UNITED STATES
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 SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 0-29204
HOMECOM COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 58-2153309
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.
Incorporation or Organization)
BUILDING 14, SUITE 100,
3535 PIEDMONT ROAD
ATLANTA, GEORGIA 30305
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(Address of principal executive offices and zip code)
(404) 237-4646
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(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 November 1, 2000, there were 9,359,157 outstanding shares of the
Registrant's Common Stock, par value $.0001 per share.
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HOMECOM COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 2
1) Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999 2
2) Consolidated Statements of Operations for the
three months and nine months ended September 30,
2000 and 1999 (unaudited) 3
3) Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999 (unaudited) 4
4) Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
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<TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMECOM COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
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(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 605,548 $ 1,497,678
Accounts receivable, net 1,208,040 1,160,114
Receivable from related parties 200,000
Other current assets 176,670 189,648
------------ ------------
Total current assets 1,990,258 3,047,440
Furniture, Fixtures and Equipment, net 989,101 1,131,204
Loans to shareholders 465,000 474,583
Deposits 77,810 92,494
Intangible Assets, net 3,261,764 4,966,822
Investment 823,175 823,175
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Total Assets $ 7,607,108 $ 10,535,718
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,980,096 $ 1,697,210
Accrued payroll liabilities 508,748 290,414
Unearned revenue 296,319
Current portion of obligations under capital leases 168,101 204,278
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Total Current Liabilities 2,656,945 2,488,221
Other Liabilities 300,355 127,104
Obligations Under Capital Lease 253,143 315,275
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Total Liabilities 3,210,443 2,930,600
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Redeemable Preferred Stock--Series B, $.01 par value, 125 shares 282,695 1,624,920
authorized, 17.8 and 115 shares outstanding at September 30, 2000
and December 31, 1999, respectively; participating; $527,085
liquidation value at September 30, 2000
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Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000 shares authorized, 936 704
9,357,945 shares 7,040,525 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively
Preferred stock, Series C, $.01 par value, 175 shares authorized, 1 2
92.1 and 137.5 shares outstanding at September 30, 2000 and
December 31, 1999, respectively,
convertible, participating; $2,222,352 liquidation
value at September 30, 2000
Preferred stock, Series D, $.01 par value, 75 shares authorized, 1 1
1.3 and 75 shares outstanding at September 30, 2000 and December
31, 1999 respectively; convertible, participating; $ 27,382 liquidation
value at September 30, 2000
Preferred stock, Series E, $.01 par value, 106.4 shares authorized, 1
106.4 shares issued and outstanding as September 30, 2000,
convertible, participating, $2,205,786 liquidation value at
September 30, 2000
Additional paid-in capital 25,269,723 21,931,281
Subscriptions Receivable (64,687)
Accumulated Deficit (21,156,692) (15,887,103)
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Total Stockholders' Equity 4,113,970 5,980,198
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Total Liabilities and Stockholders' Equity $ 7,607,108 $ 10,535,718
============ ============
The accompanying notes are an integral part of these financial statements
2
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HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues $ 1,539,876 $ 2,059,681 $ 6,159,832 $ 4,878,962
Cost of Revenues 1,071,232 1,501,348 3,254,556 3,404,728
----------- ----------- ----------- -----------
Gross Profit 468,644 558,333 2,905,276 1,474,234
----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing 834,650 1,348,107 2,428,067 2,787,569
Product development 77,271 426,871 355,794 691,004
General and administrative 669,320 1,306,141 3,273,111 3,489,424
Depreciation and amortization 381,001 485,139 2,213,492 1,010,236
----------- ----------- ----------- -----------
Total operating expenses 1,962,242 3,566,258 8,270,464 7,978,233
----------- ----------- ----------- -----------
Operating loss (1,493,598) (3,007,925) (5,365,188) (6,503,999)
Other Expenses
Interest (income) expense (96) 9,263 (30,560) 25,416
Other income, net (19,080) (8,839) (65,039) (48,749)
----------- ----------- ----------- -----------
Loss From Continuing Operations Before Income Taxes (1,474,422) (3,008,349) (5,269,589) (6,480,666)
Income Tax Provision (Benefit) -- -- -- --
----------- ----------- ----------- -----------
Loss From Continuing Operations (1,474,422) (3,008,349) (5,269,589) (6,480,666)
Loss from Discontinued Operations (115,275) (401,584)
----------- ----------- ----------- -----------
Net Loss (1,474,422) (3,123,624) (5,269,589) (6,882,250)
Deemed Preferred Stock Dividend (213,222) (522,841) (1,395,962) (1,315,231)
----------- ----------- ----------- -----------
Net Loss Applicable to Common Shareholders $(1,687,644) $(3,646,465) $(6,665,551) $(8,197,481)
=========== =========== =========== ===========
Loss Per Share - Basic and Diluted
Continuing Operations $ (0.19) $ (0.53) $ (.80) $ (1.26)
Discontinued Operations (.02) (.07)
----------- ----------- ----------- -----------
Loss Per Share - Basic and Diluted $ (0.19) $ (0.55) $ (.80) $ (1.33)
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding 9,036,095 6,667,639 8,283,302 6,166,695
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
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HOMECOM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
September 30,
--------------------------------
2000 1999
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Cash Flows From Operating Activities:
Net loss $(5,269,589) $(6,882,250)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization 2,155,102 1,119,802
Provision for bad debts (190,320) 168,500
Deferred rent expense 173,252 (26,619)
Forgiveness of subscription receivable 64,687
Change in operating assets and liabilities:
Accounts receivable 142,394 (897,549)
Prepaid expenses (408,668)
Accounts payable and accrued expenses 365,852 385,465
Accrued payroll liabilities 218,334 90,099
Unearned revenue (296,319) 26,876
Other 37,245 (404,725)
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Net cash used in operating activities (2,599,362) (6,829,069)
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Cash Flows From Investing Activities:
Purchase of furniture, fixtures and equipment (307,940) (306,900)
Cash from acquisition 136,938
Loans to shareholders (370,000)
Payment of acquisition costs (213,461)
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Net cash used in investing activities (307,940) (753,423)
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Cash Flows From Financing Activities:
Payment of deferred debt issue costs 109,158
Repayment from receivable of a related party 200,000
Proceeds from issuance of preferred shares and warrants 1,898,750 7,031,251
Repayment of capital lease obligations (98,309) (192,197)
Proceeds from issuance of common shares and exercise of warrants 14,731 675,018
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Net cash provided by financing activities 2,015,172 7,623,230
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Net Increase (Decrease) in cash and cash Equivalents (892,130) 40,738
Cash and Cash Equivalents at Beginning of Period 1,497,678 2,541,932
----------- -----------
Cash and Cash Equivalents at End of Period $ 605,548 $ 2,582,670
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</TABLE>
Supplemental Disclosure of Cash Flow Information and Non Cash Investing and
Financing Activities
During the nine months ended September 30, 2000, the Company issued 59,559
shares of common stock relating to penalties on preferred stock accrued during
1999.
During the nine months ended September 30, 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. GOING CONCERN MATTERS
The company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidations of liabilities in the normal course of
business. The Company has incurred significant losses since its incorporation,
resulting in an accumulated deficit at September 30, 2000 of approximately $21.3
million. The Company continues to experience negative cash flows from operations
and has been dependent on continued financing from investors to sustain its
activities. There is no assurance that such financing will be available in the
future. These factors raise substantial doubt about the Company's ability to
continue as a going concern. During 2000 the Company has reduced its workforce
and has entered into discussions to sell its InsureRate/FIMI division in order
to reduce expenses. Additionally, the Company has taken measures to reduce its
corporate overhead. The Company's continued existence as a going concern is
dependent upon its ability to generate cash flows sufficient to cover its
corporate overhead or to secure adequate debt or equity funding.
3. 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. On August 4, 2000, the Company announced that it had entered into an
agreement to sell the InsureRate division and the FIMI companies. On November 2,
2000, the Company announced that the previously announced transaction had been
terminated.
5
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3. SEGMENT INFORMATION (CONTINUED)
The table below presents information about the reported business unit
revenues, income (loss) for HomeCom Communications, Inc. for the three months
and nine months ended September 30, 2000 and 1999 (in thousands):
<TABLE>
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
FAST $ 1,002 $ 1,070 $ 3,657 $ 2,915
InsureRate/FIMI 538 886 2,038 1,779
Software Products 104 465 185
------- ------- ------- -------
Totals 1,540 2,060 6,160 4,879
HISS (Discontinued Operation) 133 361
------- ------- ------- -------
Total Revenue 1,540 2,193 6,160 5,240
======= ======= ======= =======
Business Unit Net Income (Loss)
FAST 439 203 2,149 470
InsureRate/FIMI (644) (811) (1,812) (1,780)
Software Products (418) (736)
------- ------- ------- -------
Business Unit Net Income (Loss) (205) (1,026) 337 (2,046)
Adjustments to reconcile Business unit net
income(loss) with consolidated net
income(loss):
Corporate Expenses (1,297) (1,435) (4,792) (1,735)
Interest expense (9) (9) 30 (25)
Net Other 19 (539) (844) (2,675)
------- ------- ------- -------
Loss from Continuing Operations (1,474) (3,009) (5,269) (6,481)
HISS (Discontinued Operation) (115) (401)
------- ------- ------- -------
Net Loss $(1,474) $(3,124) $(5,269) $(6,882)
======= ======= ======= =======
</TABLE>
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 expense.
6
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4. BASIC AND DILUTED LOSS PER SHARE
Loss per common share 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 and
nine months ended September 30, 2000 and 1999, as it is antidilutive.
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss from continuing operations $(1,474,422) $(3,008,349) $(5,269,589) $(6,480,666)
Less: Deemed preferred stock dividend (213,222) (522,841) (1,395,962) (1,315,231)
----------- ----------- ----------- -----------
Loss from continuing operations applicable
to common shareholders (1,687,644) $(3,531,190) $(6,665,551) $(7,795,897)
----------- ----------- ----------- -----------
Loss from discontinued operations (115,275) (401,584)
Net loss applicable to common shareholders $(1,687,644) $(3,646,465) $(6,665,551) $(8,197,481)
=========== =========== =========== ===========
Loss per share-continuing operations $ (.19) $ (.53) $ (.80) $ (1.26)
Loss per share-discontinued operations (.02) (.07)
----------- ----------- ----------- -----------
$ (.19) $ (.55) $ (.80) $ (1.33)
=========== =========== =========== ===========
Weighted average common shares
outstanding-basic and diluted 9,036,095 6,667,639 8,283,302 6,166,695
=========== =========== =========== ===========
</TABLE>
5. TAXES
There was no provision for or cash payment of income taxes for the nine
months ended September 30, 2000 and 1999, respectively, as the Company
anticipates a net taxable loss for the year ended December 31, 2000.
7
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6. STOCKHOLDERS' EQUITY
For the quarter ended September 30, 2000, 7.188 shares of Series B
Preferred Stock were converted into 231,357 shares of common stock and 12.5
shares of Series C Preferred Stock were converted into 340,341 shares of common
stock.
As a requirement of the April 2000 private placement of $2,127,000
principal amount of the Company's Series E Convertible Preferred Stock, the
Company was obligated to file and have declared effective, within a specified
time period, a registration statement with respect to a minimum of 1,808,293
shares of common stock issuable upon conversion of the Series E Preferred Stock.
As of September 30, 2000, such registration statement has not been declared
effective and penalties are owed to the Series E Preferred Stock holders. In
accordance with the terms of the private placement, penalties accrue at the rate
of 2% per 30 day period of the outstanding purchase price of the unregistered
securities. For the quarter ended September 30, 2000, $70,949 was recorded as a
deemed dividend to the Preferred Stockholders.
In accordance with the terms of the Series C and D Preferred Stock
Certificate of Designations, Preferences and Rights, the Company has the right
to prohibit holders of the Series C and D Preferred Stock from exercising any
conversion rights ("Lock-Up"). The Company may elect to Lock-Up the preferred
holders for a period of up to 90 days. In consideration for the Company's
exercise of the Lock-up, the Company is required to pay in either cash or stock
an amount that is equal to 3% of the principal amount of the Series C and D
Preferred Stock that has not been converted. On August 1, 2000, the Company
notified the Series C and D Preferred Stock holders that the Company was
exercising its right to Lock-Up. For the quarter ended September 30, 2000,
$108,342 was recorded as a deemed dividend to the Preferred Stockholders.
On September 20, 2000, the Company re-priced options to purchase its common
stock, $.0001 par value, held by certain employees and certain officers. To be
eligible for the re-pricing, option holders were required to exchange one and
one-half old options for each new option. As such, 587,580 old options were
exchanged for 391,719 new options. Options having an exercise price greater than
$0.59, the closing bid price of Homecom common stock on September 20, 2000, were
re-priced to an exercise price of $0.59. In addition, each option holder agreed
to a six month lock-up period in which they would be precluded from exercising
any of their options. According to FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation," reductions to the exercise
price of a fixed option award must be accounted for as variable from the date of
the modification to the date the award is exercised, forfeited or expires
unexercised. Under variable accounting, a compensation cost must be recorded
based on the intrinsic value of the award, which is computed as the difference
between the exercise price and the fair value of Homecom's common stock on the
date of the re-pricing. Thereafter, an additional compensation cost must be
recorded or reversed based on the difference between the value of the option at
the beginning and end of the accounting period. The reversal of compensation
cost cannot be larger than accumulated compensation expense incurred. To date,
no compensation expense has been recognized as Homecom's stock price has been
below the new exercise price of $0.59.
7. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
8
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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
and S-3.
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. Historically, HomeCom has derived its revenue from professional
web development services, software licensing, application development, insurance
and securities sales commissions, and hosting and transactions fees. HomeCom has
approximately 64 full-time employees and occupies approximately 38,900 square
feet of office space with offices in Atlanta, Houston and New York City.
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, 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, the Company sold its security consulting
and integration services operations and entered into a joint marketing program
with the acquirer, 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 as well as custom
complex web applications for interactive Web sites, 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 provides its products
and services through three distinct business units (due to the sale in October,
1999 of the HomeCom Internet Security Services business unit):
9
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ITEM 2. (Continued)
1. 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. 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 to
consumers based on demographics and web site browsing preferences. As
consumers interact with the financial institution's web site,
Harvey(TM) mines the data entered on application forms, adds
information about what was 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(R) 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 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 and www.insurate.com.
On August 4, 2000, the Company announced that it had entered into an
agreement to sell the InsureRate division and the FIMI companies. On November 2,
2000 the Company announced that the previously announced transaction had been
terminated. The company will continue to explore the possibility of a sale of
the InsureRate division.
With the sale of InsureRate, the Company will focus on its core offerings
of FAST and and the solutions sets offered by the Software Products Group.
Additionally, the Company is developing relationships with successful third
party product companies whose products lend themselves to a high degree of
customization and integration within the financial community.
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues: Revenues decreased 25.2% from $2,059,681 in the third quarter of
1999 to $1,539,876 in the third quarter of 2000. This decrease of $519,805 is
primarily attributable to decreases in commission revenue from insurance
products of approximately $348,000 and a loss of high end web maintenance
revenues of approximately $380,000. Decreases were partially offset by increased
revenues from web site hosting of approximately $131,000, and custom web
development of approximately $243,000.
Cost of Revenues: Cost of revenues 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 revenues decreased
28.6%, from $1,501,348, in the third quarter of 1999 to $1,071,232, in the third
quarter of 2000. The decline in cost of sales as a percentage of revenues is due
to a continuing effort to maximize efficient utilization of technical staff
resources related to web development projects. The improvement of margin for web
development services was partially offset by lower margin in the insurance
businesses due to relatively stable costs but lower than expected revenues.
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 decreased 38.1% from $1,348,107 in 1999 to $834,650 in 2000. This
decrease was primarily attributable to lower advertising, public relations, and
marketing costs. As a percentage of net sales, these expenses declined from
65.5% in 1999 to 54.2% in 2000.
Product Development: Product development costs consist of personnel costs
required to conduct the Company's product development efforts. It also includes
a pro-rata allocation of telecommunications, facilities and data center costs.
Total expenditures decreased 81.9%, from $426,871 in 1999, to $77,271 in 2000.
This decrease was primarily attributable to fewer personnel resources required
to support the product development group and a focus on improving and enhancing
competitive products already developed.
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 decreased 48.8%, from
$1,306,141 in the third quarter of 1999 to $669,320 in the third quarter of
2000. As a percentage of net sales, these expenses decreased from 63.4% in the
third quarter of 1999 to 43.5% in the third quarter of 2000.
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 decreased 21.5% from $485,139, or 25.5% of revenues in the third
quarter of 1999 to $381,001, or 24.7% of revenues in the third quarter of 2000.
This reduction is primarily due to a reduction in goodwill amortization. An
impairment write down for the remaining balance of goodwill for the 1999
Ganymede acquisition was taken during the second quarter of 2000.
Loss from Discontinued Operations: The HISS Business Unit of the Company
was sold on October 1, 1999. The loss attributable to HISS operations for the
third quarter of 1999 through September 30, 1999, was approximately $115,000.
11
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NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues: Revenues increased 26.3% from $4,878,962 in the first nine months
of 1999 to $6,159,832 in the first nine months of 2000. This increase of
$1,280,870 is primarily attributable to increases in custom application
development revenues of approximately $1,140,409 and increases in high-end
hosting revenues of approximately $262,000. The insurance revenues reflect a
full nine months of reporting in 2000 and only six months in 1999.
Cost of Revenues: Cost of revenues 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 revenues decreased
from $3,404,728, or 69.8% of revenues in the first nine months of 1999 to
$3,254,556, or 52.8% of revenues in the first nine months of 2000. The decline
in cost of revenues as a percentage of revenues is due to more efficient
utilization of technical staff resources related to web development projects.
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 decreased 12.9% from $2,787,569 in 1999 to $2,428,067 in 2000. This
decrease was primarily attributable to reduction in advertising and marketing
costs due to more efficient and targeted application of personnel and financial
resources.
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. Total
expenditures decreased from $691,004, or 14.2% of revenues in the first nine
months of 1999, to $355,794, or 5.9% of revenues for the first nine months of
2000. This decrease was primarily attributable to fewer personnel resources
being required to support the product development group.
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 decreased from
$3,489,424 for the first nine months of 1999 to $3,273,111 for the first nine
months of 2000. As a percentage of revenues, these expenses decreased from 71.5%
for the first nine months of 1999 to 53.1% for the first nine months of 2000.
The decrease in expense was due primarily to a decreased usage of outside
services and professional services for the first nine months of 2000 as well as
a reduction in reserves for less than expected bad debt losses.
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 $1,010,236, or 20.7% of revenues for the first nine
months of 1999 to $2,213,492, or 35.9% of revenues for the first nine months of
2000, The increase as a percentage of revenues is primarily due to the write off
of approximately $830 thousand of goodwill associated with the 1999 Ganymede
acquisition.
Loss From Discontinued Operations: The HISS Business Unit was sold on
October 1, 1999. The loss attributable to HISS operations for the nine months of
operations in 1999 through September 30, 1999, was approximately $402,000.
12
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LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company has substantially limited unused sources of capital. As of
September 30, 2000, the Company had cash and cash equivalents of approximately
$605,000. 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.
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 $2,599,362 for nine months ended
September 30, 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. On April 14, 2000, the Company sold
106.4 shares of its Series E Preferred Stock for net proceeds of approximately
$1.9 million
The Company spent $307,940 during the nine months ended September 30, 2000,
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 September 30, 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
$1,208,040 as of September 30, 2000. Trade receivables are monitored by the
Company through continued credit evaluations of its customers' financial
condition. 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.
13
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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
14
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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.
HOMECOM COMMUNICATIONS, INC.
Date: November 14, 2000 /s/ HARVEY SAX
-----------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: November 14, 2000 /s/ Timothy R. Robinson
-----------------------------------------
Timothy R. Robinson
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
15
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HOMECOM COMMUNICATIONS, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------------ ----------- ----
27 Financial Data Schedule (For SEC Use only).............. 17
16
