<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-29204
------------------------
HOMECOM COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 58-2153309
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
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)
------------------------
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 August 12, 1999, there were 6,669,453 outstanding shares of the
Registrant's Common Stock, par value $.0001 per share.
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HOMECOM COMMUNICATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
1) Balance Sheets as of June 30, 1999 and December 31, 1998............................................... 3
2) Statements of Operations for the three and six months ended June 30, 1999 and 1998..................... 4
3) Statements of Cash Flows for the six months ended June 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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMECOM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
JUNE 30, 1999 -----------------
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 813,735 $ 2,291,932
Restricted cash.............................................................. -- 250,000
Accounts receivable, net of allowance for uncollectible accounts of $232,750
and $95,384 as of June 30, 1999 and December 31, 1998, respectively........ 1,250,644 680,790
Loans to shareholders........................................................ 370,000 --
Other current assets......................................................... 567,178 4,796
-------------- -----------------
Total current assets....................................................... 3,001,557 3,227,518
FURNITURE, FIXTURES AND EQUIPMENT, NET......................................... 1,110,434 797,263
DEPOSITS....................................................................... 112,847 80,231
DEFERRED DEBT ISSUE COSTS...................................................... -- 109,158
INTANGIBLE ASSETS, NET......................................................... 6,086,378 351,320
Other........................................................................ 235,934 --
-------------- -----------------
Total assets............................................................... $ 10,547,150 $ 4,565,490
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................................ $ 1,807,777 $ 424,094
Accrued payroll liabilities.................................................. 438,271 300,927
Unearned revenue............................................................. 52,026 128,345
Current portion of obligations under capital leases.......................... 119,220 108,427
-------------- -----------------
Total current liabilities.................................................. 2,417,294 961,793
OTHER LIABILITIES.............................................................. 61,250 67,006
OBLIGATIONS UNDER CAPITAL LEASES............................................... 162,256 88,242
-------------- -----------------
2,640,800 1,117,041
-------------- -----------------
REDEEMABLE PREFERRED STOCK--Series B, $.0001 par value, 1,000,000 shares
authorized, 125 and 0 shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively; participating; liquidation value of $20,268
per share at June 30, 1999................................................... 1,659,323 --
-------------- -----------------
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 15,000,000 shares authorized, 6,654,140 and
5,072,397 shares issued and outstanding at June 30, 1999 and December 31,
1998, respectively......................................................... 665 507
Additional paid-in capital................................................... 17,705,160 10,355,724
Subscriptions receivable..................................................... (196,878) (196,878)
Accumulated deficit.......................................................... (11,261,920) (6,710,904)
-------------- -----------------
Total common stock and other stockholders' equity.......................... 6,247,027 3,448,449
-------------- -----------------
Total liabilities and stockholders' equity................................. $ 10,547,150 $ 4,565,490
-------------- -----------------
-------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------------- ------------- ------------- -------------
NET SALES:
Service sales....................................... $ 1,972,734 $ 856,283 $ 2,952,930 $ 1,619,029
Equipment sales..................................... 32,322 40,870 94,463 160,551
------------- ------------- ------------- -------------
Total net sales................................... 2,005,056 897,153 3,047,393 1,779,580
------------- ------------- ------------- -------------
COST OF SALES:
Cost of services.................................... 1,193,309 612,135 1,903,090 1,042,298
Cost of equipment sold.............................. 15,990 16,830 65,165 99,392
------------- ------------- ------------- -------------
Total cost of sales............................... 1,209,299 628,965 1,968,255 1,141,690
------------- ------------- ------------- -------------
GROSS PROFIT.......................................... 795,757 268,188 1,079,138 637,890
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Sales and marketing................................. 1,115,444 275,708 1,637,397 595,237
Product development................................. 165,280 130,758 350,579 220,421
General and administrative.......................... 1,460,907 1,131,331 2,264,722 1,914,920
Depreciation and amortization....................... 457,104 138,764 608,823 217,157
------------- ------------- ------------- -------------
Total operating expenses.......................... 3,198,735 1,676,561 4,861,521 2,947,735
------------- ------------- ------------- -------------
OPERATING (LOSS)...................................... (2,402,978) (1,408,373) (3,782,383) (2,309,845)
OTHER EXPENSES (INCOME)
Gain on sale of division............................ -- (4,402,076) -- (4,402,076)
Interest expense.................................... 11,444 172,500 16,153 438,529
Other expense (income), net......................... (27,383) (28,109) (39,910) (67,156)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES..................... (2,387,039) 2,849,312 (3,758,626) 1,720,858
INCOME TAX PROVISION (BENEFIT)........................ -- -- -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS)..................................... (2,387,039) 2,849,312 (3,758,626) 1,720,858
PREFERRED STOCK DIVIDEND.............................. (792,390) (225,491) (792,390) (666,667)
------------- ------------- ------------- -------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS... $ (3,179,429) $ 2,623,821 $ (4,551,016) $ 1,054,191
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
BASIC EARNINGS (LOSS) PER SHARE....................... $ (.48) $ 0.63 $ (.77) $ 0.29
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EARNINGS (LOSS) PER SHARE..................... $ (.48) $ .54 $ (.77) $ 0.25
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC..... 6,585,603 4,190,088 5,912,072 3,637,803
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--DILUTED... 6,585,603 4,895,185 5,912,072 4,782,516
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
<S> <C> <C>
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................................. $(3,758,626) $ 1,720,858
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization................................................................... 608,823 217,157
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......................................................................... 133,500 45,000
Deferred rent expense........................................................................... (21,571) (47,743)
Change in operating assets and liabilities:
Accounts receivable........................................................................... (406,158) (328,211)
Prepaid expenses.............................................................................. (562,382)
Accounts payable and accrued expenses......................................................... 779,516 (122,478)
Accrued payroll liabilities................................................................... 102,157 (3,508)
Unearned revenue.............................................................................. (76,319) (176,871)
Other......................................................................................... (270,718) (12,804)
----------- -----------
Net cash used in operating activities........................................................... (3,471,778) (2,704,144)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment..................................................... (252,793) (240,831)
Proceeds from sale of division.................................................................... -- 4,500,000
Cash from acquisition............................................................................. 136,938 --
Loans to shareholders............................................................................. (370,000)
Payment of acquisition costs...................................................................... (356,285) --
Other............................................................................................. -- (46,540)
----------- -----------
Net cash (used in) provided by investing activities............................................. (842,140) 4,212,629
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred offering costs................................................................ -- (28,937)
Payment of deferred debt issue costs.............................................................. -- (35,395)
Proceeds from issuance of preferred shares and warrants, net of offering costs.................... 2,283,750 --
Repayment of capital lease obligations............................................................ (146,516) (32,020)
Proceeds from issuance of common shares and exercise of warrants.................................. 448,487 --
----------- -----------
Net cash provided by (used in) financing activities............................................. 2,585,721 (96,352)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................ (1,728,197) 1,412,133
CASH AND CASH EQUIVALENTS at beginning of period.................................................... 2,541,932 3,187,948
----------- -----------
CASH AND CASH EQUIVALENTS at end of period.......................................................... $ 813,735 $ 4,600,081
----------- -----------
----------- -----------
</TABLE>
5
<PAGE>
HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON CASH INVESTING AND
FINANCING ACTIVITIES:
During the six-month periods ended June 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 six months ended June 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 six months ended June 30, 1999, the Company issued 185,342 shares of
common stock for the net assets of Ganymede Corporation.
During the six months ended June 30, 1998, $1,700,000 of convertible debentures
were converted into 961,460 shares of common stock.
During the six months ended June 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.
6
<PAGE>
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 will engage
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
will be 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. 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
7
<PAGE>
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. 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 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.
5. 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.
8
<PAGE>
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).
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% 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.
6. 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
six months ended June 30, 1999, as they are antidilutive.
9
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The following table sets forth the computation of basic and diluted earnings
(loss) per share for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) available to common
shareholders........................................ (3,179,429) 2,623,821 (4,551,016) 1,054,191
------------- ------------ ------------- ------------
Numerator for basic earnings (loss)
per share........................................... (3,179,429) 2,623,821 (4,551,016) 1,054,191
Interest on convertible debentures.................... -- -- -- 122,778
------------- ------------ ------------- ------------
Numerator for diluted earnings (loss)
per share........................................... (3,179,429) 2,623,821 (4,551,016) 1,176,969
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Denominator:
Weighted average common shares outstanding............ 6,585,603 4,190,088 5,912,072 3,637,803
------------- ------------ ------------- ------------
Denominator for basic earnings (loss)
per share........................................... 6,585,603 4,190,088 5,912,072 3,637,803
Dilutive options, warrants, convertible debentures,
and convertible preferred stock..................... -- 705,097 -- 1,144,713
------------- ------------ ------------- ------------
Denominator for diluted earnings (loss)
per share........................................... 6,585,603 4,895,185 5,912,072 4,782,516
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Basic earnings (loss) per share....................... $ (0.48) $ 0.63 $ (0.77) $ 0.29
Diluted earnings (loss) per share..................... $ (0.48) $ 0.54 $ (0.77) $ 0.25
</TABLE>
7. 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.
10
<PAGE>
The table below presents information about the reported business unit income
for HomeCom Communications, Inc. for the three and six months ended June 30,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
FAST................................................................. $ 1,071 $ 481 $ 1,846 $ 873
HostAmerica.......................................................... -- 215 -- 533
InsureRate/FIMI...................................................... 826 -- 893 --
Software Products.................................................... 15 -- 80 --
HISS................................................................. 93 201 228 374
--------- --------- --------- ---------
Totals................................................................. $ 2,005 $ 897 $ 3,047 $ 1,780
--------- --------- --------- ---------
--------- --------- --------- ---------
Business Unit Net Income (Loss):
FAST................................................................. $ 153 $ (22) $ 267 $ (51)
HostAmerica.......................................................... -- 85 -- 261
InsureRate/FIMI...................................................... (820) (106) (959) (105)
Software Products.................................................... (109) (170) (249) (172)
HISS................................................................. (143) 14 (251) 16
--------- --------- --------- ---------
Business Unit Net Income (Loss)........................................ $ (919) $ (199) $ (1,192) $ (51)
Adjustments to reconcile business unit net income (loss) with
consolidated net income (loss):
General & Administrative Expenses.................................... (1,461) (1,131) (2,265) (1,915)
Gain on Sale of Division............................................. -- 4,402 -- 4,402
Interest Expense..................................................... (11) (173) (16) (439)
Net Other............................................................ 4 (50) (286) (276)
--------- --------- --------- ---------
Consolidated Net Income (Loss)......................................... $ (2,387) $ 2,849 $ (3,759) $ 1,721
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
8. INCOME TAXES
There was no provision for or cash payment of income taxes for the three and
six months ended June 30, 1999 and 1998, respectively, as the Company
anticipates a net taxable loss for the year ended December 31, 1999.
9. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
11
<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.
12
<PAGE>
- 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 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.
- HomeCom Internet Security Services ("HISS") provides professional services
to businesses that are concerned about network applications and
information security. Management and technological staff directly support
end customers by offering both consulting and integration engagements.
HomeCom believes HISS world-class services provide a distinct competitive
edge to the financial services industry. Customers include Fortune 500
financial service providers, airlines, energy companies, media
conglomerates, manufacturers and others. Since its inception in 1996, HISS
has successfully completed nearly 50 contract engagements including eleven
with Fortune 500 companies. Its customers include Citicorp, the CIA,
Fiserv, Washington Post, Reebok, Raytheon E-Systems, MCI WorldCom,
Crestar, HomeDepot and others. HISS is the only business unit that
provides services to non-financial institutions. Management believes that
knowledge gained from these assignments serves it well in the financial
services marketplace.
13
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales increased 123.5% from $897,153 in the second quarter
of 1998 to $2,005,056 in the second quarter of 1999. Revenues from service sales
increased 130.4% from $856,283 in the second quarter of 1998 to $1,972,734 in
the second quarter of 1999. This increase of $1,116,451 is primarily
attributable to increases in custom application development revenues of
approximately $470,000 and to insurance sales of approximately $825,000 from the
FIMI acquisition, offset by lower security services revenues of approximately
$87,000 and lower hosting revenues of approximately $117,000 due to the sale of
HostAmerica in June 1998. Revenue from equipment sales decreased from $40,870 in
the second quarter of 1998 to $32,322 in the second quarter of 1999 due to
decreased sales of security 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 $612,135, or 68.2% of revenues in the second quarter of 1998 to
$1,193,309, or 59.5% of revenues in the second 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 $527,569 from $268,188 in the
second quarter of 1998 to $795,757 in the second quarter of 1999. Gross profit
margins increased from 29.9% during the second quarter of 1998 to 39.7% during
the second 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 304.6% from $275,708 in 1998 to $1,115,444 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
30.7% in 1998 to 55.6% 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 $165,280, or 8.2% of net sales in the second quarter of 1999.
This compares to total product development expenditures of $130,758, or 14.6% of
sales in the second 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
$1,131,331 in the second quarter of 1998 to $1,460,907 in the second quarter of
1999 due primarily to the FIMI acquisition. As a percentage of net sales, these
expenses decreased from 126.1% in the second quarter of 1998 to 72.9% in the
second 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 $138,764 in the second quarter of 1998 to $457,104,
14
<PAGE>
in the second quarter of 1999, reflecting increased expenditures on capital
equipment and amortization of intangible assets associated with the acquisitions
of FIMI and Ganymede.
OTHER INCOME. During the three 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 $172,500 in the second
quarter of 1998 to $11,444 during the second quarter of 1999, principally
reflecting amortization of the debt issue costs ($167,320) incurred in 1998 for
the Company's 5% convertible debentures issued in September 1997.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales increased 71.2% from $1,779,580 in the first six
months of 1998 to $3,047,393 in the first six months of 1999. Revenues from
service sales increased 82.4% from $1,619,029 in the first six months of 1998 to
$2,952,930 in the first six months of 1999. This increase of $1,333,901 is
primarily attributable to increases in custom application development revenues
of approximately $736,000, software product sales of approximately $80,000, and
insurance sales of approximately $893,000 from the FIMI acquisition, offset by
lower security services revenue of approximately $78,000 and lower hosting
revenues of approximately $309,000 due to the sale of HostAmerica in June 1998.
Revenue from equipment sales decreased from $160,551 in the first six months of
1998 to $94,463 in the first six months of 1999. This decrease of $66,088 was
attributable to decreased sales of security 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 $1,042,298, or 58.6% of revenues in the first six months of 1998
to $1,903,090, or 62.4% of revenues in the first six 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.
GROSS PROFIT. Gross profit increased by $441,248 from $637,890 in the first
six months of 1998 to $1,079,138 in the first six months of 1999. Gross profit
margins were 35.4% during the first six months of 1999, compared to 35.8% during
the first six 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 175.1% from $595,237 in 1998 to $1,637,397 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
33.4% in 1998 to 53.7% 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 $350,579, or 11.5% of net sales in the first six months of
1999. This compares to total product development expenditures of $220,421, or
12.4% of sales in the first six 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
$1,914,920 in the first six months of 1998 to $2,264,722 in the first six months
of 1999. As a percentage of net sales, these expenses decreased from 107.6% in
the first six months of 1998 to 74.3% in the first six months of
15
<PAGE>
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 $217,157 in the first six months of 1998 to $608,823
in the first six months of 1999, reflecting increased expenditures on capital
equipment and amortization of intangible assets associated with the acquisitions
of FIMI and Ganymede.
OTHER INCOME. During the six 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 $438,529 in the first six
months of 1998 to $16,153 during the first six 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 June
30, 1999, the Company had net working capital of approximately $600,000.
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.
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 $3,471,778 for six months ended
June 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
16
<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.
The Company spent $252,793 and $240,831 during the six months ended June 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
$1,250,644 as of June 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.
17
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE
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
18
<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.
Date: August 13, 1999 /s/ Harvey W. Sax
------------------------
President and
Chief Executive Officer
Date: August 13, 1999 /s/ Norm H. Smith
------------------------
Chief Financial Officer
(Principal Financial Officer)
</TABLE>
19
<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>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STAEMENTS OF HOMECOM COMMUNICATIONS, INC. FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 813,735
<SECURITIES> 0
<RECEIVABLES> 1,250,644
<ALLOWANCES> 232,750
<INVENTORY> 0
<CURRENT-ASSETS> 3,001,557
<PP&E> 2,383,406
<DEPRECIATION> 1,272,973
<TOTAL-ASSETS> 10,547,150
<CURRENT-LIABILITIES> 2,417,294
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 6,246,364
<TOTAL-LIABILITY-AND-EQUITY> 10,547,250
<SALES> 94,463
<TOTAL-REVENUES> 3,047,393
<CGS> 65,166
<TOTAL-COSTS> 1,968,255
<OTHER-EXPENSES> 4,728,021
<LOSS-PROVISION> 133,500
<INTEREST-EXPENSE> 16,153
<INCOME-PRETAX> (3,758,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,758,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,758,626)
<EPS-BASIC> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
