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Focus on HomeCom (NASDAQ:HCOM): Web Builders for Insurance Agents & Local Banks (... updated February 10, 1999) First Quarter Developments In January, HomeCom announced signing a letter of intent with Total/1, a provider of data services to 48 Texas credit unions. HCOM will build an exclusive real-time version of Personal Internet Banker (PIC) for Total/1's customers. PIC offers an OFX-compliant Internet banking solution. In February, announced that SAL Financial Services, a subsidiary of the Sterne, Agee & Leach Group, Inc., licensed HCOM's online insurance delivery system, InsureRate. The agreement will allow over 1,200 brokers, registered reps and insurance agents access to the InsureRate system. Sterne, Agee & Leach provides brokerage services through retail offices in the southeastern United States. SAL Financial provides securities clearing and investment services for broker-dealers, financial institutions and others countrywide. Also, HomeCom entered a five-year agreement with CommunityAmerica Credit Union to build a cyberbranch for the Missouri-based credit union. The fully interactive installation, to be rolled out during a six-month period, is expected to include Personal Internet Banker™ (PIB) fully integrated with Harvey™, HomeCom's One-to-One Marketing system and HomeCom's InsureRate, the insurance education and quoting system, all as a single solution. 1998 Results Fourth
Quarter Results(released 2/4/99):
In
August, '98: HCOM announced a contract build an extranet
for National Association
of Professional Insurance Agents (PIA National)
The HomeCom press release quoted Doug Culkin, Executive VP for PIA National, ``With an impressive track record in Web development, security, and financial transaction development, HomeCom's expertise is a perfect match for our needs, as well as those of our members. We believe HomeCom Communications to be the best custom-application development company in the industry. They will help take us to the next level in supporting our agents.'' Background and History of HCOM The Blech Bubble Founded in 1994, HomeCom went public via an IPO in spring 1997 at about $6, and its shares ran to a high of $16 by year end. Investors watched a sickening fall over the next three months as HCOM lost 75% of its value. On March 24, news reports revealed that
convicted stock manipulator David Blech was also charged
with unlawfully buying large blocks of HomeCom stock in
the names of third parties without sufficient funds to
pay for the trades. When his brokers found he couldn't
pay they dumped the position, driving the shares down. On
March 26 the Red Herring Online article "Fraud May Explain
HomeCom Bubble" closed: By April, HCOM shares had fallen to a low of $1.125. A Busy Spring: New Players, New Opportunities On April 17, HomeCom announced the acquisition of Insurance Resource Center, Inc., (IRC) an established Internet development and hosting company based in Charlotte, NC focusing its development activity on the insurance industry. IRC's clients include some of the biggest names in the insurance industry, including IVANS, Assurex International, The CPCU Society, Aetna, PMA Group, and other top insurance companies and brokerages. To acquire IRC, HCOM issued over 350,000 shares of stock and put IRC's chief technologist, major shareholder and author Tim Higham in charge of HCOM's Insurance Services operation. This acquisition triggered a brief but explosive rally in its share price over the next week, which included a few trades at $18, an opportunity that some insiders took to divest their holdings (see, e.g., SEC record of Michael Jesselson's sale of all 200,000 shares). Within four weeks, the stock price was back at $5, from where it drifted south during the summer market sell-off. Released on May 15, HomeCom's first quarter results featured decreasing revenues and a net loss of $1.1 million, or 51 cents a share. The losses reflected investments in its recently formed online insurance subsidiary, InsureRate(TM), and costs of upgrading the company's services and technology infrastructure. While CEO Harvey Sax was optimistic in the May 15 press release, the 10Q filed with the SEC included cautionary words concerning dire possibilities: "If the Company exhausts its sources of capital, and subsequent cost reduction measures are not sufficient to allow the Company to achieve break-even or profitable operations, the Company will be forced to seek protection from its creditors." On May 27, HomeCom beefed up its financial services roster by announcing the employment of Chris Schroeder, former Director of Electronic Commerce at Checkfree. The press release also announced its OneStep™ Internet Bank product designed to get small banks and credit unions online quickly with minimal investment. Next, HomeCom raised $4.5 million cash by the sale of its Host America operation to Sage Networks, also moving 15 heads off the payroll. In the June 10 press release, CEO Sax said the proceeds "will help the company continue to refocus its efforts on its core business and targeted acquisitions." As acquisition targets, Sax said they were looking for:
On June 15, a HomeCom press release announced deals to provide hosting services to two major agents' associations representing thousands of state-licensed insurance producers, and the availability of its OneStep Insurance™ Web site development product to support insurance certificate issuance from an agent's web site. The announcement included encouraging words from Microsoft, on whose products OneStep Insurance was based. By June 18, HomeCom's was able to announce its second acquisition for stock: that of Houston-based First Institutional Marketing Inc. and its affiliates (FIMI) in exchange for approximately 775,000 shares of HomeCom common stock. FIMI's affiliates include a broker-dealer and several insurance agencies that focus on the commercial banking industry, introducing banks to the sale of insurance and investment products. "This core acquisition when completed," said Harvey Sax, CEO of HomeCom, "will make HomeCom a powerful force in selling insurance products utilizing Internet technology and established distribution channels. The acquisition of FIMI brings HomeCom more than a flow of business and cash revenue, purchased for stock: it also brings HomeCom valuable licenses as a broker-dealer and as an insurance agent. Getting such licenses for a large number of states is not a trivial exercise. Buying them in exchange for stock leapfrogs HomeCom into an immediate position to share in commissions in return for various services to broker-dealers and insurance agents. New Owners, New Direction HCOM filed a prospectus on June 12 which reports the following useful information about the current capital structure of the company. It reports that 351,391 shares were issued for IRC. At $4.50/share, that pegs IRC's value at about $1.6 million. If preferred shares are converted, HomeCom will have 4.8 million shares outstanding after the IRC merger, not counting options and warrants out for another 1.2 million shares. The FIMI proposal is to issue 775,000 shares, which would be about 11.4% of the potential 6.775 million shares. The filing shows Harvey Sax as holding almost 845 thousand, or 19.1% of the present 4.8 million shares, with Mark and Margery Germain together controlling 15.8% and Tim Higham of IRC over 179 thousand shares, or 4.1%. HomeCom has put several valuable pieces together: a company (IRC) with valuable relationships and existing service contracts with key players in the insurance industry, a broker-dealer/insurance agency with an established book of business and key licenses to share in commissions on the sale of insurance and stock. It now remains for HomeCom to execute on its opportunity: to become a savvy, financially solid web service company oriented to small banks and insurance agents. Those local banks, brokers and agents will need the capability to compete with the slick, nationally advertised Web facilities offering loans and insurance quotes put together by larger companies like Intuit and InsWeb. If HomeCom can execute, and continue swapping its stock for small, profitable businesses already established in the insurance industry, it may capture the niche of offering local banks, brokers and agents the tools to compete with "the big dogs" in online financial services. If it succeeds, and the market values it accordingly, there may be rich rewards for the handful of managers and investors in this growing company. But HomeCom must remember: the competition never sleeps, and the talent goes home every night. HomeCom is the subject of an active message thread on Silicon Investor, and is often mentioned in another dedicated to ECommerce generally. Check there for breaking news and views. See the right side gutter for links. Do your own research before buying any security. The Net offers tremendous opportunities for those who can appreciate the "increasing returns" economics of networks, the power of community, and its opportunity to eliminate the costs of intermediaries and manual hand-offs in the distribution chain. Many studies have pointed to insurance and financial services as the product offering the greatest suitability for marketing and transactions on the Net. Previous Net Nugget articles (see especially Insurance.com) discussed the developing field of online sales of insurance. E*Trade, Silicon Investor, Intuit and others have demonstrated the capability of direct sales of financial services (securities research, stock trading, auto and life insurance quotes) to a growing population of sophisticated users of the Web. This focus page will be archived at nnarc-hcom.html and may be edited in the future. Check in at Net Nuggets from time to time. The information contained herein is believed to come from reliable sources, but no warranty of accuracy is expressed or implied. The author may own shares of the company profiled that were purchased on the open market and has never received or been offered any compensation from the company profiled or its employees, agents or affiliates. This article is for informational purposes only, is neither an offer to buy or sell a security and is not intended to constitute financial advice. If you have verifiable information about this company, its business plan or competitors, you are invited to share it via email with me. |
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