U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002.
/ / TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-29204
HOMECOM COMMUNICATIONS, INC
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(Exact name of small business issuer as specified in its charter)
DELAWARE 58-2153309
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3495 Piedmont Road
Building 12, Suite 110
Atlanta, Georgia 30305
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(Address of principal executive offices)
(404) 237-4646
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(Issuer's Telephone Number)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 10, 2002, there were
14,999,156 shares of the registrant's Common Stock, par value $0.0001 per share.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
HOMECOM COMMUNICATIONS, INC.
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001
March 31, 2002 December 31, 2001
(unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 219,997 $ 413,346
Accounts receivable, net 367,558 154,144
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Total current assets 587,555 567,490
Furniture, fixtures and equipment held for sale 110,084 97,901
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Total assets $ 697,639 $ 665,391
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,689,422 $ 1,527,644
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Total current liabilities 1,689,422 1,527,644
Other liabilities 3,836 5,480
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Total liabilities 1,693,258 1,533,124
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Redeemable Preferred stock, Series B, $.01 par value, 125 shares authorized,
125 shares issued at March 31, 2002 and December 31, 2001 and 17.8 shares
outstanding at March 31, 2002 and December 31, 2001, convertible,
participating; $410,029 liquidation value as of March 31, 2002 251,750 251,750
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STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value, 15,000,000 shares authorized, 14,999,156
shares issued and outstanding at March 31, 2002 and December 31, 2001 1,500 1,500
Preferred stock, Series C, $.01 par value, 175 shares issued and authorized,
90.5 shares outstanding at March 31, 2002 and December 31, 2001,
convertible, participating; $2,100,191 liquidation value at March 31, 2002 1 1
Preferred stock, Series D, $.01 par value, 75 shares issued and authorized,
1.3 shares outstanding at March 31, 2002 and December 31, 2001,
convertible, participating; $29,704 liquidation value at March 31, 2002 1 1
Preferred stock, Series E, $.01 par value, 106.4 shares issued and
authorized, 106.4 shares outstanding at March 31, 2002 and December 31,
2001, convertible, participating; $2,460,793 liquidation value at March
31, 2002 1 1
Treasury stock, 123,695 shares at March 31, 2002 and December 31, 2001 (8,659) (8,659)
Additional paid-in capital 24,428,367 24,587,964
Accumulated deficit (25,668,580) (25,700,291)
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Total stockholder's deficit (1,247,369) (1,119,483)
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Total liabilities and stockholder's deficit $ 697,639 $ 665,391
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The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
Consolidated Statements of Operations for the three months ended
March 31, 2002 and 2001
Three Months Ended
March 31,
(unaudited)
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2002 2001
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Revenues $ 371,264 $ 329,812
Cost of Revenues 236,017 324,973
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GROSS PROFIT 135,247 4,839
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OPERATING EXPENSES:
Sales and marketing -- --
Product development -- --
General and administrative 105,001 243,376
Depreciation and amortization -- --
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Total operating expenses 105,001 243,376
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OPERATING INCOME (LOSS) 30,246 (238,537)
OTHER EXPENSES (INCOME)
Other income, net (1,465) (7,654)
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LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 31,711 (230,883)
INCOME TAX PROVISION (BENEFIT) -- --
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LOSS FROM CONTINUING OPERATIONS 31,711 (230,883)
LOSS FROM DISCONTINUED OPERATIONS -- --
GAIN ON DISPOSAL OF DISCONTINUED BUSINESS SEGMENT 262,940
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NET INCOME (LOSS) 31,711 32,057
DEEMED PREFERRED STOCK DIVIDEND (176,684) (36,603)
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LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (144,973) $ (4,546)
============ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ (0.01) $ (0.03)
DISCONTINUED OPERATIONS 0.03
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$ (0.01) $ (0.00)
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WEIGHTED NUMBER OF SHARES OUTSTANDING 14,999,156 9,359,156
============ ============
The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
Consolidate Statements of Cash Flows for the three months ended
March 31, 2002 and 2001
Three Months Ended
March 31,
(unaudited)
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,711 $ 32,057
Adjustments to reconcile net loss to cash used in operating activities:
Provision for bad debts (7,608) 30,577
Deferred rent expense (1,644) (868)
Change in operating assets and liabilities:
Accounts receivable (205,806) 18,554
Accounts payable and accrued expenses 2,181 (363,658)
Accrued payroll liabilities (323,696)
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Net cash used in operating activities (181,166) (607,034)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures, and equipment (12,183)
Proceeds from sale of divisions 733,000
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Net cash provided by (used in) investing activities (12,183) 733,000
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CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (26,358)
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Net cash provided (used in) financing activities -- (26,358)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (193,349) 99,608
CASH AND CASH EQUIVALENTS at beginning of period 413,346 520,716
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CASH AND CASH EQUIVALENTS at end of period $ 219,997 $ 620,324
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The accompanying notes are an integral part of these financial statements.
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HOMECOM COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
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," "we" or "us") 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 as of March 31, 2002 of approximately $25.7
million. The Company continues to experience negative cash flows from operations
and historically has been dependent on continued financing from investors and
liquidation of assets to sustain its activities. However, the Company believes
that it is highly unlikely that it will be able to secure any additional
financing from investors or any proceeds from the sales of any of its remaining
assets. These factors raise doubt about the Company's ability to continue as a
going concern.
On March 23, 2001, the Company issued a press release to announce our
intention to wind down our operations and, to the extent possible, sell our
remaining assets. In our press release, we stated, "HomeCom also announced that
it has decided to wind down its operations... HomeCom has been unable to obtain
additional financing and has insufficient assets to completely satisfy its
obligations to creditors and the liquidation preferences of its preferred
stock." The press release went on to state: "HomeCom continues to explore other
possibilities, which may include the sale of other assets." This announcement
followed the sale of substantially all of the assets of First Institutional
Marketing, Inc. ("FIMI") and its affiliates to Digital Insurance, Inc. on
January 31, 2001 and the sale of substantially all of the assets used in our
Internet Banking operations to Netzee, Inc. on March 15, 2001. These sales left
us with only one remaining business, our hosting and web site maintenance
business, which we had been trying to sell for approximately two years.
Currently, we are negotiating an agreement to sell this business, representing
substantially all of our operating assets, to Tulix Systems, Inc., an entity in
which Timothy R. Robinson, Gia Bokuchava and Nino Doijashvili, who are officers
and directors of both the Company and Tulix, are the principal shareholders. If
this sale is completed, the Company will have no operating assets and no source
of revenue or profits.
3. SEGMENT INFORMATION
Historically, the Company was organized into five separate business units.
The Company has determined that its reportable segments were those that were
based on the Company's method of internal reporting, which disaggregated its
business by product and service category into business units. The Company's
reportable segments were custom Web development (FAST), Internet outsourcing
services (HostAmerica), Internet security services (HISS), Internet banking, and
InsureRate/FIMI. On June 9, 1998, the Company sold substantially all of the
assets of its HostAmerica Internet outsourcing services business unit to Sage
Acquisition Corp. On October 1, 1999 the company sold all of the assets of its
HISS unit to Infrastructure Defense, Inc. On January 31, 2001 the Company sold
all of the assets of its InsureRate/FIMI unit to Digital Insurance, Inc. and on
March 15, 2001 the Company sold the remaining assets of its Internet Banking
group to Netzee, Inc. The Company currently operates in a single business
segment, including hosting services and web development. Historical segment
information is not provided since each of the former business segments is
presented as discontinued operations.
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4. BASIC AND DILUTED LOSS PER SHARE
Loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period of time 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, 2002 and 2001, as it is antidilutive.
5. TAXES
There was no provision for cash payment of income taxes for the three
months ended March 31, 2002 and 2001, respectively, as the Company anticipates a
net taxable loss for the year ended December 31, 2002.
6. DISPOSITION OF BUSINESS UNITS
On January 31, 2001, the Company sold substantially all the assets of its
InsureRate/FIMI division to Digital Insurance for $458,000 in cash. The purchase
price was established through arms' length negotiations between the Company and
Digital Insurance.
On March 15, 2001, the Company sold substantially all the assets of its
Software Products division to Netzee for $275,000 in cash. The purchase price
was established through arms' length negotiations between the Company and
Netzee. The Company recorded a gain of $262,940 on the sale of this division
during the first quarter of 2001.
The Company has removed the results of these discontinued operations from
the continuing operations of the Company for all periods presented.
7. STOCKHOLDERS' DEFECIT
As a requirement of the April 2000 private placement of the Company's
Series E Convertible Preferred Stock, which was issued with a principal amount
of $2,127,000, 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 March 31, 2002, such registration statement has
not been declared effective and penalties are owed to the Series E Preferred
Stock holders. In addition, given the Company's financial condition as discussed
in footnote 2, the Company has no current plans to ensure that such registration
statement is declared effective. In accordance with the terms of the agreement
between the parties, penalties accrue at the rate of 2% per 30 day period of the
outstanding purchase price of the unregistered securities. As of March 31, 2002,
$1,048,381 has been accrued into accounts payable and accrued expenses for such
penalties.
8. OTHER MATTERS
Certain prior period amounts have been reclassified to conform to current
period presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
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. Forward looking statements include,
but may not be limited to, those statements regarding the Company's
expectations, beliefs, intentions, or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Specifically, the
Company's statements with respect to, among other things, the potential
disposition of the Company's remaining assets and business and its ability or
inability to continue as a going concern are forward looking statements. 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
including, among other things, our ability or inability to dispose of our
remaining assets and business, our ability to obtain additional financing, and
other factors discussed in this report and set forth in our Annual Report on
Form 10-K and our Registration Statements on Forms S-1 and S-3.
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Historically, we developed and marketed specialized software applications,
products and services that enabled 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. We provided 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 our 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. During 2001, we sold our remaining software applications businesses.
Currently, we only derive revenue from professional web development services and
hosting fees. On March 23, 2001, we announced our intentions to wind down our
operations. We are negotiating an agreement to sell substantially all of the
assets used in our hosting and website maintenance business to Tulix Systems,
Inc., an entity in which Timothy R. Robinson, Gia Bokuchava and Nino
Doijashvili, who are officers and directors of both the Company and Tulix, are
the principal shareholders. If this sale is completed, we will have no operating
assets and no source of revenue or profits.
Our revenues and operating results have varied substantially from period to
period, and should not be relied upon as an indication of future results.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31,
2001
NET SALES. Net sales increased 12.6% from $329,812 in the first quarter of
2001 to $371,264 in the first quarter of 2002. This increase of $41,452 is
primarily attributable to increased sales to Roadrunner. Without the increase in
sales to Roadrunner, revenues would actually have decreased $77,849. All
revenues now consist exclusively of hosting and site maintenance work, which are
recognized at the time the services are provided.
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 decreased
from $324,973, or 98.5% of revenues, in the first quarter of 2001 to $236,017,
or 63.6% of revenues, in the first quarter of 2002. The decrease in the
percentage of cost of sales is due to continued reductions in production
personnel in the year 2001, and a resultant reduction in the pro-rata costs
charged to production as compared to the first quarter of 2001.
GROSS PROFIT. Gross profit increased by $130,408 from $4,839 in the first
quarter of 2001 to $135,247 in the first quarter of 2002. Gross profit margins
increased from 1.5% during the first quarter of 2001 to 36.4% during the first
quarter of 2002. This improvement in gross profit is primarily related to
recognizing continued growth in Roadrunner revenue while at the same time
realizing continued reductions in personnel and pro-rata production costs.
SALES AND MARKETING. The Company ceased all significant sales and marketing
efforts entering 2001. There were no such expenditures in the first quarter of
2001 or 2002.
PRODUCT DEVELOPMENT. The Company ceased all significant product development
efforts entering 2001. There were no such expenditures in the first quarter of
2001 or 2002.
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
$243,376 in the first quarter of 2001 to $105,001 in the first quarter of 2002
due to continued reductions in overhead, including personnel and
telecommunications, throughout the second through fourth quarter of 2001. As a
percentage of net sales, these expenses decreased from 73.8% in the first
quarter of 2001 to 28.3% in the first quarter of 2002.
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DEPRECIATION AND AMORTIZATION. With the write down of the carrying value of
all fixed assets in the fourth quarter of 2000, the Company has suspended
depreciation of its remaining assets in anticipation of a sale. There were no
charges recognized in the first quarter of 2001 or 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our sources of capital are extremely limited. We have incurred operating
losses since inception and as of March 31, 2002, we had an accumulated deficit
of $25,668,580 and a working capital deficit of $1,101,867. On March 23, 2001,
we announced our intentions to wind down operations. We currently are
negotiating an agreement to sell substantially all of our operating assets to
Tulix. If we complete this sale, we will have no operating assets and no source
of revenue or profits.
Whether we sell our remaining assets or not, we believe that we have
exhausted our current sources of capital and also believe that it is highly
unlikely that we will be able to secure additional capital that would be
required to undertake additional steps to continue our operations. We may elect
to implement other cost reduction actions that we may determine to be necessary
and in our best interests. Also, we believe that there may be value in remaining
current in our reporting obligations under the Securities Exchange Act of 1934,
as amended, although we can give no assurance that we will ever be able to
realize any value from our situation. If we cannot resolve our liabilities, and
no other alternatives are available, we may be forced to seek protection from
our creditors. The aforementioned factors raise substantial doubt about
HomeCom's ability to continue as a going concern. The financial statements
included herein have been prepared assuming HomeCom is a going concern and do
not include any adjustments that might result should HomeCom be unable to
continue as a going concern.
We spent $12,183 during the first quarter of 2002 for the purchase of
capital equipment. This amount was expended primarily for computer equipment,
communications equipment and software necessary for us to maintain the operating
integrity of our Network Operations Center for the continued provision of
services to our existing customers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about February 8, 2002, we received a complaint filed by Properties
Georgia OBJLW One Corporation in the State Court of Fulton County, Georgia on
December 6, 2001, alleging that we defaulted on our lease in Building 14 at 3495
Piedmont Road, Atlanta, Georgia 30305. The complaint seeks damages in the amount
of $141,752 plus interest of $23,827, plus attorneys' fees and court costs.
On or about January 14, 2002, Creditors Adjustment Bureau, Inc., a
California corporation and the assignee of the claims of Siemens ICN, filed a
complaint against us alleging, among other things, that we breached our contract
with Siemens. The complaint seeks damages of $18,058.08 plus interest at a rate
of 18% from January 26, 2001, plus expenses and attorneys' fees. The complaint
was filed in the Superior Court of California, County of Santa Clara,
California.
We are not a party to any other material legal proceedings. From time to
time, we are involved in various routine legal proceedings incidental to the
conduct of our business.
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Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
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 March 31, 2002, such registration statement has not been declared
effective and penalties are owed to the Series E Preferred Stock holders. In
addition, given the Company's financial condition as discussed in footnote 2,
the Company has no current plans to ensure that such registration statement is
declared effective. In accordance with the terms of the agreement between the
parties, penalties accrue at the rate of 2% per 30 day period of the outstanding
purchase price of the unregistered securities. As of March 31, 2002, $1,048,381
has been accrued into accounts payable and accrued expenses for such penalties.
In March 2002, the outstanding shares of our Series B preferred stock were
scheduled to convert automatically into shares of common stock, pursuant to the
Certificate of Designations governing our Series B preferred stock. However,
because we did not have a sufficient number of authorized shares of Common Stock
available for issuance upon conversion of these shares of Series B preferred
stock, no shares of Series B stock have been converted, and we remain obligated
to convert the remaining shares of Series B preferred stock into shares of
common stock.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the first quarter of 2002, we filed the following reports on
Form 8-K:
(i) On January 14, 2002, we filed a current report on Form 8-K to
report a change in control resulting from the conversions of
shares of preferred stock into shares of common stock by MacNab,
LLC and the subsequent sales of shares of common stock by MacNab,
LLC to Brittany Capital Management on December 28, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Timothy R. Robinson
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Name: Timothy R. Robinson
Title: Executive Vice President,
Chief Financial Officer
Date: May 15, 2002
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EXHIBIT INDEX
None
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