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 June 30, 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 August 14, 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 June 30, 2002 and December 31, 2001
June 30, 2002 December 31, 2001
(unaudited)
------------ -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 229,516 $ 413,346
Accounts receivable, net 227,584 154,144
------------ ------------
Total current assets 457,100 567,490
Prepaid Expenses 49,961
Furniture, fixtures and equipment held for sale 120,754 97,901
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Total assets $ 627,815 $ 665,391
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,809,033 $ 1,527,644
------------ ------------
Total current liabilities 1,809,033 1,527,644
Other liabilities 2,191 5,480
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Total liabilities 1,811,224 1,533,124
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Redeemable Preferred stock, Series B, $.01 par value, 125 shares authorized,
125 shares issued at June 30, 2002 and December 31, 2001 and 17.8 shares
outstanding at June 30, 2002 and December 31, 2001, convertible,
participating; $414,470 liquidation value as of June 30, 2002 251,750 251,750
------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value, 15,000,000 shares authorized, 14,999,156
shares issued and outstanding at June 30, 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 June 30, 2002 and December 31, 2001,
convertible, participating; $2,127,260 liquidation value at June 30, 2002 1 1
Preferred stock, Series D, $.01 par value, 75 shares issued and authorized,
1.3 shares outstanding at June 30, 2002 and December 31, 2001,
convertible, participating; $30,090 liquidation value at June 30, 2002 1 1
Preferred stock, Series E, $.01 par value, 106.4 shares issued and authorized,
106.4 shares outstanding at June 30, 2002 and December 31, 2001,
convertible, participating; $2,503,217 liquidation value at June 30, 2002 1 1
Treasury stock, 123,695 shares at June 30, 2002 and December 31, 2001 (8,659) (8,659)
Additional paid-in capital 24,268,770 24,587,964
Accumulated deficit (25,696,773) (25,700,291)
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Total stockholder's deficit (1,435,159) (1,119,483)
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Total liabilities and stockholder's deficit $ 627,815 $ 665,391
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The accompanying notes are an integral part of these financial statements.
1
HOMECOM COMMUNICATIONS, INC.
Consolidated Statements of Operations for the six months ended June, 2002 and 2001
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 373,487 290,985 $ 744,751 620,797
Cost of Revenues 236,837 228,674 472,854 553,647
------------ ------------ ------------ ------------
GROSS PROFIT 136,650 62,311 271,897 67,150
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Sales and marketing 90 90
General and administrative 187,192 211,059 292,193 454,435
Asset Impairment Charge 493,905 493,905
------------ ------------ ------------ ------------
Total operating expenses 187,192 705,054 292,193 948,430
------------ ------------ ------------ ------------
OPERATING LOSS (50,542) (642,743) (20,296) (881,280)
OTHER EXPENSES (INCOME)
Other income, net (22,349) (132,959) (23,814) (140,614)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (28,193) (509,784) 3,518 (740,666)
INCOME TAX PROVISION (BENEFIT) 0 0 0 0
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (28,193) (509,784) 3,518 (740,666)
GAIN ON DISPOSAL OF DISCONTINUED BUSINESS SEGMENT 131,603 394,543
------------ ------------ ------------ ------------
NET INCOME (LOSS) (28,193) (378,181) 3,518 (346,123)
DEEMED PREFERRED STOCK DIVIDEND (176,682) (36,603) (353,366) (73,206)
------------ ------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (204,875) $ (414,784) $ (349,848) $ (419,329)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ (0.01) $ (0.05) $ (0.02) $ (0.08)
DISCONTINUED OPERATIONS 0.00 0.01 0.00 0.04
------------ ------------ ------------ ------------
LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.04) $ (0.02) $ (0.04)
============ ============ ============ ============
WEIGHTED NUMBER OF SHARES OUTSTANDING 14,999,156 9,359,156 14,999,156 9,359,156
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
2
HOMECOM COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001
Six Months Ended
June 30,
(unaudited)
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,518 $(346,123)
Adjustments to reconcile net loss to cash used in operating activities:
Write down of investment 493,905
Provision for bad debts 29,216 39,250
Deferred rent expense (3,289) 4,432
Change in operating assets and liabilities:
Accounts receivable (102,656) 8,377
Prepaid expenses (49,961)
Accounts payable and accrued expenses (37,805) (733,543)
Accrued payroll liabilities (339,932)
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Net cash used in operating activities (160,977) (873,634)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures, and equipment (22,853) (15,679)
Proceeds from sale of divisions 864,603
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Net cash provided by (used in) investing activities (22,853) 848,924
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CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (40,594)
--------- ---------
Net cash provided (used in) financing activities (40,594)
========= =========
NET DECREASE IN CASH AND CASH EQUIVALENTS (183,830) (65,304)
CASH AND CASH EQUIVALENTS at beginning of period 413,346 520,716
--------- ---------
CASH AND CASH EQUIVALENTS at end of period $ 229,516 $ 455,412
========= =========
The accompanying notes are an integral part of these financial statements.
3
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 June 30, 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. We have
been 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 or
any other sale of these assets is completed, the Company will have no operating
assets and no source of revenue or profits. At this time, however, we do not
have an agreement with Tulix and we can provide no assurance that we will be
able to complete the sale of these assets to Tulix or any other person.
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 are
presented as discontinued operations.
4
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 six
months ended June 30, 2002 and 2001, as it is antidilutive.
5. TAXES
There was no provision for cash payment of income taxes for the six months
ended June 30, 2002 and 2001, respectively, as the Company anticipates a net
taxable loss for the year ended December 31, 2002.
6. STOCKHOLDERS' DEFICIT
As a requirement of the private placements of the Company's Series B, C, D
and 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 number of shares of common stock issuable upon
conversion of the Series B, C, D and E Preferred Stock. As of June 30, 2002,
such registration statement has not been declared effective and penalties are
owed to the Series B, C, D and 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 for the Series E and 6% per year for
the Series B, C and D of the outstanding purchase price of the unregistered
securities. As of June 30, 2002, $1,207,978 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.
In July 2002, the outstanding shares of our Series C preferred stock were
scheduled to convert automatically into shares of common stock, pursuant to the
Certificate of Designations governing our Series C 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 C preferred
stock, no shares of Series C preferred stock have been converted, and we remain
obligated to convert the remaining shares of Series C preferred stock into
shares of common stock.
7. 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
This Report contains certain statements, such as statements regarding the
Company's future plans, that 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.
5
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 have been 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 or any other sale of these assets is
completed, we will have no operating assets and no source of revenue or profits.
At this time, however, we do not have an agreement with Tulix and we can provide
no assurance that we will be able to complete the sale of these assets to Tulix
or any other person.
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 JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30,
2001
NET SALES. Net sales increased 28.4% from $290,985 in the second quarter of
2001 to $373,487 in the second quarter of 2002. This increase of $82,502 is
primarily attributable to increased sales to Roadrunner. Revenues would actually
have decreased without the growth in the Roadrunner service. Revenues consisted
of $4,166 in development work which is recognized based upon an average
percentage completion calculation of 33% of current contracts which total
$12,500 and $369,321 in hosting and hourly development which is recognized at
the time that 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 increased
from $228,674, or 78.6% of revenues in the second quarter of 2001, to $236,837,
or 63.4% of revenues in the second quarter of 2002. The decrease in the
percentage of the cost of sales is due to the second quarter 2002 increase in
revenue compared to the second quarter of 2001, while costs remained
approximately the same over those periods.
GROSS PROFIT. Gross profit increased by $74,339 from $62,311 in the second
quarter of 2001 to $136,650 in the second quarter of 2002. Gross profit margins
increased from 21.4% during the second quarter of 2001 to 36.6% during the
second quarter of 2002. This improvement in gross profit is primarily related to
recognizing continued growth in Roadrunner revenue while at the same time
maintaining production costs at the same level.
SALES AND MARKETING. The Company ceased all significant sales and marketing
efforts entering 2001. There were no such expenditures in the second quarter of
2001 or 2002.
PRODUCT DEVELOPMENT. The Company ceased all significant product development
efforts entering 2001. There were no such expenditures in the second 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
$211,059 in the second quarter of 2001 to $187,192 in the second quarter of 2002
due to continued reductions in overhead, including personnel and
telecommunications, throughout the second through fourth quarter of 2001.
Included in general and administrative expenses for the second quarter is a
charge for $42,133 related to the write off of an accounts receivable from
Haines Avenue, LLP. As a percentage of net sales, these expenses decreased from
72.5% in the second quarter of 2001 to 50.1% in the second quarter of 2002.
6
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 second quarter of 2001 or 2002.
OTHER INCOME. Other income consists of miscellaneous amounts received which
are outside the normal course of operations. Other income in the second quarter
of 2002 consisted of the favorable settlement of legal proceedings for which
expense accruals had been established. Other income decreased $110,610 from
$132,959 in the second quarter of 2001 to $22,349 in the second quarter of 2002.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES. Net sales increased 20.0% from $620,797 in the first six months
of 2001 to $744,751 in the first six months of 2002. This increase of $123,954
is primarily attributable to increased sales to Roadrunner. Revenues would
actually have decreased without the growth in the Roadrunner service. Revenues
consisted of $4,166 in development work which is recognized based upon an
average percentage completion calculation of 33% of current contracts which
total $12,500 and $740,585 in hosting and hourly development which is recognized
at the time that 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 $553,647, or 89.2% of revenues in the first six months of 2001, to
$472,854, or 63.5% of revenues in the first six months of 2002. The decrease in
the percentage of the cost of sales is due to a combination of an increase in
net sales in 2002 and continued reductions in production personnel with the
resultant reduction in the pro-rata costs charged to production as compared to
the first six months of 2001.
GROSS PROFIT. Gross profit increased by $204,747 from $67,150 in the first
six months of 2001 to $271,897 in the first six months of 2002. Gross profit
margins increased from 10.8% during the first quarter of 2001 to 36.5% during
the first six months 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 six months
of 2001 or 2002.
PRODUCT DEVELOPMENT. The Company ceased all significant product development
efforts entering 2001. There were no such expenditures in the first six months
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
$454,435 in the first six months of 2001 to $292,193 in the first six months of
2002 due to continued reductions in overhead, including personnel and
telecommunications, throughout the second through fourth quarters of 2001.
Included in general and administrative expenses for the first six months of 2002
is a charge for $42,133 related to the write off of an accounts receivable from
Haines Avenue, LLP. As a percentage of net sales, these expenses decreased from
73.2% in the first six months of 2001 to 39.2% in the first six months of 2002.
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 six months of 2001 or 2002.
OTHER INCOME. Other income consists of miscellaneous amounts received which
are outside the normal course of operations. Other income in the first six
months of 2002 consisted of the favorable settlement of legal proceedings for
which expense accruals had been established. Other income decreased $116,800
from $140,614 in the first six months of 2001 to $23,814 in the first six months
of 2002.
7
LIQUIDITY AND CAPITAL RESOURCES
Our sources of capital are extremely limited. We have incurred operating
losses since inception and as of June 30, 2002, we had an accumulated deficit of
$25,696,773 and a working capital deficit of $1,351,933. On March 23, 2001, we
announced our intentions to wind down operations. We have been negotiating an
agreement to sell substantially all of our operating assets to Tulix. If we
complete this sale or any other sale of these assets, we will have no operating
assets and no source of revenue or profits. At this time, however, we can
provide no assurance that we will be able to sell these assets to Tulix or any
other person.
Regardless of whether we are able to sell our remaining assets, 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 $22,853 during the first six months 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 sought 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. On April 26, 2002, after retaining counsel and as a result of the
Company's response, the complaint was dismissed.
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.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
8
Item 3. Defaults Upon Senior Securities
As a requirement of the private placements of the Company's Series B, C, D
and 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 number of shares of common stock issuable upon
conversion of the Series B, C, D and E Preferred Stock. As of June 30, 2002,
such registration statement has not been declared effective and penalties are
owed to the Series B, C, D and 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 for the Series E and 6% per year for
the Series B, C and D of the outstanding purchase price of the unregistered
securities. As of June 30, 2002, $1,207,978 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, we are not in compliance with the requirements of our Certificate of
Incorporation. Furthermore, no shares of Series B preferred stock have been
converted since the automatic conversion date, and we remain obligated to
convert the remaining shares of Series B preferred stock into shares of common
stock. If the outstanding shares of Series B preferred stock had been converted
into shares of common stock on June 30, 2002, we would have been obligated to
issue 103,617,500 shares of common stock upon such conversions.
In July 2002, the outstanding shares of our Series C preferred stock were
scheduled to convert automatically into shares of common stock, pursuant to the
Certificate of Designations governing our Series C 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 C preferred
stock, we are not in compliance with the requirements of our Certificate of
Incorporation. Furthermore, no shares of Series C preferred stock have been
converted since the automatic conversion date, and we remain obligated to
convert the remaining shares of Series C preferred stock into shares of common
stock. If the outstanding shares of Series C preferred stock had been converted
into shares of common stock on June 30, 2002, we would have been obligated to
issue 531,815,000 shares of common stock upon such conversions.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
9
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
---------------------------
Name: Timothy R. Robinson
Title: Executive Vice President, Chief
Financial Officer
Date: August 14, 2002
10
EXHIBIT INDEX
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