 1999, the Company issued 185,342
shares of common stock for the net assets of Ganymede Corporation.
During the nine months ended September 30, 1998, $1,700,000 of convertible
debentures were converted into 961,460 shares of common stock.
During the nine months ended September 30, 1998, 12,500 shares of preferred
stock were converted into 366,630 shares of common stock.
The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to Article 10 of Regulation S-X of the
Securities and Exchange Commission. The accompanying unaudited financial
statements reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of the financial position and results of operations of
HomeCom Communications, Inc. (the "Company") for the interim periods presented.
All such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K.
2. ACQUISITION OF FIRST INSTITUTIONAL MARKETING, INC. ("FIMI")
On March 24, 1999, the Company acquired First Institutional
Marketing, Inc., and certain of its affiliates ("FIMI") of Houston, Texas for
total consideration of $4,236,104, consisting of 1,252,174 shares of common
stock. The acquisition has been accounted for as purchase transaction. The value
of the shares was determined by using the average closing stock price of the two
days before and after the definitive agreement was publicly announced. The
Company has engaged an independent firm to assess the fair value of the assets
purchased and liabilities assumed. The resulting goodwill will be amortized over
a period of approximately 3 years. Results of operations for FIMI are included
with those of the Company subsequent to the date of acquisition.
Prior to the closing of the acquisition, the Company loaned the shareholders
of FIMI $370,000. The note is due January 29, 2000 and bears interest of 9%. The
loan may be repaid in cash or common stock.
In connection with the acquisition, the principal shareholders of FIMI were
granted 300,000 warrants to acquire HomeCom common stock at an exercise price of
$3.74 per share. Vesting of the warrants is contingent upon FIMI meeting certain
operating goals as defined in the agreement. If the operating results are
obtained, the warrants vest ratably over a three-year period on the anniversary
date of the acquisition.
3. ACQUISITION OF GANYMEDE CORPORATION
On April 23, 1999, the Company acquired all of the outstanding shares of
Ganymede Corporation ("Ganymede") for total consideration of $1,132,339,
consisting of 185,342 shares of common stock and $100,000 cash. The number of
shares was determined by dividing the total non-cash consideration by the
average closing price of the Company's stock for the 20 trading days prior to
April 9, 1999. The value of the shares was determined by using the average
closing stock price of the two days before and after the definitive agreement
was publicly announced. In addition, the Company entered into employment
agreements with the three principals of Ganymede, calling for them to continue
in their current roles for the acquired company.
The acquisition has been accounted for as a purchase. The purchase price has
been allocated to assets acquired and liabilities assumed based on their
estimated fair values. The resulting goodwill will be amortized over a period of
approximately 3 years. Results of operations for Ganymede have been included
with those of the Company for periods subsequent to the date of acquisition.
4. DISPOSITION OF INTERNET SECURITY SERVICES DIVISION
On October 1, 1999, the Company sold substantially all of the assets of its
HomeCom Internet Security Services ("HISS") division to Infrastructure
Defense, Inc. ("iDefense") for $1.35 million in common stock of the non-public
acquiror and $200,000 cash, payable on January 1, 2000. The purchase price was
established through arms' length negotiations between the Company and Defense.
The Company
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intends to record a gain of approximately $1.5 million on the sale of the HISS
unit in the fourth quarter of 1999. The foregoing description of the Sale is
qualified in its entirety by reference to the full text of the Asset Purchase
Agreement, dated as of October 1, 1999 (the "Asset Purchase Agreement"), by and
between the Company and to Infrastructure Defense, Inc., a Delaware corporation.
The Board of Directors of the Company determined to dispose of the HISS unit on
September 1, 1999. Accordingly, results of operations from the discontinued HISS
unit have been shown as a discontinued operation in the Statement of Operations
for the three and nine months ended September 30, 1999. The Asset Purchase
Agreement is incorporated herein by reference as Exhibit 10.77 to this Report.
The following unaudited pro forma balance sheet as of June 30, 1998 gives effect
to the disposition of assets described above as if the transaction had occurred
on that date. The following unaudited statements of operations for the six
months ended June 30, 1999 and 1998, and the year ended December 31, 1998 give
effect to the disposition of assets as though it had occurred on January 1,
1998.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma financial information purports neither to
represent what the Company's financial position or results of operations would
have actually been if the disposition had occurred on January 1, 1999 or 1998
nor to project the Company's financial position or results of operations for any
future date or period. The unaudited pro forma financial information should be
read in conjunction with the Company's financial statements and notes thereto
included in the Company's Annual Report on Form 10-K/A.
5. ISSUANCE OF SERIES B PREFERRED STOCK
The Company issued Series B Preferred Stock totaling $2,500,000 on
March 25, 1999 (the "Issuance Date"). The Series B Preferred Stock investors
were issued 125 shares of preferred stock, having a stated value of $20,000 per
share, and 225,000 warrants to purchase common stock at $5.70 per share. The
Company paid offering costs of $216,250 cash plus 25,000 warrants to purchase
common stock at $5.70 per share, resulting in net proceeds to the Company of
$2,283,750 for the preferred shares and warrants.
The Series B Preferred Stock bears no dividends and is convertible at the
option of the holder at the earlier of 90 days after issuance or the effective
date of a registration statement covering the shares. The warrants are
exercisable at any time and expire five years from the date of issuance.
The Series B Preferred Stock is convertible into common stock at a
conversion price equal to the lower of (a) the average of the closing price for
four consecutive trading days in the twenty-five consecutive trading days ending
one day prior to the conversion date ($4.86 at the Issuance date) and
(b) $5.23. The number of common shares into which the Series B Preferred Stock
is convertible is determined by dividing the stated value of the Series B
Preferred Stock, increased by 5% annually, by the conversion price. As the
Series B Preferred Stock is automatically convertible on March 24, 2002, the
most beneficial conversion ratio was determined to include the additional common
shares attributable to the 5% annual increase for the three year period ending
in 2002. After adjustment for this additional benefit the $4.86 conversion price
is reduced to $4.23, the most beneficial conversion price at the Issuance Date.
In determining the accounting for the beneficial conversion feature, the
Company first allocated the net proceeds of $2,283,750 to the preferred stock
and the warrants based on their relative fair values at the Issuance Date,
resulting in $1,766,217 assigned to the preferred stock and $517,533 assigned to
the warrants as of March 24, 1999. The Company then allocated $899,284 of the
Series B net proceeds to additional paid in capital for the beneficial
conversion feature. The beneficial conversion feature will be recognized as a
deemed dividend to the preferred shareholders over the minimum period in which
the preferred shareholders can realize that return. Approximately $792,000 of
the beneficial conversion was amortized in the second quarter of 1999 and $9,854
in the third quarter of 1999. The balance of the beneficial conversion feature
is being recognized from the Issuance Date through March, 2002.
The Company has the option to redeem the Series B Preferred Stock after
110 days for 120% of face value. Additionally, if the Company has issued common
stock upon conversion of the Series B Preferred Stock such that 19.99% of the
common stock outstanding is held by the preferred shareholders, the Company must
obtain approval of the shareholders before any more preferred shares can be
converted. If
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such approval is not obtained within 60 days shares of notice, the preferred
shareholders may require the Company to repurchase the remaining Series B
Preferred Stock at 120% of face value. At the Issuance Date, the Company had
obtained irrevocable proxies from shareholders representing approximately 40% of
the common shareholders to vote in favor of increasing the number of shares
should such vote be required. The Series B Preferred Stock is presented outside
of permanent equity as the outcome of the shareholder vote, and possible
redemption, is outside of the control of the Company.
6. ISSUANCE OF SERIES C PREFERRED STOCK
On July 28, 1999, the Company completed a private placement of $3,500,000
principal amount of the Company's Series C Convertible Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock") and warrants to acquire up
to 59,574 shares of Common Stock (the "Series C Preferred Warrants"). The
Series C Preferred Stock has an initial stated value of $20,000 per share, which
stated value increases at the rate of 6% per year (such stated value, as
increased from time to time, is referred to as the "Series C Stated Value").
Each Series C Preferred Share is convertible, from and after 120 days following
the date of issuance, at the option of the holder, into such number of shares of
Common Stock as is determined by dividing the Series C Stated Value by the
lesser of (a) $5.875, and (b) 82.5% of the average of the closing bid prices for
the five trading days preceding the date of conversion. Any Series C Preferred
Stock issued and outstanding on July 22, 2002 will automatically be converted
into Common Stock at the conversion price then in effect.
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "1933 Act") with
respect to a minimum of 1,244,444 shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and exercise of the Series C
Preferred Warrants. We are obligated to pay penalties if the Registration
Statement is not filed and/or declared effective within the specified time
periods. We may, at our option at any time after the 90th day following the
issuance of the Series C Preferred Stock through July 22, 2001, prohibit holders
of the Series C Preferred Stock from exercising any conversion rights for up to
90 days, provided that certain conditions are met. If we exercise that right, we
are required to compensate the holders of the Series C Preferred Stock in cash
in an amount equal to 3% of the principal amount of the Series C Preferred Stock
held by each holder for each thirty days that prohibition is in effect (pro
rated for partial months) or, at our option, deliver Common Stock in payment of
such amount (based on the average closing bid prices for the Common Stock for
the twenty trading days preceding the end of each calendar month during the
period conversion is so prohibited).
In determining the accounting for the beneficial conversion feature, the
Company first allocated the net proceeds of $3,323,748 to the preferred stock
and the warrants based on their relative fair values at the Issuance Date,
resulting in $3,170,904 assigned to the preferred stock and $152,844 assigned to
the warrants as of July 27, 1999. The Company then allocated $1,678,505 of the
Series C net proceeds to additional paid in capital for the beneficial
conversion feature. The beneficial conversion feature will be recognized as a
deemed dividend to the preferred shareholders over the minimum period in which
the preferred shareholders can realize that return. Approximately $376,952 of
the beneficial conversion was amortized in the third quarter of 1999. The
balance of the beneficial conversion feature is being recognized from the
Issuance Date through July, 2002.
The right of the holders of the Series C Preferred Stock to convert their
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 90 days, each holder may
not convert more than 25% of the Series C Preferred Stock purchased by such
holder; (ii) during the period beginning on the issuance date through the
following 120 days, each holder may not convert more than 50% of the Series C
Preferred Stock purchased by such holder; and (iii) during the period beginning
on the issuance date through the following 150 days, each holder may not convert
more than 75% of the Series C Preferred Stock purchased by such holder. At any
time after the issuance date, the Company shall have the right, in its sole
discretion, to redeem, from time to time, any or all of the Series C Preferred
Stock; provided that certain conditions are met, including the availability of
cash, credit or standby underwriting facilities available to fund the
redemption. The redemption price will be calculated as (i) 105% of the original
purchase price for the first 30 days following the issuance date; (ii) 110%
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of the original purchase price for the next 90 days thereafter and (iii) 120% of
the original purchase price after 120 days from the issuance date.
The Series C Preferred Warrants expire on July 27, 2004 and have an exercise
price of $7.34 per share, subject to adjustment under certain circumstances.
7. ISSUANCE OF SERIES D PREFERRED STOCK
On September 28, 1999, the Company completed a private placement of
$1,500,000 principal amount of the Company's Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") and warrants to
acquire up to 25,000 shares of Common Stock (the "Series D Preferred Warrants").
The Series D Preferred Stock has an initial stated value of $20,000 per share,
which stated value increases at the rate of 6% per year (such stated value, as
increased from time to time, is referred to as the "Series D Stated Value").
Each Series D Preferred Share is convertible, from and after 120 days following
the date of issuance, at the option of the holder, into such number of shares of
Common Stock as is determined by dividing the Series D Stated Value by the
lesser of (a) $5.875, and (b) 82.5% of the average of the closing bid prices for
the five trading days preceding the date of conversion. Any Series D Preferred
Stock issued and outstanding on September 22, 2002 will automatically be
converted into Common Stock at the conversion price then in effect.
Pursuant to certain registration rights granted to the investors in the
private placement, we are obligated to file a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "1933 Act") with
respect to a minimum of 533,368 shares of Common Stock issuable upon conversion
of the Series D Preferred Stock and exercise of the Series D Preferred Warrants.
We are obligated to pay penalties if the Registration Statement is not filed
and/or declared effective within the specified time periods. We may, at our
option at any time after the 90th day following the issuance of the Series D
Preferred Stock through September 22, 2001, prohibit holders of the Series D
Preferred Stock from exercising any conversion rights for up to 90 days,
provided that certain conditions are met. If we exercise that right, we are
required to compensate the holders of the Series D Preferred Stock in cash in an
amount equal to 3% of the principal amount of the Series D Preferred Stock held
by each holder for each thirty days that prohibition is in effect (pro rated for
partial months) or, at our option, deliver Common Stock in payment of such
amount (based on the average closing bid prices for the Common Stock for the
twenty trading days preceding the end of each calendar month during the period
conversion is so prohibited).
In determining the accounting for the beneficial conversion feature, the
Company first allocated the net proceeds of $1,423,750 to the preferred stock
and the warrants based on their relative fair values at the Issuance Date,
resulting in $1,387,477 assigned to the preferred stock and $36,273 assigned to
the warrants as of September 28, 1999. The Company then allocated $642,084 of
the Series D net proceeds to additional paid in capital for the beneficial
conversion feature. The beneficial conversion feature will be recognized as a
deemed dividend to the preferred shareholders over the minimum period in which
the preferred shareholders can realize that return. Approximately $136,035 of
the beneficial conversion was amortized in the third quarter of 1999. The
balance of the beneficial conversion feature is being recognized from the
Issuance Date through September, 2002.
The right of the holders of the Series D Preferred Stock to convert their
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 90 days, each holder may
not convert more than 25% of the Series D Preferred Stock purchased by such
holder; (ii) during the period beginning on the issuance date through the
following 120 days, each holder may not convert more than 50% of the Series D
Preferred Stock purchased by such holder; and (iii) during the period beginning
on the issuance date through the following 150 days, each holder may not convert
more than 75% of the Series D Preferred Stock purchased by such holder. At any
time after the issuance date, the Company shall have the right, in its sole
discretion, to redeem, from time to time, any or all of the Series D Preferred
Stock; provided that certain conditions are met, including the availability of
cash, credit or standby underwriting facilities available to fund the
redemption. The redemption price will be calculated as (i) 105% of the original
purchase price for the first 30 days following the issuance date; (ii) 110%
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of the original purchase price for the next 90 days thereafter and (iii) 120% of
the original purchase price after 120 days from the issuance date.
The Series D Preferred Warrants expire on September 27, 2004 and have an
exercise price of $7.34 per share, subject to adjustment under certain
circumstances.
8. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", effective December 31, 1997. Earnings (loss) per
common share was computed by dividing net income (loss) available to common
shareholders by the weighted average number of shares of common stock
outstanding for the period then ended. The effect of the Company's stock options
and convertible securities was excluded from the computations for the three and
nine months ended September 30, 1999, as they are antidilutive.
The following table sets forth the calculation of the earnings (loss) per
share of the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Earnings (loss) per share computation--
basic and diluted
Income (loss) from continuing
operations............................ $ (3,008,349) $ (1,565,706) $ (6,480,666) $ 139,212
Less: Preferred stock dividend.......... (522,841) 0 (1,315,231) (666,667)
------------ ------------ ------------ ------------
Income (loss) applicable to common
shareholders.......................... (3,541,465) (1,565,316) (7,841,481) (527,125)
Discontinued operations................. (115,275) (50,610) (401,584) (34,670)
------------ ------------ ------------ ------------
Net income (loss) applicable to common
shareholders.......................... $ (3,646,465) $ (1,616,316) $ (8,197,481) $ (562,125)
============ ============ ============ ============
Weighted average common shares
outstanding--
Basic and diluted..................... 6,667,639 4,830,779 6,166,695 4,039,832
============ ============ ============ ============
Earnings (loss) per share--basic and
diluted
Income (loss) from continuing
operations............................ $ (0.53) $ (0.32) $ (1.27) $ (0.13)
Discontinued operations................. (0.02) (0.01) (0.06) (0.01)
------------ ------------ ------------ ------------
Net income (loss) available to common
shareholders.......................... $ (0.55) $ (0.33) $ (1.33) $ (0.14)
============ ============ ============ ============
</TABLE>
9. SEGMENT INFORMATION
During 1998, HomeCom reorganized into five separate business units,
organized on the basis of products and services. Prior to that time, the Company
operated in a single business segment. The Company has determined that its
reportable segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by product and service category into
business units. HomeCom's reportable segments are: custom Web development
(FAST), Internet outsourcing services (HostAmerica), Internet security services
(HISS), software products, and InsureRate/FIMI. On June 9, 1998, the Company
sold substantially all of the assets of its HostAmerica Internet outsourcing
services business unit to Sage Acquisition Corp. On October 1, 1999 the Company
sold all of the assets of its HISS unit to Infrastructure Defense Inc.
<PAGE>
The table below presents information about the reported business unit income
for HomeCom Communications, Inc. for the three and nine months ended
September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
FAST..................................................... $ 1,070 $ 468 $ 2,915 $ 1,342
HostAmerica.............................................. (1) 537
InsureRate/FIMI.......................................... 886 1,779
Software Products........................................ 104 13 185 13
HISS..................................................... 133 233 361 606
Totals................................................... $ 2,193 $ 713 $ 5,240 $ 2,498
Business Unit Net Income (Loss):
FAST..................................................... $ 203 $ (224) $ 470 $ (275)
HostAmerica.............................................. (5) 205
InsureRate/FIMI.......................................... (811) (120) (1,780) (225)
Software Products........................................ (418) (166) (736) (338)
HISS..................................................... (115) (51) (356) (35)
Business Unit Net Income (Loss).......................... $(1,141) $ (566) $(2,402) $ (668)
Adjustments to reconcile business unit net income (loss)
with consolidated net income (loss):
General & Administrative Expenses........................ (1,435) (1,121) (1,780) (655)
Gain on Sale of Division................................. 4,402
Interest Expense......................................... (9) (5) (25) (444)
Net Other................................................ (539) 76 (2,675) (2,530)
Consolidated Net Income (Loss)........................... $(3,124) $(1,616) $(6,882) $ 105
</TABLE>
10. INCOME TAXES
There was no provision for or cash payment of income taxes for the three and
nine months ended September 30, 1999 and 1998, respectively, as the Company
anticipates a net taxable loss for the year ended December 31, 1999.
11. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, some matters discussed
in this report constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company notes that a variety of
risk factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. Reference is made in particular to the
discussion set forth below in this report and set forth in the Company's Annual
Report on Form 10-K and to the Company's Registration Statements on Forms S-1
(File Nos. 333-12219, 333-42599, 333-45383, and 333-56795) and S-3 (333-73123,
333-79761, and 333-81581).
GENERAL
HomeCom Communications, Inc. is a Delaware corporation, organized in 1994 to
provide advanced software applications and integration services to businesses
seeking to take advantage of the Internet. In the fourth quarter of 1997, the
Company made a strategic decision to move away from horizontally focused
Internet Web design and hosting services to become a vertically focused
financial applications and solutions provider to the financial services market,
including banking, insurance, and securities brokerage firms.
HomeCom Communications, Inc. develops and markets specialized software
applications, products and services that enable consumers and financial
institutions to use the Internet and intranets/extranets to obtain and
communicate important business information, conduct commercial transactions and
improve business productivity. HomeCom's principal mission is to enable
financial institutions to establish an electronic channel to consumers and
business by providing secure, innovative, Internet-based solutions to the
banking, insurance and brokerage industries. As a technology provider to this
electronic channel, HomeCom intends to continually enrich the content, host and
maintain its own as well as third party software applications, and to provide
strategic consulting to financial institutions on e-commerce and marketing.
HomeCom derives revenue from software licensing, application development, and
hosting and transactions fees. HomeCom has grown to approximately 100 full-time
employees and occupies approximately 30,000 square feet of office space with
offices in Atlanta, Houston, New York City, Chicago, and the Washington, D.C.
area. HomeCom's solutions, which are built around industry standards such as
Open Financial Exchange ("OFX"), are designed to enable its clients to increase
revenues, achieve distinct competitive advantages, reduce costs, and improve
customer support. The Company employs full time multimedia artists, Ph.D.
computer programmers, Internet security experts, licensed financial brokers and
agents, and network engineers. HomeCom provides Internet/intranet solutions in
three areas: (i) the design, development and integration of customized software
application, including World Wide Web site development and related network
outsourcing; (ii) the development, sale and integration of HomeCom's existing
software applications into the client's operations; and, (iii) security
consulting and integration services.
HomeCom provides its product and service offerings through four distinct but
integrated business units:
HomeCom's Software Products provides cost effective, one-stop financial
services to the banking, credit union and brokerage industries that allow
customers on-line access to transact personal banking business. HomeCom's
turnkey solutions are targeted to the 14,000 banks and credit unions with
assets between $500 million and $20 billion:
Personal Internet Banker-TM- ("PIB") provides interactive Internet
banking including bill payment, balance inquiry, funds transfer, and
statement download for checking, savings and credit card accounts.
Harvey-TM- enables banks to both advertise and market to targeted
consumers based on demographics and web site browsing preferences. As
consumers interact with the financial institution's web site,
Harvey-TM- mines the data they enter on application forms, adds
information about what they looked at or clicked on and then combines
that information
<PAGE>
with data from a variety of legacy systems to dramatically increase
the financial institution's cross selling and profit capability.
"Post on the Fly"'Conference is an online bulletin board,
collaboration and conferencing system, allowing customers to capture
their most valuable property--the living, moving body of knowledge
within an organization, its business partners and its customers.
Specifically designed for the needs of financial services companies,
Conference can run unlimited numbers of investor forums, private
analyst meetings, financial planning workshops, or customer support
groups.
HomeCom's InsureRate-TM- provides consumer information and education on
insurance via its web-site--www.insurerate.com. Consumers are also
offered a choice of competitively priced and innovative insurance
products for direct purchase via the Internet. InsureRate's technology
makes it a low cost insurance product vendor. Management also intends to
add broker/dealer operations and expects to derive additional profits by
sharing in the reinsurance product selling agreements and sharing
management fees on client assets that it accumulates. Management expects
to offer a selection of fixed annuity, term life, modified endowment
contracts, long-term care, personal auto, homeowners and other policies.
On March 24, 1999, HomeCom acquired First Institutional
Marketing, Inc. ("FIMI") which (i) provides innovative insurance
products and marketing programs for the commercial banking industry,
(ii) introduces banks to the sale of insurance and investment
products, and (iii) trains bank personnel to market and sell leading
insurance and investment products to their customers. The Company
plans to combine FIMI and InsureRate-TM- to provide integrated
insurance offerings. InsureRate-TM- will in effect become the
electronic distribution arm of FIMI.
HomeCom Financial Applications, Solutions and Technology ("FAST") creates
Internet and intranet business applications, solutions and technology
focused on the banking, insurance and brokerage client markets.
Applications include software programs ranging from simple mathematical
calculators to extremely sophisticated intranets/extranets communicating
with legacy systems and client/server databases. HomeCom also provides
turnkey hosting and security integration services for these applications.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales increased 330% from $478,372 in the third quarter of
1998 to $2,059,681 in the third quarter of 1999. Revenues from service sales
increased 321% from $464,493 in the third quarter of 1998 to $1,958,276 in the
third quarter of 1999. This increase of $1,493,783 is primarily attributable to
increases in custom application development revenues of approximately $600,000
and to insurance sales of approximately $886,000 from the FIMI acquisition.
Revenue from equipment sales increased from $13,879 in the third quarter of 1998
to $101,405 in the third quarter of 1999 due to increased sales of hardware and
software.
COST OF SALES. Cost of sales includes salaries for programmers, technical
staff and customer support, as well as a pro-rata allocation of
telecommunications, facilities and data center costs. Cost of sales for services
increased from $398,108, or 83.2% of revenues in the third quarter of 1998 to
$1,450,941, or 268% of revenues in the third quarter of 1999. This increase
reflects the FIMI acquisition, as well as increased costs for technical and
support personnel hired in advance of anticipated revenue growth, offset by
costs eliminated due to the sale of HostAmerica in June 1998. The decrease in
cost of sales as a percentage of revenues is due to higher gross margins on
insurance sales, which began with he FIMI acquisition in late March 1999.
GROSS PROFIT. Gross profit increased by $576,634 from $(18,301) in the
third quarter of 1998 to $558,333 in the third quarter of 1999. Gross profit
margins increased from (3.2)% during the third quarter
<PAGE>
of 1998 to 27.1% during the third quarter of 1999. These increases primarily
reflect the acquisition of FIMI in late March 1999.
SALES AND MARKETING. Sales and marketing expenses include salaries,
variable commissions, and bonuses for the sales force, advertising and
promotional marketing materials, and a pro-rata allocation of
telecommunications, facilities and data center costs. Sales and marketing
expenses increased 996.3% from $136,678 in 1998 to $1,348,107 in 1999. This
increase was primarily attributable to commissions on insurance sales due to the
FIMI acquisition, as well as increased advertising, public relations, and
marketing costs. As a percentage of net sales, these expenses increased from
28.6% in 1998 to 65.5% in 1999.
PRODUCT DEVELOPMENT. Product development costs consist of personnel costs
required to conduct the Company's product development efforts, and a pro-rata
allocation of telecommunications, facilities and data center costs. Management
believes that continuing investment in product development is required to
compete effectively in the Company's industry. Total expenditures for product
development were $426,871 or 20.7% of net sales in the third quarter of 1999.
This compares to total product development expenditures of $167,556 or 35.0% of
sales in the third quarter of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries for administrative personnel, insurance and other administrative
expenses, as well as a pro-rata allocation of telecommunications, and facilities
and data center costs. General and administrative expenses increased from
$1,171,988 in the third quarter of 1998 to $1,306,141 in the third quarter of
1999 due primarily to the FIMI acquisition. As a percentage of net sales, these
expenses decreased from 245.0% in the third quarter of 1998 to 63.4% in the
third quarter of 1999, due primarily to increases in revenues due to the FIMI
acquisition without proportional increases in general and administrative
expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization includes
depreciation and amortization of computers, network equipment, office equipment,
equipment under capital leases, and intangible assets. Depreciation and
amortization increased from $124,110 in the third quarter of 1998 to $485,139 in
the third quarter of 1999, reflecting increased expenditures on capital
equipment and amortization of intangible assets associated with the acquisitions
of FIMI and Ganymede.
LOSS FROM DISCONTINUED OPERATIONS. On September 1, 1999 the Board of
Directors of the Company determined to dispose of its HISS Business Unit. The
loss attributable to HISS operations for the third quarter of 1999 thru
September 30, 1999 was $115,275. HISS was sold on October 1, 1999.
INTEREST EXPENSE. Interest expense increased from $5,494 in the third
quarter of 1998 to $9,262 during the third quarter of 1999, principally
reflecting increases in capital leases over the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales increased 158.8% from $1,884,927 in the first nine
months of 1998 to $4,878,962 in the first nine months of 1999. Revenues from
service sales increased 156.7% from $1,854,708 in the first nine months of 1998
to $4,760,878 in the first nine months of 1999. This increase of $2,906,170 is
primarily attributable to increases in custom application development revenues
of approximately $1,573,000, software product sales of approximately $172,000,
and insurance sales of approximately $1,779,000 from the FIMI acquisition,
offset by lower hosting revenues of approximately $537,000 due to the sale of
HostAmerica in June 1998. Revenue from equipment sales increased from $30,219 in
the first nine months of 1998 to $118,084 in the first nine months of 1999. This
increase of $87,865 was attributable to decreased sales of hardware and
software.
COST OF SALES. Cost of sales includes salaries for programmers, technical
staff and customer support, as well as a pro-rata allocation of
telecommunications, facilities and data center costs. Cost of sales for services
increased from $1,176,045, or 62.4% of revenues in the first nine months of 1998
to $3,289,155, or 67.4% of revenues in the first nine months of 1999. This
increase reflects the FIMI acquisition, as well as increased costs for technical
personnel hired in advance of anticipated revenue growth, offset by costs
eliminated due to the sale of HostAmerica in June 1998.
<PAGE>
GROSS PROFIT. Gross profit increased by $463,304 from $510,925 in the first
nine months of 1998 to $1,474,234 in the first nine months of 1999. Gross profit
margins were 30.2% during the first nine months of 1999, compared to 27.1%
during the first nine months of 1998.
SALES AND MARKETING. Sales and marketing expenses include salaries,
variable commissions, and bonuses for the sales force, advertising and
promotional marketing materials, and a pro-rata allocation of
telecommunications, facilities and data center costs. Sales and marketing
expenses increased 534.9% from $439,045 in 1998 to $2,787,569 in 1999. This
increase was primarily attributable to commissions on insurance sales due to the
FIMI acquisition, as well as increased advertising, public relations, and
marketing costs. As a percentage of net sales, these expenses increased from
23.3% in 1998 to 57.1% in 1999.
PRODUCT DEVELOPMENT. Product development costs consist of personnel costs
required to conduct the Company's product development efforts, and a pro-rata
allocation of telecommunications, facilities and data center costs. Management
believes that continuing investment in product development is required to
compete effectively in the Company's industry. Total expenditures for product
development were $691,004 or 14.2% of net sales in the first nine months of
1999. This compares to total product development expenditures of $291,420 or
15.5% of sales in the first nine months of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries for administrative personnel, insurance and other administrative
expenses, as well as a pro-rata allocation of telecommunications, and facilities
and data center costs. General and administrative expenses increased from
$3,421,972 in the first nine months of 1998 to $3,489,424 in the first nine
months of 1999. As a percentage of net sales, these expenses decreased from
181.5% in the first nine months of 1998 to 71.5% in the first nine months of
1999, due primarily to increases in revenues without proportional increases in
general and administrative expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization includes
depreciation and amortization of computers, network equipment, office equipment,
equipment under capital leases, and intangible assets. Depreciation and
amortization increased from $302,906 in the first nine months of 1998 to
$1,010,236 in the first nine months of 1999, reflecting increased expenditures
on capital equipment and amortization of intangible assets associated with the
acquisitions of FIMI and Ganymede.
LOSS FROM DISCONTINUED OPERATIONS. On September 1, 1999 the Board of
Directors of the Company determined to dispose of its HISS Business Unit. The
loss attributable to HISS operations for the nine months ended September 30,
1999 thru September 30, 1999 was $401,584, compares to a loss in the first nine
months of 1998 of $34,670. HISS was sold on October 1, 1999.
OTHER INCOME. During the nine months ended June 30, 1998, the Company
recorded a gain on the sale of its HostAmerica division of $4,402,076.
INTEREST EXPENSE. Interest expense decreased from $444,023 in the first
nine months of 1998 to $25,416 during the first nine months of 1999, principally
reflecting amortization of the discount ($122,778) and debt issue costs
($283,754) incurred in 1998 for the Company's 5% convertible debentures issued
in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has substantially limited unused sources of capital. As of
September 30, 1999, the Company had net working capital of approximately
$2,984,384. Management has undertaken steps to address the Company's ongoing
cash requirements including concentrating the Company's market focus,
identifying additional operational and administrative efficiencies, and actively
managing working capital. The Company also may consider raising additional
capital through additional debt and equity offerings. On July 28, 1999, the
Company sold $3,500,000 of its Series C Preferred Stock for net proceeds of
approximately $3.3 million. On September 28, 1999, the Company completed a
private placement of $1,500,000 principal amount of the Company's Series D
Convertible Preferred Stock, with net proceeds to the Company of $1,423,750.00
<PAGE>
On September 7, 1999, we announced a restructuring of our business
consistent with our core internet banking, insurance offerings, and professional
services operations. This restructuring is expected to result in a reduction of
expenses of approximately $3.5 million over the next twelve months, and a
reduction in our personnel by about 60 employees, to about 95 employees (after
taking into effect the divestiture of our security consulting and integration
division). There is no such assurance that such actions will be sufficient. The
Company currently only has sufficient working capital to last until
approximately December 31, 1999. If the Company exhausts its current sources of
capital and is not able to obtain additional capital, the Company will be
required to undertake additional steps to continue its operations. Such steps
may include further reduction of the Company's operating costs and other
expenditures, including additional reductions of personnel and suspension of
salary increases and capital expenditures. If such measures are not sufficient,
the Company may elect to implement other cost reduction actions as the Company
may determine are necessary and in the Company's best interests, including the
possible sale of some or all of the Company's business lines. Any such actions
undertaken may limit the Company's opportunities to realize continued increases
in sales and the Company may not be able to reduce its costs in amounts
sufficient to achieve break-even or profitable operations. If the Company
exhausts its sources of capital, and subsequent cost reduction measures are not
sufficient to allow the Company to achieve positive cash flows, the Company will
be forced to seek protection from its creditors. The aforementioned factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements included in this registration statement have
been prepared assuming the Company is a going concern and do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
In September, 1999, HomeCom announced that it had entered into a letter of
intent with J.P. Turner & Company, L.L.C. to consummate an underwritten public
offering of $10 million of the securities of the Company. There is no assurance
that such public offering will be successful, or that HomeCom will not exhaust
its current capital resources before the consummation of the offering.
The Company has also engaged Raymond James & Associates, Inc. to assist the
Company in evaluating strategic alternatives.
Because the Company expects to continue to incur substantial operating
losses, the Company will continue to use substantial sums of cash in its
operations for an indefinite period. Accordingly, the Company will be required
to obtain additional capital. No assurance can be given that the Company will be
successful in its efforts to obtain additional capital, or that capital will be
available on terms acceptable to the Company or on terms that will not
significantly dilute the interests of existing stockholders. If the Company
exhausts its current sources of capital and is not able to obtain additional
capital, the Company will be required to undertake certain steps to continue its
operations. Such steps may include immediate reduction of the Company's
operating costs and other expenditures, including potential reductions of
personnel and suspension of salary increases and capital expenditures. If such
measures are not sufficient, the Company may elect to implement other cost
reduction actions as the Company may determine are necessary and in the
Company's best interests, including the possible sale of certain of the
Company's business lines. Any such actions undertaken may limit the Company's
opportunities to realize continued increases in sales and the Company may not be
able to reduce its costs in amounts sufficient to achieve break-even or
profitable operations. If the Company exhausts its sources of capital, and
subsequent cost reduction measures are not sufficient to allow the Company to
achieve break-even or profitable operations, the Company will be forced to seek
protection from its creditors.
Net cash used in operating activities was $6,632,049 for nine months ended
September 30, 1999. The Company has primarily financed its operations to date
through public and private sales of debt and equity securities and loans from
its principal stockholders and affiliates. During May 1997, the Company
completed an initial public offering of its common stock, issuing 1,000,000
shares at a price of $6.00 per share. The net proceeds to the Company from the
initial public offering were approximately $4.7 million. The Company has repaid
all outstanding principal amounts loaned to the Company by stockholders and
affiliates. During September 1997, the Company completed the issuance of an
aggregate $1.7 million principal amount of the Company's 5% convertible
debentures due September 22, 2000. Net proceeds from the sale of the debentures
was approximately $1.5 million. In December 1997, the Company issued
<PAGE>
20,000 shares of Series A preferred stock for aggregate net proceeds of
approximately $1.8 million. During 1998, the Company's 5% convertible debentures
and its Series A preferred stock were converted into 961,460 and 711,456 shares
of common stock, respectively. In June 1998, the Company sold its HostAmerica
division to Sage Acquisition Corp., for net proceeds of approximately
$4,500,000. In March 1999, the Company issued 125 shares of its Series B
preferred stock for aggregate net proceeds of approximately $2.3 million. On
July 28, 1999, the Company sold $3,500,000 of its Series C Preferred Stock for
net proceeds of approximately $3.3 million. On September 28, 1999, the Company
completed a private placement of $1,500,000 principal amount of the Company's
Series D Convertible Preferred Stock, with net proceeds to the Company of
$1,423,750.00.
The Company spent $306,900 and $345,278 during the nine months ended
September 30, 1999 and 1998, respectively, for the purchase of capital
equipment. These amounts were expended primarily for computer equipment,
communications equipment and software necessary for the Company to increase its
presence in the lnternet and Intranet applications marketplace. The Company's
commitments as of December 31, 1998 consist primarily of leases on its Atlanta,
Vienna, Virginia, Houston, Texas, Chicago, and New York City facilities.
Accounts receivable, net of allowance for doubtful accounts, totaled
$1,461,449 as of September 30, 1999. Trade receivables are monitored by the
Company through ongoing credit evaluations of its customers' financial
conditions. The allowance for doubtful accounts is considered by management to
be an adequate reserve for known and estimated bad debts of the Company. A
revision in this reserve due to actual results differing from this estimate
could have a material impact on the results of operations, financial position
and liquidity of the Company.
YEAR 2000
Many existing computer programs were originally designed to use only two
digits to identify a year in date fields. As a result, date-sensitive software
applications may recognize a date using "00" as the year 1900 rather than the
year 2000. If not corrected, these applications could fail or produce erroneous
results when working with dates in the year 2000 and beyond. If not properly
addressed, the Year 2000 issue could have a material effect on the Company's
financial position and future operating results. The Company primarily relies on
industry standard operating systems and applications for its internal systems
rather than proprietary software, and based on its review of its significant
internal programs and systems, has determined that they are substantially Year
2000 compliant. In addition, the Company is seeking confirmation from its
primary telecommunications service providers that they are developing and
implementing plans to become Year 2000 compliant. Information received to date
has indicated that such respondents are in the process of implementing
remediation procedures to ensure that their computer systems, services, or
products are Year 2000 compliant by December 31, 1999. However, the Company has
not undertaken an in-depth evaluation of such providers in relation to the Year
2000 issue. In addition, the Company cannot predict whether or not all of these
vendors' programs will be successful. To the extent that these vendors fail to
resolve any Year 2000 issues on a timely basis or in a manner that is compatible
with the Company's systems, that failure could have a material adverse effect on
the Company's financial position and future operating results. The Company is
using internal resources to identify and correct its systems for Year 2000
compliance, and expects any incremental costs associated with addressing this
issue to be minimal. The Company does not believe that the costs of addressing
Year 2000 issues will be material to its financial position or future operating
results.
PART II. OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
On April 1, 1999, the Company filed a report on Form 8-K under Item 5 with
respect to the closing on March 24, 1999 of its acquisition of First
Institutional Marketing, Inc. and certain of its affiliates, and under Item 6
with respect to the resignation of Gregory Abowd from the Company's Board of
Directors.
On May 10, 1999, the Company filed a report on Form 8-K under Item 2 with
respect to its acquisition of Ganymede Corporation on April 23, 1999.
On June 11, 1999, the Company filed a report on Form 8-K under Item 2 with
respect to its acquisition of First Institutional Marketing, Inc. and certain of
its affiliates on March 24, 1999.
On June 25, 1999, the Company filed a report on Form 8-K under Item 6 with
respect to the resignation of Nat Stricklen from the Company's Board of
Directors.
On October 18, 1999, the Company filed a report on Form 8-K under Item
2 with respect to the sale of HISS.
On November 5, 1999 the Company filed a report on Form 8-K under Item 6 with
respect to the resignation of Kris Puri from the Company's Board of Directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
HOMECOM COMMUNICATIONS, INC.
/s/ HARVEY W. SAX
-------------------------------------------
Date: November 15, 1999 President and
Chief Executive Officer
/s/ JAMES WM. ELLSWORTH
-------------------------------------------
Date: November 15, 1999 Chief Financial Officer
(Principal Financial Officer)
</TABLE>
<PAGE>
HOMECOM COMMUNICATIONS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------------- ----------- --------
<C> <S> <C>
27 Financial Data Schedule (For SEC Use only).................. 21
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HomeCom
Communications Inc., Financial Statements for the quarter and nine months ended
September 30,1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,582,670
<SECURITIES> 0
<RECEIVABLES> 1,921,965
<ALLOWANCES> 214,930
<INVENTORY> 0
<CURRENT-ASSETS> 5,073,169
<PP&E> 2,437,513
<DEPRECIATION> 1,400,930
<TOTAL-ASSETS> 12,043,771
<CURRENT-LIABILITIES> 2,088,785
<BONDS> 0
1,649,469
3
<COMMON> 667
<OTHER-SE> 8,106,475
<TOTAL-LIABILITY-AND-EQUITY> 12,043,771
<SALES> 101,405
<TOTAL-REVENUES> 2,059,681
<CGS> 1,501,348
<TOTAL-COSTS> 3,566,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,262
<INCOME-PRETAX> (3,008,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,008,349)
<DISCONTINUED> (115,275)<F1>
<EXTRAORDINARY> (522,841)<F2>
<CHANGES> 0
<NET-INCOME> (3,646,465)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
<FN>
<F1>Discontinued Security Operations
<F2>Deemed Preferred Dividend
</FN>
</TABLE>
