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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 MARCH 31, 2000
COMMISSION FILE NUMBER 0-29204
HOMECOM COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
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)
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 May 1, 2000, there were 8,236,059 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............................... 2
ITEM 1. FINANCIAL STATEMENTS (unaudited):................... 2
1) Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999....................................... 2
2) Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999.................... 3
3) Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999.................... 4
4) Notes to Consolidated Financial Statements............. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................... 11
Signatures.................................................. 12
Exhibit Index............................................... 13
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1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
HOMECOM COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
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MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 82,806 $ 1,497,678
Accounts receivable, net.................................. 1,510,196 1,160,114
Employee loans............................................ 465,333 474,583
Receivable from related parties........................... -- 200,000
Other current assets...................................... 143,319 189,648
----------- -----------
Total current assets.................................... 2,201,654 3,522,023
FURNITURE, FIXTURES AND EQUIPMENT, NET...................... 996,244 1,131,204
DEPOSITS.................................................... 93,524 92,494
INTANGIBLE ASSETS, NET...................................... 4,625,810 4,966,822
INVESTMENT.................................................. 823,175 823,175
----------- -----------
Total assets............................................ $ 8,740,407 $10,535,718
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 1,269,278 $ 1,697,210
Accrued payroll liabilities............................... 352,813 290,414
Unearned revenue.......................................... 95,233 296,319
Current portion of obligations under capital leases....... 194,172 204,278
----------- -----------
Total current liabilities............................... 1,911,496 2,488,221
OTHER LIABILITIES........................................... 122,765 127,104
OBLIGATIONS UNDER CAPITAL LEASES............................ 286,538 315,275
----------- -----------
Total liabilities....................................... 2,320,799 2,930,600
----------- -----------
Redeemable preferred stock, Series B, $.01 par value, 125
shares authorized, 175 shares issued at March 31, 2000 and
December 31, 1999, respectively and 25 and 115 shares
outstanding at March 31, 2000 and December 31, 1999,
respectively, convertible, participating; $525,411
liquidation value at March 31, 2000....................... 282,695 1,624,920
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 15,000,000 shares
authorized, 7,040,525 shares and 8,131,250 issued and
outstanding at March 31, 2000 and December 31,1999,
respectively............................................ 813 704
Preferred stock, Series C, $.01 par value, 175 shares
authorized, 175 shares issued at March 31, 2000 and
December 31, 1999, respectively, and 126.357 and
137.5 shares outstanding at March 31, 2000 and December
31, 1999 respectively, convertible, participating;
$2,630,164 liquidation value at March 31, 2000.......... 2 2
Preferred stock, Series D, $.01 par value, 75 shares
authorized, 75 shares issued at March 31, 2000 and
December 31, 1999, respectively, and 18 and 75 shares
outstanding at March 31, 2000 and December 31, 1999
respectively; convertible participating; $370,830
liquidation value at March 31, 2000..................... 1 1
Additional paid-in capital................................ 23,579,057 21,931,281
Subscriptions receivable.................................. (64,689) (64,687)
Accumulated deficit....................................... (17,378,271) (15,887,103)
----------- -----------
Total stockholders' equity.............................. 6,136,913 5,980,198
----------- -----------
Total liabilities and stockholders' equity.............. $ 8,740,407 $10,535,718
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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HOMECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED)
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Revenues.................................................... $ 2,383,471 $ 907,231
Cost of revenues............................................ 1,028,676 709,941
----------- -----------
GROSS PROFIT................................................ 1,354,795 197,290
----------- -----------
OPERATING EXPENSES:
Sales and marketing....................................... 891,816 432,479
Product development....................................... 209,230 135,591
General and administrative................................ 1,276,516 773,990
Depreciation and amortization............................. 495,757 109,468
----------- -----------
Total operating expenses................................ 2,873,319 1,451,528
----------- -----------
OPERATING LOSS.............................................. (1,518,524) (1,254,238)
OTHER EXPENSES (INCOME)
Interest expense.......................................... 4,065 4,709
Other expense (income), net............................... (31,421) (12,527)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES......... (1,491,168) (1,246,420)
----------- -----------
INCOME TAX PROVISION (BENEFIT).............................. -- --
LOSS FROM CONTINUING OPERATIONS............................. (1,491,168) (1,246,420)
LOSS FROM DISCONTINUED OPERATIONS........................... -- (125,167)
----------- -----------
NET LOSS.................................................... (1,491,168) (1,371,587)
DEEMED PREFERRED STOCK DIVIDEND............................. (311,422) --
----------- -----------
LOSS APPLICABLE TO COMMON SHAREHOLDERS...................... $(1,802,590) $(1,371,587)
=========== ===========
EARNINGS (LOSS) PER SHARE--BASIC AND DILUTED
CONTINUING OPERATIONS....................................... $ (0.24) $ (0.24)
DISCONTINUED OPERATIONS..................................... -- (0.02)
----------- -----------
$ (0.24) $ (0.26)
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 7,498,251 5,231,058
=========== ===========
</TABLE>
3
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HOMECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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THREE MONTHS ENDED
-------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,491,168) $(1,371,586)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 495,757 149,070
Provision for bad debts................................. 386 133,500
Deferred rent expense................................... (4,337) (715)
Change in operating assets and liabilities:
Accounts receivable................................... (350,467) (479,003)
Prepaid expenses...................................... (1,030) (189,325)
Accounts payable and accrued expenses................. (122,357) 54,733
Accrued payroll liabilities........................... 62,399 54,723
Unearned revenue...................................... (201,086) 85,829
Other................................................. 46,329 (124,108)
----------- -----------
Net cash used in operating activities................... (1,565,574) (1,686,882)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment............. (19,786) (17,960)
Cash from acquisition..................................... -- 96,517
Loans to employees........................................ 9,250 (370,000)
Payment of acquisition costs.............................. -- (87,530)
----------- -----------
Net cash used in investing activities................... (10,536) (378,973)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations.................... (38,843) (38,175)
Proceeds from the issuance of common shares and exercise
of warrants............................................. 81 413,603
Proceeds from issuance of preferred shares and warrants... -- 2,283,750
Proceeds from a receivable of a related party............. 200,000 --
----------- -----------
Net cash provided by financing activities............... 161,238 2,659,178
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,414,872) 593,323
CASH AND CASH EQUIVALENTS at beginning of period............ 1,497,678 2,291,932
----------- -----------
CASH AND CASH EQUIVALENTS at end of period.................. $ 82,806 $ 2,885,255
=========== ===========
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON CASH INVESTING AND
FINANCING ACTIVITIES
During the three months ended March 31, 2000 the Company issued 59,559
shares of common stock relating to penalties on preferred stock accrued during
1999.
During the three months ended March 31, 2000 the Company issued 15,077
shares of common stock for legal costs incurred in 1999.
The accompanying notes are an integral part of these financial statements.
4
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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. SEGMENT INFORMATION
During 1999, HomeCom was organized into four separate business units,
organized on the basis of products and services. 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 security services (HISS), software products, and
InsureRate/FIMI. On October 1, 1999 the Company sold all of the assets of its
HISS unit to Infrastructure Defense, Inc and discontinued operations for this
business.
The table below presents information about the reported business unit
revenues, income (loss) for HomeCom Communications, Inc. for the three months
ended March 31, 2000 and 1999 (in thousands):
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PERIOD ENDED MARCH 31,
-----------------------
2000 1999
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Revenues:
FAST...................................................... $ 1,166 $ 775
InsureRate/FIMI........................................... 755 67
Software Products......................................... 462 65
------- -------
Totals.................................................. 2,383 907
======= =======
HISS (Discontinued Operation)............................... -- 135
======= =======
Business Unit Net Income (Loss):
FAST...................................................... 528 (163)
InsureRate/FIMI........................................... (607) (204)
Software Products......................................... 367 (332)
------- -------
Business Unit Net Income (Loss):............................ 288 (699)
======= =======
HISS (Discontinued Operation)............................. -- (125)
======= =======
Adjustments to reconcile Business unit net income(loss) with
consolidated net income (loss):
Corporate Expenses........................................ (1,807) (555)
Interest expense.......................................... (4) (5)
Net Other................................................. 32 13
------- -------
Loss from Continuing Operations............................. $(1,491) $(1,246)
======= =======
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5
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HOMECOM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SEGMENT INFORMATION (CONTINUED)
The Company evaluates the performance of its segments based on segment
revenue and identifiable segment direct expenses, consisting primarily of
salaries and wages, travel and other costs of segment operating and sales
personnel. Common expenses for general and administrative costs, facilities,
equipment, telecommunications, and depreciation and amortization expenses are
not allocated to the business segments but are included in Corporate expenses.
3 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share ("EPS") is 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 is excluded from the
computations for the three months ended March 31, 2000 and 1999, as it is
antidilutive.
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PERIOD ENDED MARCH 31,
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2000 1999
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Loss from continuing operations............................. $(1,491,168) $(1,246,420)
Less: Deemed preferred stock dividend..................... (311,422) --
----------- -----------
Loss from continuing operations applicable to common
shareholders.............................................. (1,802,590) (1,246,420)
Loss from discontinued operations........................... -- (125,167)
----------- -----------
Net loss applicable to common shareholders.................. (1,802,590) (1,371,587)
=========== ===========
Weighted average common shares outstanding--basic and
diluted................................................... 7,498,251 5,231,058
----------- -----------
Loss per share--continuing operations....................... $ (0.24) $ (0.24)
Loss per share--discontinued operations..................... -- (0.02)
----------- -----------
$ (0.24) $ (0.26)
=========== ===========
</TABLE>
4. TAXES
There was no provision for or cash payment of income taxes for the three
months ended March 31, 2000 and 1999, respectively, as the Company anticipates a
net taxable loss for the year ended December 31, 2000.
5. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
6. SUBSEQUENT EVENT
On April 14, 2000, the Company issued 106.35 shares of the Company's
Series E Convertible Preferred Stock, par value $.01 per share (the "Series E
Preferred Stock") and warrants to acquire up to 33,334 shares of Common Stock
for net proceeds of approximately $1.9 million. The Series E Preferred Stock has
an initial stated value of $20,000 per share, which stated value increases at
the rate of 8% per year. Each Series E Preferred Share is convertible, from and
after the earlier to occur of: (i)120 days following the date of issuance or
(ii) the effective date of the registration statement for the common shares
underlying the Series E Preferred Stock, at the option of the holder, into such
number of shares of Common Stock as is determined by dividing the Series E
Stated Value by the lesser of (a) $3.53, and (b) 82.5% of the average of the
closing bid prices for the five trading days preceding the date of conversion.
Any Series E Preferred Stock issued and outstanding on April 14, 2003 will
automatically be converted into Common Stock at the conversion price then in
effect.
6
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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, 333-86837, 333-88491 and 333-59795)
and S-3 (333-73123 and 333-81581).
GENERAL
HomeCom Communications, Inc. is a Delaware corporation, organized in 1994 to
provide complex web-based 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
Web design, financial applications and solutions provider to the financial
services market, including banking, insurance, securities brokerage firms and
other financially oriented web portals.
HomeCom Communications, Inc. develops and markets specialized software
applications, products and services that enable financial institutions and their
customers 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 electronic channels to consumers and conduct business
by providing secure, innovative, Internet-based applications to the banking,
insurance and brokerage industries. As a B2B (business to business) technology
provider to this electronic channel, HomeCom intends to continually enrich the
content of its proprietary applications; host and maintain its own as well as
third party software applications; and to provide strategic design, consulting,
and development services to financial institutions on e-commerce and
webmarketing. HomeCom derives revenue from professional web development
services, software licensing, application development, insurance and securities
sales commissions, and hosting and transactions fees. HomeCom has grown to
approximately 76 full-time employees and occupies approximately 38,900 square
feet of office space with offices in Atlanta, Houston, New York City, and the
Chicago area.
HomeCom's proprietary web 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, 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 applications,
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. In October, 1999, we sold our security consulting and
integration services operations and entered into a joint marketing program with
the acquiror, Infrastructure Defense Inc.
Businesses such as banks, brokerage firms, and insurance companies can use
HomeCom's Personal Internet Banker-TM- and InsureRate-TM- software to allow
customers and professionals within these organizations to access and manage
accounts and to transact insurance sales and quotes. Its Harvey-TM- software
collects demographic information from users for personally tailored marketing
efforts. Financial Institutions that integrate their legacy systems, the
Personal Internet Banker or InsureRate applications with the Harvey application
can create multiple, focused marketing campaigns for client cross-selling
initiatives. HomeCom also designs and creates Web sites, custom complex web
applications for interactive Web sites,
7
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intranets/extranets, sells third party Internet security software, and provides
server hosting and outsourcing facilities.
In 1999, HomeCom provided its product and service offerings through four
distinct but integrated business units. In 2000, HomeCom will provide its
products and services through three distinct business units (due to the sale
in October, 1999 of the HomeCom Internet Security Services business unit):
1. HomeComFinancial 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. Significant FAST revenue
is generated from the installation, integration and customization of
Personal Internet Banker, Harvey and InsureRate within a client's website
and e-commerce operations. HomeCom also provides turnkey hosting services
for these applications.
2. HomeCom's Financial Solutions (Software Product Group) provides cost
effective, one-stop web-based financial service applications to the
banking, credit union and brokerage industries that allow its clientele
to rapidly deploy competitive e-commerce platforms at far less cost than
custom application development. 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 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-TM- 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.
3. HomeCom's InsureRate-TM- provides turnkey online insurance programs to
financial institutions, particularly banks, credit unions, brokerage
houses and financial web portals. InsureRate's bundled or unbundled
modular approach to insurance programs within a financial institution
allows InsureRate's clients to choose appropriate insurance programs for
their clientele. Broadly, InsureRate offers financial institutions the
opportunity to use the InsureRate term life, property and casualty or
annuity modules at the institution's website and/or for its own agency
force within the institution or to outsource these functions to
InsureRate's fully licensed agencies and call centers. InsureRate derives
its revenues from participation in the sales commissions paid by
insurance carriers, website and extranet setup fees, and insurance
carrier enrollment fees. InsureRate operates within the regulated
environment of securities and insurance sales. In order to participate in
this regulated industry, on March 24, 1999, HomeCom acquired First
Institutional Marketing, Inc. ("FIMI") and its affiliated insurance
agencies and NASD broker dealer and integrated their operations with
InsureRate. As a result of this combination of technology
8
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and industry expertise, InsureRate brings a state-of-the-art internet
platform to financial institutions which (i) provides innovative
web-based insurance products and marketing programs for the banking and
brokerage industries, (ii) introduces financial institutions 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. InsureRate maintains a public website at www.insurerate.com.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
NET SALES. Net sales increased 163% from $907,231 in the first quarter of
1999 to $2,383,471 in the first quarter of 2000. This increase of $1,476,241 is
primarily attributable to the inclusion of a full three months of FIMI revenues
in 2000 amounting to $755,537 compared with seven days of revenue recorded for
the then newly acquired unit in 1999. The higher revenues are also attributable
to an increase of approximately $370,000 in software sales and about a $300,000
increase in Web Site development revenues.
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 increased
from $709,941, or 78% of revenues in the first quarter of 1999 to $1,028,676, or
43% of revenues in the first quarter of 2000. This increase is largely related
to the inclusion of the FIMI cost for the full three month period in 2000. The
decline in cost of sales as a percentage of revenues is due to an improved mix
of products and services sold and a better utilization of technical staff
resources.
GROSS PROFIT. Gross profit increased by $1,157,506 from $197,290 in the
first quarter of 1999 to $1,354,795 in the first quarter of 2000. Gross profit
margins improved from 22% during the first quarter of 1999 to 57% during the
first quarter of 2000. This improvement in gross profit is primarily related to
a more profitable product mix, in part due to the acquisition of the FIMI
companies and better control over project costs.
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 106% from $432,479 in 1999 to $891,816 in 2000. This increase
was primarily attributable to the full period impact from FIMI and increased
advertising, public relations, and marketing costs. As a percentage of net
sales, these expenses declined from 48% in 1999 to 37% in 2000.
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 of $209,230, or 9% of net sales in the first quarter of 2000
compares with total product development expenditures of $135,591, or 15% of
sales in the first quarter of 1999.
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
$773,990 in the first quarter of 1999 to $1,276,516 in the first quarter of 2000
mainly due to the addition of the FIMI companies for the full period. As a
percentage of net sales, these expenses decreased from 85% in the first quarter
of 1999 to 54% in the first quarter of 2000, due primarily to increases in
revenues without corresponding 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
9
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assets. Depreciation and amortization increased from $109,468, or 12% of
revenues in the first quarter of 1999 to $495,757, or 21% of revenues in the
first quarter of 2000, primarily due to the amortization of intangible assets
associated with the acquisitions of FIMI, IRC and Ganymede.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company has substantially limited unused sources of capital. As of
March 31, 2000, the Company had a net working capital deficit of approximately
$15,000. On April 14, 2000, subsequent to the date of these financial
statements, the Company completed an equity offering of approximately
$2 million to address its immediate liquidity needs (see footnote 6). 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.
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. The financial statements included herein 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.
Net cash used in operating activities was $1,565,574 for three months ended
March 31, 2000. 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. 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 175 shares of its
Series C Preferred Stock for net proceeds of approximately $3.3 million. On
September 28, 1999, HomeCom sold 75 shares of its series D preferred stock for
net proceeds of approximately $1.4 million.
The Company spent $19,786 and $17,960 during the three months ended
March 31, 2000 and 1999, 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
Internet and Intranet applications marketplace. The Company's commitments as of
March 31, 2000 consist primarily of leases on its Atlanta, Georgia, Houston,
Texas and New York City facilities.
Accounts receivable, net of allowance for doubtful accounts, totaled
$1,510,196 as of March 31, 2000. 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.
10
<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
None.
11
<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> <C>
HOMECOM COMMUNICATIONS, INC.
Date: May 15, 2000 /s/ HARVEY SAX
-----------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: May 15, 2000 /s/ JIM ELLSWORTH
-----------------------------------------
Jim Ellsworth
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
12
<PAGE>
HOMECOM COMMUNICATIONS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------------------- ----------- --------
<C> <S> <C>
27 Financial Data Schedule (For SEC Use only).................. 17
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HOMECOM COMMUNICATIONS, INC. FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 82,806
<SECURITIES> 0
<RECEIVABLES> 1,725,735
<ALLOWANCES> 215,539
<INVENTORY> 0
<CURRENT-ASSETS> 2,201,654
<PP&E> 2,425,780
<DEPRECIATION> 1,429,536
<TOTAL-ASSETS> 8,740,407
<CURRENT-LIABILITIES> 1,911,496
<BONDS> 0
0
282,698
<COMMON> 813
<OTHER-SE> 6,136,097
<TOTAL-LIABILITY-AND-EQUITY> 8,740,407
<SALES> 2,383,471
<TOTAL-REVENUES> 2,383,471
<CGS> 1,028,676
<TOTAL-COSTS> 1,028,676
<OTHER-EXPENSES> 2,873,319
<LOSS-PROVISION> 386
<INTEREST-EXPENSE> 4,065
<INCOME-PRETAX> (1,491,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,491,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,802,590)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
