Fathom Holdings Inc S-1/A, filed Jun 16, 2020

Fathom Holdings Inc. (FTHM)

S-1/A 2020-06-16

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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 ☒

	Page
Prospectus Summary		1
Summary Consolidated Financial and Other Data		8
Special Note Regarding Forward-Looking Statements		10
Risk Factors		12
Use of Proceeds		29
Capitalization		30
Dilution		31
Dividend Policy		32
Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Letter from the Founder		44
Business		46
Management		56
Executive and Director Compensation		61
Transactions with Related Persons		70
Principal and Selling Shareholders		71
Description of Capital Stock		73
Shares Eligible for Future Sale		75
Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of our Common Stock		77
Underwriting		80
Legal Matters		88
Experts		88
Where You Can Find More Information		88
Index to Consolidated Financial Statements		F-1

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

	Years ended December 31,						Three months ended March 31,
	2018			2019			2019			2020
							(Unaudited)
Statement of Operations Data:
Revenue		$	77,305,562		$	109,621,943		$	18,134,726		$	28,838,831
Cost of revenue			73,436,660			103,672,899			16,852,772			26,687,256
Gross profit			3,868,902			5,949,044			1,281,954			2,151,575
General and administrative			5,130,920			9,599,050			2,662,045			1,930,076
Marketing			255,090			340,582			57,762			230,433
Total operating expenses			5,386,010			9,939,632			2,719,807			2,160,509
Loss from operations			(1,517,108)			(3,990,588)			(1,437,853)			(8,934)
Other expense, net
Interest expense, net			102,123			109,709			27,370			32,837
Other expense			16,819			—			—			—
Other expense, net			118,942			109,709			27,370			32,837
Loss from operations before income taxes			(1,636,050)			(4,100,297)			(1,465,223)			(41,771)
Income tax (expense) benefit			(27,155)			8,000			(4,020)			(1,000)
Net loss		$	(1,663,205)		$	(4,092,297)		$	(1,469,243)		$	(42,771)
Net loss per share
Basic and Diluted		$	(0.04)		$	(0.09)		$	(0.03)		$	(0.00)
Weighted average common shares outstanding
Basic and Diluted			38,955,107			46,216,001			45,512,069			47,106,286

	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

	As of December 31,
	2018			2019			As of March 31, 2020
							(Unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	1,008,538		$	579,416		$	844,449
Working capital			525,791			(1,282,468)			(1,229,223)
Total assets			3,834,139			2,490,033			3,901,027
Loan payable, net of current portion			52,188			35,093			30,773
Note payable			500,000			500,000			500,000
Lease liability, net of current portion			—			177,578			167,261
Total stockholders’ equity (deficit)			232,042			(1,159,185)			(994,221)

	As of March 31, 2020 (Unaudited)
	Actual			Pro Forma as Adjusted	Pro Forma
Cash and cash equivalents		$	844,449
Notes Payable			500,000
Loan Payable (including short-term maturities of $17,169)			47,942
Total Debt			547,942
Stockholders’ deficit:
Common stock, $0.00 par value, 100,000,000 authorized and 48,178,852 shares issued and outstanding, actual; [•] shares authorized, [•] shares issued and outstanding, as adjusted			—
Additional paid-in-capital			5,196,117
Accumulated deficit			(6,190,338)
Total stockholders’ deficit			(994,221)
Total Capitalization		$	(446,279)

Assumed initial public offering price	$
Pro forma net tangible book value per share as of March 31, 2020	$	(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,		December 31,				March 31,		March 31,
	2018		2019		Change		2018		2019		Change
Agents		2,724		4,006		47%		3,089		4,258		38%

							Change
	December 31, 2019			March 31, 2020			Dollars			Percentage
				(Unaudited)
Current assets		$	1,654,079		$	2,967,991		$	1,313,912		79%
Current liabilities			2,936,547			4,197,214			1,260,667		43%
Net working capital		$	(1,282,468)		$	(1,229,223)		$	53,245		4%

	For the Year Ended						For the Three Months Ended
	December 31, 2018			December 31, 2019			March 31, 2019			March 31, 2020
							(Unaudited)
Net loss		$	(1,663,205)		$	(4,092,297)		$	(1,469,243)		$	(42,771)
Other expense, net			118,942			109,709			27,370			32,837
Income tax expense (benefit)			27,155			(8,000)			4,020			1,000
Depreciation & amortization			23,400			60,441			6,022			19,275
Restricted stock award compensation expense			253,353			1,570,151			910,092			103,158
Stock option compensation expense			—			59,453			—			21,563
Adjusted EBITDA		$	(1,240,355)		$	(2,300,543)		$	(521,739)		$	135,062

Name	Age	Position
Joshua Harley	43	Chairman, Chief Executive Officer, Director
Marco Fregenal	56	President and Chief Financial Officer, and Director
Samantha Giuggio	50	Chief Broker Operations Officer
Chris Bennett	39	Director
Jeffrey Coats	62	Director
David C. Hood	58	Director
Glenn Sampson	79	Director
Jennifer Venable	49	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

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		15,000,000		175,000		12,913,376
2019 Omnibus Stock Incentive Plan		1,571,232		5,000,000		—		3,428,768

	Three months ended March 31,						Change
	2019			2020			Dollars			Percentage
	(Unaudited)
Net cash (used in) provided by operating activities		$	(411,944)		$	303,083		$	715,027		174%
Net cash used in investing activities		$	(61,900)		$	(116,818)		$	(54,918)		(89)%
Net cash provided by financing activities		$	571,827		$	78,768		$	(493,059)		(86)%

	Years ended December 31,						Change
	2018			2019			Dollars			Percentage
Net cash used in operating activities		$	(689,173)		$	(1,110,972)		$	(421,799)		(61)%
Net cash used in investing activities		$	(180,217)		$	(372,816)		$	(192,599)		(107)%
Net cash provided by financing activities		$	1,723,490		$	1,054,666		$	(668,824)		(39)%

					No Exercise of Underwriters’ Option						Full Exercise of Underwriters’ Option
	Shares Beneficially Owned before the Offering						Shares Beneficially Owned after the Offering						Shares Beneficially Owned after the Offering
Name of Beneficial Owner	Number		Percent		Shares Offered Hereby		Number		Percent		Shares Offered Hereby		Number		Percent
Directors and Named Executive Officers:
Joshua Harley		23,631,195(1)		49.1%		—		23,631,195(1)		[ ]%		—		23,631,195(1)		[ ]%
Marco Fregenal		7,016,710		14.6%		—		7,016,710		[ ]%		—		7,016,710		[ ]%
Samantha Giuggio		147,770(2)		*		—		147,770(2)		*		—		147,770(2)		*
Christopher Bennett		25,000(3)		*		—		25,000(3)		*		—		25,000(3)		*
Jeffrey H. Coats		40,000(3)		*		—		40,000(3)		*		—		40,000(3)		*
David C. Hood		40,000(3)		*		—		40,000(3)		*		—		40,000(3)		*
Glenn Sampson		11,108,983(4)		23.1%		—		11,108,983(4)		[ ]%		[ ]		[ ](4)		[ ]%
Jennifer B. Venable		25,000(3)		*		—		25,000(3)		*		—		25,000(3)		*
All directors and executive officers as a group (8 individuals)		42,034,658		87.3%				42,034,658		[ ]%				[ ]		[ ]%

Underwriter			Number of Shares
Roth Capital Partners, LLC
Total

Name	Fees earned or paid in cash ($)			Option awards ($)(1)			All other compensation ($)		Total ($)
Chris Bennett		$	3,750		$	25,000		—		$	28,750
Jeffrey H. Coats		$	18,750		$	40,000		—		$	58,750
Hoshi Printer(2)		$	30,000		$	40,000		—		$	70,000
David C. Hood		$	15,000		$	40,000		—		$	55,000
Glenn Sampson		$	3,750		$	25,000		—		$	28,750
Jennifer Venable		$	3,750		$	25,000		—		$	28,750

	Report of Independent Registered Public Accounting Firm					F-2
	Consolidated Financial Statements
	Consolidated Balance Sheets as of December 31, 2018 and 2019					F-3
	Consolidated Statements of Operations for the years ended December 31, 2018 and 2019					F-4
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2018 and 2019					F-5
	Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2019 .					F-6
	Notes to the Consolidated Financial Statements					F-7
	Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2020 (Unaudited)					F-23
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2020					F-24
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2020					F-25
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2020					F-26
	Notes to the Condensed Consolidated Financial Statements					F-27

	Fathom Realty Holdings, LLC			Fathom Realty Group, Inc.
	Fathom Realty Holdings, LLC			Common Stock and capital in excess of par						Fathom Holdings Inc.
	Members’ equity			Common Stock and capital in excess of par			Retained earnings			Series A Shares		Common Stock		Par Value			APIC			Accumulated deficit			Total
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 Intelliagent, LLC (related party)			—			—			—		—		6,302,650			—			174			—			174
Issuance of common shares for Fathom Realty Holdings, LLC			(323,785)			—			—		—		36,197,344			—			323,785			—			—
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
Issuance of common stock, net			—			—			—		—		1,018,399			—			1,071,466			—			1,071,466
Share-based compensation			—			—			—		—		2,617,903			—			1,629,604			—			1,629,604
Net loss			—			—			—		—		—			—			—			(4,092,297)			(4,092,297)
Balance at December 31, 2019		$	—		$	—		$	—		—		48,124,613		$	—		$	4,988,382		$	(6,147,567)		$	(1,159,185)

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
2020		$	17,095
2021			17,394
2022			17,699
		$	52,188

	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2018		—
Granted		2,617,903		$	1.05
Vested		(1,543,309)		$	(1.00)
Forfeited		—
Nonvested at December 31, 2019		1,074,594		$	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:	Year ended December 31, 2019
Operating lease expense		$	104,794
Short-term lease expense			38,414
Total lease cost		$	143,208

	As of December 31, 2019
Assets
Lease right of use assets		$	265,140
Total lease assets		$	265,140

	As of December 31, 2019
Liabilities
Current liabilities:
Lease liability – current portion		$	89,566
Noncurrent liabilities:
Lease liability, net of current portion			177,578
Total lease liability		$	267,144

	Weighted average remaining lease term (in years) – operating leases					4.51
	Weighted average discount rate – operating leases					8%

Year ending December 31,	Operating Leases
2020		$	107,604
2021			51,275
2022			40,175
2023			41,686
2024			43,243
2025 and thereafter			37,353
Total Minimum Lease Payments		$	321,336
Less effects of discounting			(54,192)
Present value of future minimum lease payments		$	267,144

	Period/Year Ended
	12/31/2018				12/31/2019
Provision for federal income taxes at statutory rates		$	343,571	(21)%		$	861,062	(21)%
Provision for state income taxes, net of federal benefit			9,699	(1)%			79,435	(2)%
Effect of flow-through entity			2,542	0%			—	0%
Change in valuation allowance			(410,754)	26%			(926,681)	23%
Nondeductible expenses			(698)	0%			(7,437)	0%
Tax effect of entities not included in consolidated return			25,573	(2)%			—	0%
Return to provision adjustments			—	0%			2,172	0%
Other			2,912	0%			(551)	0%
Income tax (expense) benefit		$	(27,155)	2%		$	8,000	0%
Effective Tax Rate			1.96%				0.20%

	Common Stock					Additional Paid in Capital			Accumulated deficit			Total
	Shares		Par Value			Additional Paid in Capital			Accumulated deficit			Total
Balance at December 31, 2019		48,124,613		$	—		$	4,988,382		$	(6,147,567)		$	(1,159,185)
Issuance of common stock		74,112			—			83,014			—			83,014
Share-based compensation		(19,873)			—			124,721			—			124,721
Net loss		—			—			—			(42,771)			(42,771)
Balance at March 31, 2020		48,178,852		$	—		$	5,196,117		$	(6,190,338)		$	(994,221)

	December 31, 2019			March 31, 2020
				(Unaudited)
Vehicles		$	119,324		$	119,324
Computers and equipment			73,115			76,232
Furniture and fixtures			30,058			30,058
Total property and equipment			222,497			225,614
Accumulated depreciation			(116,525)			(124,314)
Total property and equipment, net		$	105,972		$	101,300

	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		1,074,594		$	1.12
Granted		—			—
Vested		—			—
Forfeited		(19,873)			1.12
Nonvested at March 31, 2020		1,054,721		$	1.12

	As of March 31, 2020
	(Unaudited)
Assets
Lease right of use assets		$	264,679
Total lease assets		$	264,679
Liabilities
Current liabilities:
Lease liability – current portion		$	99,960
Noncurrent liabilities:
Lease liability, net of current portion			167,261
Total lease liability		$	267,221

	Weighted average remaining lease term (in years) – operating leases . . . . . . . . . . . . . . . . .					4.14
	Weighted average discount rate – operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .					8%

Year ending December 31,	Operating Leases
2020 (remaining)			103,180
2021			51,275
2022			40,175
2023			41,686
2024			43,243
2025 and thereafter			37,353
Total Minimum Lease Payments		$	316,912
Less effects of discounting			(49,691)
Present value of future minimum lease payments		$	267,221

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		$	*