Fathom Holdings Inc S-1, filed Jan 17, 2020

Fathom Holdings Inc. (FTHM)

S-1 2020-01-17

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	North Carolina			6531			82-1518164
	(State or other jurisdiction of incorporation or organization)			(Primary Standard Industrial Classification Code Number)			(I.R.S. Employer Identification Number)

	Large accelerated filer ☐			Accelerated filer ☐
	Non-accelerated filer ☒			Smaller reporting company ☒
				Emerging growth company ☒

CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities To Be Registered	Proposed Maximum Aggregate Offering Price(1)			Amount of Registration Fee
Common Stock, no par value per share(2)		$	11,500,000		$	1,492.70
Underwriter Warrants(3)			—
Common Stock underlying
Underwriter Warrants(4)			1,001,000			129.93
Selling Shareholder(5)		$	1,500,000			194.70
Total		$	14,001,000			1,817.33(6)

	Page
Prospectus Summary		1
Summary Consolidated Financial and Other Data		8
Special Note Regarding Forward-Looking Statements		10
Risk Factors		12
Use of Proceeds		28
Capitalization		29
Dilution		30
Dividend Policy		31
Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Letter from the Founder		41
Business		43
Management		52
Executive and Director Compensation		57
Transactions with Related Persons		66
Principal and Selling Shareholders		67
Description of Capital Stock		69
Shares Eligible for Future Sale		71
Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of our Common Stock		73
Underwriting		76
Legal Matters		84
Experts		84
Where You Can Find More Information		84
Index to Consolidated Financial Statements		F-1

Arizona	Illinois	North Carolina
Arkansas	Indiana	Ohio
California	Kentucky	Oregon
Colorado	Louisiana	South Carolina
District of Columbia	Maryland	Tennessee
Florida	Nebraska	Texas
Georgia	Nevada	Virginia
Hawaii	New Jersey	Washington

	Please send copies of all communications to:
	Donald R. Reynolds Andrew J. Gibbons Lorna A. Knick Wyrick Robbins Yates & Ponton LLP 4101 Lake Boone Trail, Suite 300 Raleigh, North Carolina 27607 (919) 781-4000			M. Ali Panjwani, Esq. Pryor Cashman LLP 7 Times Square New York, New York 10036 (212) 421-4100

	Years ended December 31,						Nine months ended September 30,
	2017			2018			2018			2019
Statement of Operations Data:
Revenue		$	55,378,037		$	77,305,562		$	59,320,554		$	78,017,017
Cost of revenue			51,902,836			73,436,660			55,891,217			73,197,739
Gross profit			3,475,201			3,868,902			3,429,337			4,819,278
General and administrative			3,502,850			5,130,920			3,295,713			7,334,534
Marketing			315,942			255,090			280,604			159,432
Total operating expenses			3,818,792			5,386,010			3,576,317			7,493,966
Loss from operations			(343,591)			(1,517,108)			(146,980)			(2,674,688)
Other (expense), net
Interest (expense), net			(76,971)			(102,123)			(74,848)			(81,816)
Other income (expense)			—			(16,819)			—			1,643
Other (expense), net			(76,971)			(118,942)			(74,848)			(80,173)
Loss from operations before income taxes			(420,562)			(1,636,050)			(221,828)			(2,754,861)
Income tax expense (benefit)			—			27,155			—			(7,980)
Net loss			(420,562)			(1,663,205)			(221,828)			(2,746,881)
Net loss per share
Basic and Diluted					$	(0.04)					$	(0.06)
Weighted average common shares outstanding
Basic and Diluted						38,955,107						46,075,924
Pro forma Net loss per share
Basic and Diluted		$	(0.01)					$	(0.01)
Pro forma Weighted average common shares outstanding
Basic and Diluted			32,455,711						37,125,511

	As of December 31,						As of September 30, 2019
	2017			2018			As of September 30, 2019
Balance Sheet Data:
Cash and cash equivalents		$	154,438		$	1,008,538		$	1,055,028
Working capital(1)			369,086			525,791			(367,267)
Total assets			2,635,320			3,834,139			3,117,604
Loan payable, net of current portion			68,988			52,188			39,395
Note payable			400,000			500,000			500,000
Lease liability, net of current portion			—			—			121,259
Total stockholders’ equity (deficit)			180,933			232,042			(359,740)

	As of September 30, 2019
	Actual			Pro Forma as Adjusted	Pro Forma
Cash and cash equivalents		$	1,055,028
Notes Payable			500,000
Loan Payable (including short-term maturities of $17,020)			56,415
Total Long-Term Debt			556,415
Stockholders’ equity:
Common stock, $0.00 par value, 100,000,000 authorized and 46,719,768 shares issued and outstanding, actual; [•] shares authorized, [•] shares issued and outstanding, as adjusted			—
Additional paid-in-capital			4,442,411
Accumulated deficit			(4,802,151)
Total stockholders’ equity (deficit)			(359,740)
Total Capitalization			196,675

Assumed initial public offering price	$
Pro forma net tangible book value per share as of September 30, 2019	$	(0.02)
Increase per share attributable to this offering	$
Pro forma as adjusted net tangible book value per share after this offering	$
Net tangible book value dilution per share to investors in this offering	$

			December 31, 2017						December 31, 2018						Change						September 30, 2018						September 30, 2019						Change
Agents					1,734						2,724						57%						2,507						3,629						45%

	Three months ended September 30,						Change
	2018			2019			Dollars			Percentage
	(Unaudited)
Revenue		$	23,075,575		$	32,089,978		$	9,014,403		39%

	December 31, 2018			September 30, 2019			Change
	December 31, 2018			September 30, 2019			Dollars			Percentage
				(Unaudited)
Current assets		$	3,575,700		$	2,449,423		$	(1,126,277)		(31)%
Current liabilities		$	3,049,909		$	2,816,690		$	(233,219)		(8)%
Net working capital		$	525,791		$	(367,267)		$	(893,058)		(170)%

Name	Age	Position
Joshua Harley	43	Chairman, Chief Executive Officer, Director
Marco Fregenal	56	President and Chief Financial Officer, and Director
Samantha Giuggio	49	Chief Broker Operations Officer
Chris Bennett	39	Director
Jeffrey Coats	62	Director
David C. Hood	57	Director
Glenn Sampson	79	Director
Jennifer Venable	48	Director

Name and principal position	Fiscal Year		Salary ($)(1)			Bonus ($)			Stock awards ($)			Option awards ($)		All other compensation ($)			Total ($)
Joshua Harley, Chief Executive Officer		2019		$	379,167		$	176,050			—		—		$	11,112(2)		$	566,329
		2018		$	381,095			—			—		—		$	31,140(3)		$	412,235
		2017		$	372,500			—			—		—		$	7,802(4)		$	380,302
Marco Fregenal, President and Chief Financial Officer		2019		$	416,846		$	164,830			—		—		$	8,128(5)		$	589,804
		2018		$	397,157			—			—		—		$	22,808(6)		$	419,965
		2017		$	283,397			—			—		—		$	28,830(7)		$	312,227
Samantha Giuggio, Chief Broker Operations Officer		2019		$	177,000			—		$	75,000		—		$	11,850(8)		$	263,850
		2018		$	140,000			—		$	43,000		—		$	22,422(9)		$	205,422
		2017		$	120,000			—			—		—		$	1,510(10)		$	121,510

	Nine months ended September 30,						Change
	2018			2019			Dollars			Percentage
	(Unaudited)
Net cash provided by (used in) operating activities		$	92,534		$	(264,429)		$	(356,963)		(386)%
Net cash used in investing activities		$	(119,140)		$	(252,508)		$	(133,368)		112%
Net cash provided by financing activities		$	1,502,818		$	563,427		$	(939,391)		(63)%

	Years ended December 31,						Change
	2017			2018			Dollars			Percentage
Net cash used in operating activities		$	(342,631)		$	(689,173)		$	(346,542)		101%
Net cash used in investing activities		$	(7,405)		$	(180,217)		$	(172,812)		2,334%
Net cash provided by financing activities		$	183,775		$	1,723,490		$	1,539,715		838%

Plan	Number of Shares Issued		Number of Shares Reserved for Issuance		Number of Shares Underlying Outstanding Options or Warrant		Number of Shares Remaining Available for Future Issuance
2017 Stock Plan		1,911,624		—		195,000		—
2019 Omnibus Stock Incentive Plan		1,074,594		5,000,000		—		3,925,406

Underwriter			Number of Shares
Roth Capital Partners, LLC
Total

	Report of Independent Registered Public Accounting Firm					F-2
	Combined and Consolidated Financial Statements
	Combined Balance Sheet as of December 31, 2017 and Consolidated Balance Sheet as of December 31, 2018					F-3
	Combined Statement of Operations for the year ended December 31, 2017 and Consolidated Statement of Operations for the year ended December 31, 2018					F-4
	Combined Statement of Changes in Members’ and Stockholders’ Equity for the year ended December 31, 2017 and Consolidated Statement of Changes in Members’ and Stockholders’ Equity for the year ended December 31, 2018					F-5
	Combined Statement of Cash Flows for the year ended December 31, 2017 and Consolidated Statement of Cash Flows for the year ended December 31, 2018					F-6
	Notes to the Combined and Consolidated Financial Statements					F-7
	Condensed Consolidated Balance Sheets as of December 31, 2018 (Audited) and September 30, 2019 (Unaudited)					F-21
	Unaudited Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2018 and for the Three and Nine Months Ended September 30, 2019					F-22
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2019					F-23
	Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2018 and Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2019					F-24
	Notes to the Condensed Consolidated Financial Statements					F-25

	December 31,
	2017			2018
ASSETS
Current assets:
Cash and cash equivalents		$	154,438		$	1,008,538
Accounts receivable, net of allowance for doubtful accounts of $26,562 and $138,030			1,705,241			1,816,650
Due from affiliates			596,232			668,597
Prepaid and other current assets			77,787			81,915
Total current assets			2,533,698			3,575,700
Property and equipment, net			101,622			90,619
Capitalized internal use software			—			167,820
Total assets		$	2,635,320		$	3,834,139
LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities		$	2,138,037		$	3,023,045
Due to affiliates			10,065			10,064
Loan payable – current portion			16,510			16,800
Total current liabilities			2,164,612			3,049,909
Loan payable, net of current portion			68,988			52,188
Note payable			400,000			500,000
Total liabilities			2,633,600			3,602,097
Commitments and contingencies (Note 8)
Members’ and stockholders’ equity:
Fathom Realty Holdings, LLC members’ equity (deficit)			(179,213)			—
Fathom Realty Group Inc. stockholders’ equity
Retained earnings			256,364			—
Total Fathom Realty Group Inc. stockholders’ equity			256,364			—
Fathom Holdings Inc. stockholders’ equity
Common stock, Series A, $0.00 par value, 85,000,000 authorized and 85,000,000 and nil issued as of December 31, 2017 and December 31, 2018			—			—
Common stock, $0.00 par value, 100,000,000 authorized and nil and 44,488,311 issued and outstanding as of December 31, 2017 and December 31, 2018			—			—
Additional paid-in capital			—			2,287,312
Accumulated deficit			(75,431)			(2,055,270)
Total Fathom Holdings Inc. stockholders’ (deficit) equity			(75,431)			232,042
Total stockholders’ equity			180,933			232,042
Total members’ and stockholders’ equity			1,720			232,042
Total liabilities and members’ and stockholders’ equity		$	2,635,320		$	3,834,139

	Fathom Realty Holdings, LLC			Fathom Realty Group, Inc.						Fathom Holdings Inc.
	Members’ equity (deficit)			Common Stock and capital in excess of par			Retained earnings			Series A Common Stock		Common Stock		Additional Paid in Capital			Accumulated deficit			Total
Balance at December 31, 2016		$	237,135		$	—		$	185,147		—		—		$	—		$	—		$	422,282
Issuance of common stock			—			—			—		85,000,000		—			—			—			—
Net income (loss)			(416,348)			—			71,217		—		—			—			(75,431)			(420,562)
Balance at December 31, 2017			(179,213)			—			256,364		85,000,000		—			—			(75,431)			1,720
Cancellation of Series A			—			—			—		(85,000,000)		—			—			—			—
Exchange agreement Fathom Realty Group, Inc.			325,447			—			(325,447)		—		—			—			—			—
Purchase of membership units Fathom Realty Holdings, LLC			(70,000)			—			—		—		—			—			—			(70,000)
Issuance of common shares for Fathom Realty Holdings, LLC			(323,785)			—			—		—		36,197,344			323,785			—			—
Issuance of common shares for IntelliAgent, LLC (related party)			—			—			—		—		6,302,650			174			—			174
Issuance of common stock			—			—			—		—		1,710,000			1,710,000			—			1,710,000
Share based compensation			—			—			—		—		278,317			253,353			—			253,353
Net income (loss)			247,551						69,083		—		—			—			(1,979,839)			(1,663,205)
Balance at December 31, 2018		$	—		$	—		$	—		—		44,488,311		$	2,287,312		$	(2,055,270)		$	232,042

Asset category			Depreciable life
Vehicles			7 years
Computers and equipment			5 years
Furniture and fixtures			7 years

Year ending December 31,	Maturities of Loan Payable
2019		$	16,800
2020			17,095
2021			17,394
2022			17,699
		$	68,988

	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017		—			N/A
Granted		278,317		$	0.91
Vested		(278,317)		$	(0.91)
Forfeited		—			—
Nonvested at December 31, 2018		—			—

Year ending December 31,	Operating Leases
2019		$	99,198
2020			89,604
2021			33,275
2022			21,950
2023 and thereafter			67,425
Total Minimum Lease Payments		$	311,452

	December 31, 2018			September 30, 2019
				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,008,538		$	1,055,028
Accounts receivable, net of allowance for doubtful accounts of $138,030 and $248,481			1,816,650			1,250,291
Due from affiliates			668,597			93,568
Prepaid and other current assets			81,915			50,536
Total current assets			3,575,700			2,449,423
Property and equipment, net			90,619			91,800
Capitalized software			167,820			377,628
Lease right of use assets			—			198,753
Total assets		$	3,834,139		$	3,117,604
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities		$	3,023,045		$	2,697,152
Due to affiliates			10,064			23,658
Loan payable – current portion			16,800			17,020
Lease liability – current portion			—			78,860
Total current liabilities			3,049,909			2,816,690
Loan payable, net of current portion			52,188			39,395
Note payable			500,000			500,000
Lease liability, net of current portion			—			121,259
Total liabilities			3,602,097			3,477,344
Commitments and contingencies
Stockholders’ Equity (Deficit):
Common stock, $0.00 par value, 100,000,000 authorized and 44,488,311 and 46,719,768 issued and outstanding as of December 31, 2018 and September 30, 2019			—			—
Additional paid-in capital			2,287,312			4,442,411
Accumulated deficit			(2,055,270)			(4,802,151)
Total stockholders’ equity (deficit)			232,042			(359,740)
Total liabilities and stockholders’ equity		$	3,834,139		$	3,117,604

	Common Stock					Additional Paid in Capital			Accumulated deficit			Total
	Shares		Par Value			Additional Paid in Capital			Accumulated deficit			Total
Balance at December 31, 2018		44,488,311		$	—		$	2,287,312		$	(2,055,270)		$	232,042
Sale of common stock		576,000			—			576,000			—			576,000
Share based compensation		1,655,457			—			1,579,099			—			1,579,099
Net loss		—			—			—			(2,746,881)			(2,746,881)
Balance at September 30, 2019 (Unaudited)		46,719,768		$	—		$	4,442,411		$	(4,802,151)		$	(359,740)

	September 30,
	2018		2019
Shares issuable upon exercise of stock options		—		195,000
Non-vested shares under restricted stock grants		—		112,148

	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2018		—			—
Granted		910,092		$	1.00
Vested		(910,092)		$	(1.00)
Forfeited		—			—
Nonvested at March 31, 2019		—			—
Granted		633,217		$	1.00
Vested		(633,217)		$	(1.00)
Forfeited		—			—
Nonvested at June 30, 2019		—			—
Granted		112,148		$	1.12
Vested		—			—
Forfeited		—			—
Nonvested at September 30, 2019		112,148		$	1.12

	Annual dividend yield					—
	Expected life (years)					5.5
	Risk-free interest rate					2.43%
	Expected volatility					45.0%

Components of total lease cost:	Nine months ended September 30, 2019
	(Unaudited)
Operating lease expense		$	76,582
Short-term lease expense			40,442
Total lease cost		$	117,024

	As of September 30, 2019
	(Unaudited)
Assets
Other assets		$	198,753
Total lease assets		$	198,753

	As of September 30, 2019
	(Unaudited)
Liabilities
Current liabilities:
Accounts payable and accrued liabilities		$	78,860
Noncurrent liabilities:
Other long-term liabilities			121,259
Total lease liability		$	200,119

	Weighted average remaining lease term (in years) – operating leases					3.97
	Weighted average discount rate – operating leases					8%

	Nine months ended September 30, 2019
	(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	1,367
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets		$	261,814

Year ending December 31,	Operating Leases
Remaining 2019		$	23,456
2020			89,604
2021			33,275
2022			21,950
2023 and thereafter			67,425
Total Minimum Lease Payments		$	235,710
Less: effects of discounting			(35,591)
Present value of future minimum lease payments		$	200,119

Expense	Amount Paid or to be Paid
SEC registration fee		$	*
Financial Industry Regulatory Authority, Inc. Filing Fee		$	*
Exchange Listing Fee		$	*
Printing expenses		$	*
Legal fees and expenses		$	*
Transfer agent and registrar fees		$	*
Accounting fees and expenses		$	*
Miscellaneous expenses		$	*
Total		$	*

	Exhibit No.			Description of Exhibit
	1.1			Form of Underwriting Agreement.*
	3.1			Restated Articles of Incorporation of Fathom Holdings Inc.
	3.2			Amended and Restated Bylaws of Fathom Holdings Inc.
	4.1			Form of Common Stock Certificate.*
	5.1			Opinion of Wyrick Robbins Yates & Ponton LLP.*
	10.1			Fathom Ventures, Inc. 2017 Stock Plan.#
	10.2			Fathom Ventures, Inc. 2017 Stock Plan Form of Restricted Stock Award Agreement.#
	10.3			Fathom Holdings Inc. 2019 Omnibus Stock Incentive Plan.#
	10.4			Contribution and Exchange Agreement, dated August 31, 2018, by and between Fathom Ventures, Inc. and IntelliAgent, LLC.
	10.5			Contribution and Exchange Agreement, dated August 31, 2018, by and between Fathom Realty Holdings LLC and Fathom Realty Group Inc.
	10.6			Contribution and Exchange Agreement, dated September 4, 2018, by and between Fathom Holdings Inc. and Fathom Realty Holdings LLC.
	10.7			Form of Fathom Agent Agreement.#
	10.8			Commercial Lease Agreement, dated October 12, 2015, by and between Powell Commonwealth Associates, LLC and Fathom Realty, LLC.
	10.9			Commercial Lease Agreement, entered into on November 21, 2017, by and between King Commercial Properties, LLC and Fathom Realty, LLC.
	10.10			Lease Agreement, dated October 1, 2015, by and between Henderson & Murphy LLC and Fathom Realty Holdings, LLC.
	10.11			Customer Subscription Agreement, dated May 1, 2018, by and between InsideRE, LLC and Fathom Realty, LLC.
	21.1			Fathom Holdings Inc. Subsidiaries
	23.1			Consent of BDO USA, LLP.
	23.2			Consent of Wyrick Robbins Yates & Ponton LLP (included in Exhibit 5.1).*
	24.1			Powers of Attorney (included on signature page).