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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 September 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
---------------------------
(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
----------------------
(Address of principal executive offices)
(404) 237-4646
--------------
(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 [ ] No [X]
The Company did not timely file a Current Report 8-K to report a change in
the registrant's Certifying Accountants on May 11, 2002.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of October 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 September 30, 2002 and December 31, 2001
September 30, 2002 December 31, 2001
(unaudited)
------------------ -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 193,496 $ 413,346
Accounts receivable, net 224,678 154,144
------------ ------------
Total current assets 418,174 567,490
Prepaid Expenses 35,145
Furniture, fixtures and equipment held for sale 126,784 97,901
------------ ------------
Total assets $ 580,103 $ 665,391
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,930,932 $ 1,527,644
------------ ------------
Total current liabilities 1,930,932 1,527,644
Other liabilities 548 5,480
------------ ------------
Total liabilities 1,931,480 1,533,124
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Redeemable Preferred stock, Series B, $.01 par value,
125 shares authorized, 125 shares issued at September
30, 2002 and December 31, 2001 and 17.8 shares
outstanding at September 30, 2002 and December 31,
2001, convertible, participating; $418,960 liquidation
value as of September 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 September 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
September 30, 2002 and December 31, 2001, convertible,
participating; $2,154,627 liquidation value at
September 30, 2002 1 1
Preferred stock, Series D, $.01 par value, 75 shares
issued and authorized, 1.3 shares outstanding at
September 30, 2002 and December 31, 2001, convertible,
participating; $30,480 liquidation value at September
30, 2002 1 1
Preferred stock, Series E, $.01 par value, 106.4 shares
issued and authorized, 106.4 shares outstanding at
September 30, 2002 and December 31, 2001, convertible,
participating; $2,546,106 liquidation value at
September 30, 2002 1 1
Treasury stock, 123,695 shares at September 30, 2002 and
December 31, 2001 (8,659) (8,659)
Additional paid-in capital 24,109,174 24,587,964
Accumulated deficit (25,705,145) (25,700,291)
------------ ------------
Total stockholder's deficit (1,603,127) (1,119,483)
------------ ------------
Total liabilities and stockholder's deficit $ 580,103 $ 665,391
============ ============
The accompanying notes are an integral part of these financial statements.
1
HOMECOM COMMUNICATIONS, INC.
Consolidated Statements of Operations for the nine months ended September, 2002 and 2001
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 367,710 $ 308,212 $ 1,112,461 $ 929,010
Cost of Revenues 274,110 209,675 746,964 763,322
------------ ------------ ------------ ------------
GROSS PROFIT 93,600 98,537 365,497 165,688
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Sales and marketing 614 704
General and administrative 103,407 142,059 395,600 596,494
Asset Impairment Charge 493,905
------------ ------------ ------------ ------------
Total operating expenses 103,407 142,673 395,600 1,091,103
------------ ------------ ------------ ------------
OPERATING LOSS (9,807) (44,136) (30,103) (925,415)
OTHER INCOME
Other income, net (1,435) (4,152) (25,249) (144,766)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (8,372) (39,984) (4,854) (780,649)
INCOME TAX PROVISION (BENEFIT) 0 0 0 0
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (8,372) (39,984) (4,854) (780,649)
GAIN ON DISPOSAL OF DISCONTINUED BUSINESS SEGMENT 394,543
------------ ------------ ------------ ------------
NET LOSS (8,372) (39,984) (4,854) (386,106)
DEEMED PREFERRED STOCK DIVIDEND (176,682) (36,603) (530,049) (109,809)
------------ ------------ ------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (185,054) $ (76,587) $ (534,903) $ (495,915)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ (0.01) $ (0.01) $ (0.04) $ (0.09)
DISCONTINUED OPERATIONS 0.00 0.00 0.00 0.04
------------ ------------ ------------ ------------
LOSS PER SHARE - BASIC AND DILUTED $ (0.01) $ (0.01) $ (0.04) $ (0.05)
============ ============ ============ ============
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 nine months ended
September 30, 2002 and 2001
Nine Months Ended
September 30,
(unaudited)
----------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,854) $(386,106)
Adjustments to reconcile net loss to cash used in
operating activities:
Write down of investment 493,905
Provision for bad debts (8,369) 40,654
Deferred rent expense (4,932) 3,565
Change in operating assets and liabilities:
Accounts receivable (62,165) (27,336)
Prepaid expenses (35,145)
Accounts payable and accrued expenses (75,502) (715,049)
Accrued payroll liabilities (341,354)
--------- ---------
Net cash used in operating activities (190,967) (931,721)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures, and equipment (28,883) (15,679)
Proceeds from sale of divisions 864,603
--------- ---------
Net cash provided by (used in) investing activities (28,883) 848,924
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (43,868)
--------- ---------
Net cash Used in financing activities (43,868)
========= =========
NET DECREASE IN CASH AND CASH EQUIVALENTS (219,850) (126,665)
CASH AND CASH EQUIVALENTS at beginning of period 413,346 520,716
--------- ---------
CASH AND CASH EQUIVALENTS at end of period $ 193,496 $ 394,051
========= =========
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 September 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, we
believe that it is highly unlikely that we will be able to secure any additional
financing from investors or any proceeds from the sales of any of our 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
nine months ended September 30, 2002 and 2001, as it is antidilutive.
5. TAXES
There was no provision for cash payment of income taxes for the nine months
ended September 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 September 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 September 30, 2002, $1,367,574 has been accrued into accounts
payable and accrued expenses for such penalties.
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 37A 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.
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.
5
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 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 SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
NET SALES. Net sales increased 19.3% from $308,212 in the third quarter of
2001 to $367,710 in the third quarter of 2002. This increase of $59,498 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 of development work in progress, which is recognized based upon an
average percentage completion calculation (66% of current contracts totaling
$12,500, less $4,166 recognized in previous periods), and $363,544 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 $209,675, or 68.0% of revenues, in the third quarter of 2001, to $274,110,
or 74.5% of revenues, in the third quarter of 2002. The increase in the
percentage of the cost of sales is due to a reduction in the number of
administrative employees between the third quarter of 2001 and the third quarter
of 2002, which reduction resulted in a larger percentage of costs being assigned
to production.
GROSS PROFIT. Gross profit decreased by $4,937 from $98,537 in the third
quarter of 2001 to $93,600 in the third quarter of 2002. Gross profit margins
decreased from 32.0% during the third quarter of 2001 to 25.5% during the third
quarter of 2002. This decrease in gross profit is due to a reduction in the
number of administrative employees between the third quarter of 2001 and the
third quarter of 2002, which reduction resulted in a larger percentage of costs
being assigned to production.
SALES AND MARKETING. The Company ceased all significant sales and marketing
efforts entering 2001. There were no significant sales and marketing
expenditures in the third quarter of 2001 or 2002.
PRODUCT DEVELOPMENT. The Company ceased all significant product development
efforts entering 2001. There were no such expenditures in the third 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
$142,059 in the third quarter of 2001 to $103,407 in the third quarter of 2002
due to continued reductions in personnel and the resulting reduction in the
pro-rata portion of costs assigned to General and Administrative expenses. As a
percentage of net sales, these expenses decreased from 46.1% in the third
quarter of 2001 to 28.1% in the third quarter 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 third quarter of 2001 or 2002.
6
OTHER INCOME. Other income consists of miscellaneous amounts received which
are outside the normal course of operations. Other income decreased $2,717 from
$4,152 in the third quarter of 2001 to $1,435 in the third quarter of 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
NET SALES. Net sales increased 19.7% from $929,010 in the first nine months
of 2001 to $1,112,461 in the first nine months of 2002. This increase of
$183,451 is primarily attributable to increased sales to Roadrunner. Revenues
would actually have decreased without the growth in the Roadrunner service.
Revenues consisted of $8,332 in development work, which is recognized based upon
an average percentage completion calculation of 66% of current contracts, which
total $12,500, and $1,104,129 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 $763,322, or 82.2% of revenues in the first nine months of 2001, to
$746,964, or 67.1% of revenues, in the first nine months of 2002. The decrease
in the percentage of the cost of sales is due to an increase in net sales in
2002 combined with holding production costs below 2001 levels.
GROSS PROFIT. Gross profit increased by $199,809 from $165,688 in the first
nine months of 2001 to $365,497 in the first nine months of 2002. Gross profit
margins increased from 17.8% during the first nine months of 2001 to 32.9%
during the first nine months of 2002. This improvement in gross profit is
primarily related to recognizing continued growth in Roadrunner revenue while at
the same time holding production costs below 2001 levels.
SALES AND MARKETING. The Company ceased all significant sales and marketing
efforts entering 2001. There were no significant sales and marketing
expenditures in the first nine 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 nine 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
$596,494 in the first nine months of 2001 to $395,600 in the first nine months
of 2002 due to continued reductions in personnel and a subsequent reduction in
the pro-rata portion of costs assigned to General and Administrative costs.
Included in general and administrative expenses for the first nine months of
2002 is a charge for $42,933 related to the write off of an accounts receivable
from Haines Avenue, LLP. As a percentage of net sales, these expenses decreased
from 64.2% in the first nine months of 2001 to 35.6% in the first nine 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 nine 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 nine
months of 2002 consisted of the favorable settlement of legal proceedings for
which expense accruals had been established. Other income decreased $119,517
from $144,766 in the first nine months of 2001 to $25,249 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 September 30, 2002, we had an accumulated
deficit of $25,705,145 and a working capital deficit of $1,512,758. 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 $28,883 during the first nine 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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, the Company's
management conducted an evaluation, under the supervision and with the
participation of the Company's Executive Vice President and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the Executive Vice
President and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect those controls subsequent to the date of our last evaluation.
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, accruing interest
and court costs.
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.
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 September 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 September 30, 2002, $1,367,574 has been accrued into accounts
payable and accrued expenses for such penalties.
8
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 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 September 30, 2002, we would have been obligated to issue
104,740,000 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 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 September 30, 2002, we would have been obligated to issue
538,656,750 shares of common stock upon such conversions.
In September 2002, the outstanding shares of our Series D preferred stock
were scheduled to convert automatically into shares of common stock, pursuant to
the Certificate of Designations governing our Series D 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 D preferred
stock, we are not in compliance with the requirements of our Certificate of
Incorporation. Furthermore, no shares of Series D stock have been converted
since the automatic conversion date, and we remain obligated to convert the
remaining shares of Series D preferred stock into shares of common stock. If the
outstanding shares of Series D preferred stock had been converted into shares of
common stock on September 30, 2002, we would have been obligated to issue
7,620,000 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
During the third quarter of 2002, we filed the following reports on
Form 8-K:
(i) On October 4, 2002, we filed a report on Form 8-K to report a
change in our Certifying Accountant on May 11, 2002.
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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
---------------------------
Name: Timothy R. Robinson
Title: Executive Vice President,
Chief Financial Officer
Date: November 8, 2002
CERTIFICATION
I, Timothy R. Robinson, Executive Vice President and Chief Financial Officer of
HomeCom Communications, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HomeCom
Communications, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to me
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures
based on my evaluation as of the Evaluation Date;
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5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 11/08/02 /s/ Timothy R. Robinson
-------- ---------------------------------
Timothy R. Robinson
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
(a) Exhibits
None