<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year ended December 31, 1996 Commission File Number 0-16472
COMC, INC.
FORMERLY AUTOMEDIX SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Illinois 36-3021754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 N. Glenoaks Boulevard
Burbank, California 91502
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including Area Code: (818) 556-3333
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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 ninety (90) days. Yes No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant: can not be determined as a result of the absence of an active
trading market for Registrant's securities.
The number of shares outstanding of Registrant's Common Stock as of March
31,1997 : 12,498,107
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
COMC, Inc., an Illinois corporation (the "Company") was incorporated in
December 1978 under the name Automedix Sciences, Inc. Initially, its purpose was
the research and development of medical technologies for the treatment of cancer
and other conditions. Because the Company was unable to raise capital to
continue the clinical trials with respect to the medical device for cancer
treatment which it had designed, in the spring of 1992, it ceased its
operations. As a consequence, the Board of Directors of the Company began to
investigate the possibility of a new business direction and to search for viable
acquisition or merger candidates which would enable the Company to maximize
value to shareholders.
In November 1996, the Company consummated the acquisition of Complete
Communications, Inc., a California corporation ("CCI"), in consideration for the
issuance of 10,000,000 shares of Common Stock to John Ackerman, the sole
shareholder of CCI. As a result of this transaction, Mr. Ackerman acquired 80%
of the Company's securities. In connection with this transaction, the Company
changed its name to COMC, Inc.
Description of the Company's Business
The Company, through CCI, provides voice and data services to major
companies that are undergoing changes in their telecommunication and data
communication infrastructures.
The Company's objective is to take advantage of the opportunities created
by a number of circumstances. First, in order to remain competitive, an
increasing number of companies are introducing computers into their business.
Second, prior generations of computer equipment are becoming obsolete and must
be upgraded or replaced. Third, deregulation of the telecommunication industry
is creating the need for new systems that will enable the integration of the
computer, broadcasting, multi-media and cable industries. The Company believes
that CCI offers a low-cost alternative to similar services offered by larger and
more established telecommunications companies. In addition, by focusing on
reducing the time it takes to respond to clients' needs, it has been able to
develop a strong client base. Nevertheless, the Company is aware that the
computer and telecommunications businesses are highly competitive. There can be
no assurance that the Company will be able to compete effectively with entities
many of which are older and more established in this area and possess greater
financial and other resources than the Company.
The Company assists its clients by being a full-service provider in the
area of computer networks and telephone systems. Specifically, it provides,
among other things, services in the following areas:
Telecommunications Solutions - The Company sells and provides
support and consulting services with respect to telecommunications
systems. It designs network solutions for remote access and video and
desktop conferencing and provides installation and service of both digital
and analog telephone systems. CCI is an authorized dealer for major
telecommunications companies including AT&T.
LAN/WAN Solutions - The Company designs, implements and maintains
LAN and WAN networks, including installation and configuration of computer
hardware and software. It also offers hardware and software solutions for
mainframe and PC platforms.
Premise Wiring Services - The Company offers complete wiring
services, including voice data, fiber and video system application design,
installation and management services. Its technical personnel participates
in continuous certification programs offered by companies such as AT&T and
Pacific Bell.
Help Desk Solutions - The Company offers continuous 24-hour-a-day
telephone support to its clients in the areas of computer networks and
telecommunications. In addition, it provides outsourcing services in the
area of telemarketing.
<PAGE> 3
Internet Business Solutions - The Company provides services in
connection with the design, implementation and maintenance of web pages on
the internet. It attempts to improve the inter-active capabilities of a
particular design and provides, through third parties, credit card
clearing services that it believes are reliable and secure.
The company is servicing education, entertainment, finance and health care
markets with a large client base that includes Bank of America, Cedar Sinai
Medical Center, The Walt Disney Company, Warner Bros., City of Pasadena and the
Burbank Unified School District. There is currently a concentration of activity
within the finance sector and, although there is no guarantee of this level
continuing, future commitments continue to arrive.
CCI's revenues are generated by the sale of equipment and by services
provided in almost equal proportions. For the fiscal year ended December 31,
1996, CCI generated total revenues of $3,033,583 . Its gross profits for the
same period were $891,452 with a loss before income taxes of $120,099. Fiscal
year ended December 31, 1995 reflected revenues of $3,081,440 with gross profits
of $1,323,657 and income before income taxes of $312,408.
In December 1996 the Company entered into a letter of intent with Able
Cable, Inc. ("ACI"), a provider of interconnect services relating to voice and
data communications systems. Under the terms of the letter of intent, the
Company will acquire ACI in consideration for a cash payment of $1,000,000 and
the issuance of Common Stock as well as payments in the amount of $960,000 over
a period of four years under employment and consulting agreements to be entered
into with the principals of ACI. Consummation of the transaction is contingent
upon financing arrangements and the satisfactory completion of the Company's due
diligence investigation of ACI's affairs, neither of which can be assured at
this time. CCI is reviewing other companies as possible acquisitions candidates
at this time as well.
SALES AND MARKETING
The Company believes long-term relationships with new and existing
customers are the most effective way of attaining its business objectives. Going
forward the plan is to sell, through a proactive campaign, to expand its
customer base. The Company intends to hire additional sales personnel. It is
anticipated that such salesmen will be compensated strictly on a commission
basis utilizing leads generated through referrals, periodic mailings,
telemarketing and cold calls. In addition, the Company intends to grow its
business and expand its customer base through acquisitions.
COMPETITION
The Company believes that it competes with entities with significantly
larger financial and other resources than the Company's, including AT&T, Pacific
Bell and U.S. Sprint. However, the Company believes that the services offered by
these companies are generally higher priced than the services provided by the
Company. In addition, these companies are mostly focused on large customers.
Also, there are a number of smaller companies with whom the Company
competes directly. The Company believes that most of these companies focus on
one aspect of the business only. As a result, some of these companies provide
hardware only or deliver exclusively cable and wire services.
-3-
<PAGE> 4
EMPLOYEES
As of March 25. 1997, the Company employed approximately 43 persons of
whom three are executive personnel, one acts as administrative support and 39
are involved in operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 3,500 square feet of space in an office
building located at 400 N. Glenoaks Boulevard, Burbank, California at a monthly
rent of approximately $3,500. The Company is investigating the possibility of
relocating its offices. The expiration of its current lease is March 2000 with
an option to extend for five years. In addition, it leases approximately 1,000
square feet at a warehouse nearby at a monthly rent of $290 on a month to month
basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During August 1996, when the Company had issued and outstanding Common
Stock and Class B Common Stock, holders of 12,795,290 Shares (or 68%),
consisting of Common Stock and Class B Common Stock, consented in writing
without a meeting to (i) a share exchange between the Company and John Ackerman,
(ii) an amendment to the Company's Certificate of Incorporation effectuating a
one for ten reverse stock split of the issued and outstanding Common Stock,
(iii) an amendment to the Company's Certificate of Incorporation increasing the
number of shares of Common Stock the Company is authorized to issue to
40,000,000, (iv) an amendment to the Company's Certificate of Incorporation
changing the Company's name from Automedix Sciences, Inc. to COMC, Inc., and (v)
an amendment to the Company's Certificate of Incorporation eliminating the
Company's Class B Common Stock. In addition, holders of 1,756,530 Class B Common
Stock (or 78%) consented as a separate class to the elimination of the Class B
Common Stock.
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<PAGE> 5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company was inactive, no trading information is available for
the Company's securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion should be read in conjunction with the financial
statements and related notes thereto of the Company included elsewhere herein.
Initially, the Company's purpose was the research and development of
medical technologies for the treatment of cancer and other conditions. Because
the Company was unable to raise capital to continue the clinical trials with
respect to the medical device for cancer treatment which it had designed, in the
spring of 1992, it ceased its operations. As a consequence, the Board of
Directors of the Company began to investigate the possibility of a new business
direction and to search for viable acquisition or merger candidates which would
enable the Company to maximize value to shareholders. As previously mentioned,
the Company completed the acquisition of Complete Communications, Inc., in
November 1996. The transaction was accounted for as a reverse acquisition.
Therefore, discussion in this section will be based on the operating results of
CCI for the years ended December 31, 1995 and 1996.
Results of Operations
Revenues decreased approximately $48,000 or 1.6% from 1995 to 1996.
Customer mix and activity remained relatively constant. Cost of revenues
increased $384,000 or 21.9%. Technician labor was expanded to meet the needs of
a major customer while competition forced rates to remain constant. Operating
expenses increased $122,000 or 15.1% due to the addition of salaried salesmen.
These positions have been eliminated in 1997. Other expenses decreased $122,000
or 59.9% primarily due to non-recurring charges in 1995 attributed to consulting
fees in the search of publicly held shell companies. Interest expense increased
due to the utilization of two new lines of credit primarily for acquisition
costs incurred in 1995 and 1996. As a result of the above, income before taxes
decreased $432,507 reflecting a loss in 1996 of $120,099.
For the year ended December 31, 1996 Cedar Sinai Medical Center and
Digital Equipment Corp. accounted for 33% and 17% of the Company's revenue
respectively. These same customers represented 57% and 33% of the revenue for
the year ended December 31, 1995 respectively.
The Company deals with many material suppliers under various credit term
policies. It is CCI's practice to secure the most competitive pricing among
these suppliers. For the year ended December 31, 1996 Graybar Electric, Kent
Datacom and Vertex Technologies accounted for 45%, 10% and 10% of the Company's
total material purchases respectively. These same suppliers represented 50%,
27% and 10% of the purchases for the year ended December 31, 1995 respectively.
Liquidity and Capital Resources
In November 1996, the Company consummated the acquisition of Complete
Communications, Inc., a California corporation ("CCI"), in consideration for the
issuance of 10,000,000 shares of Common Stock to John Ackerman, the sole
shareholder of CCI. In connection with this transaction, the Company changed its
name to COMC, Inc.
In December 1996 the Company entered into a letter of intent with Able
Cable, Inc. ("ACI"), a provider of interconnect services of voice and data
communications systems. Under the terms of the letter of intent, the Company
will acquire ACI in consideration for a cash payment of $1,000,000 and the
issuance of Common Stock as well as payments in the amount of $960,000 over a
period of four years under employment and consulting
-5-
<PAGE> 6
agreements to be entered into with the principals of ACI. Consummation of the
transaction is contingent upon financing arrangements and the satisfactory
completion of the Company's due diligence investigation of ACI's affairs,
neither of which can be assured at this time.
Cash and cash equivalents decreased $115,170 for the year ended
December 31, 1996 compared to a decrease of $37,014 for the year ended December
31, 1995. Cash used in operating activities amounted to $225,023 in 1996
primarily due to the loss incurred and build up of adequate inventory levels.
Cash used in investing activities in 1996 decreased to $41,312 from $134,688 in
1995 due to a reduction in the purchase of property and equipment.. Financing
activities provided an additional $151,165 in 1996 as a result of fewer
distributions to shareholders.
The Company has at its disposal a $100,000 equipment line of credit which
was established in January 1997 and remains available.
The Company intends to continue its search for additional merger and
acquisition candidates that will expand its existing markets in related products
and services.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 6, 1996, the Company dismissed Oppenheim & Ostrick, CPA's as
its independent accountants ("Oppenheim"). This action had been approved by the
Company's Board of Directors. During the past two years Oppenheim did not issue
a report on Company's financial statements that either contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles. During the period of its
engagement, Oppenheim assisted only in the compilation of the Company's
financial statements in connection with the preparation of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1995. As a result of the
Company's inactive status, as defined in Rule 3-11 under Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended, during such
period, the Company believes that it was not required to file audited financial
statements.
During the period of their engagement from June 1996 until December 1996,
there were no reportable events or disagreements between the Company and
Oppenheim on any matter of accounting principles or practices, financial
statement disclosure, or audit scope and procedure, which disagreement, if not
resolved to the satisfaction of Oppenheim, would have caused them to make
reference to the subject matter of the disagreement in connection with any
report that was to have been prepared for the Company.
On December 12, 1996 the Board of Directors of the Company appointed
Hollander, Gilbert & Co. as its independent accountants for the year ended
September 30, 1996.
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<PAGE> 7
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John Ackerman 38 President, Chief Executive Officer and Director
Marvin Loeb 70 Director
Richard F. Horowitz 56 Director, Secretary
Donald Baker 67 Director
Ernie Mauritson 40 Controller
</TABLE>
JOHN ACKERMAN has been the Company's President and Chief Executive Officer
and a director since November 1996. He had been the President and Chief
Executive Officer of CCI since its inception in 1987. From 1984 until 1987 he
was a sound technician with Sunglo Electric where for a period of three years he
supervised a technical staff of 25 people. Prior thereto he worked as a
cameraman and, prior thereto, as an import/export broker.
MARVIN P. LOEB had been the Chairman and the President of the Company
since 1979 and 1980, respectively, until his resignation in November 1996. Since
1980, he has been Chairman of Trimedyne, Inc., a publicly held corporation
involved in the manufacture of medical lasers ("Trimedyne"). He has also been a
director of Pharmos, Inc. (formerly Pharmatec, Inc.), a publicly-held company
which is developing drugs and drug delivery systems since December 1982 and
Chairman from that date until October 1992. Mr. Loeb was a Director of Gynex
Pharmaceuticals, Inc. (now Biotechnology General Corporation), a publicly-held
company developing reproductive products, from April 1986 until August 1993, and
was its Chairman from April 1986 to August 1992. From April 1986 to June 1994,
he was Chairman and a Director of Xtramedics, Inc. (now Athena Medical
Corporation), a publicly held company which is engaged in the development of a
feminine hygiene product. Mr. Loeb was Chairman and a director from 1988 to June
1993 of Contracap, Inc., a publicly held company, which was developing a
contraceptive device and is now inactive. Mr. Loeb was Chairman from 1983 to
April 1986 and Vice Chairman from April 1987 to April 1992 of Petrogen, Inc., a
privately held company which was developing genetically engineered bacteria for
oil and toxic waste cleanup and is now inactive. Since May 1986, he has been
Chairman and director of Cardiomedics, Inc., a privately held company which is
developing circulatory assist devices. Since November 1988, he has been Chairman
of Ultramedics, Inc., a privately held company whose principal interest is its
investment in Cardiomedics, Inc. and which was formerly engaged in manufacturing
ultraviolet devices for medical use. Mr. Loeb has been President of Master
Health Services, Inc., a family held medical consulting firm, since 1973, and
Marvin P. Loeb and Company, a family held patent licensing firm, since 1983. Mr.
Loeb holds an honorary Doctor of Science Degree from Pacific State University
and a Bachelor of Science Degree from the University of Illinois.
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<PAGE> 8
RICHARD F. HOROWITZ has been a director of the Company since 1993. He has
been a director of Trimedyne since 1983. He was a director of Gynex from August
1988 to August 1992 and has been a Director of Ultramedics, Inc. since November
1988 and of Cardiomedics Inc. since 1992. Mr. Horowitz has been a practicing
attorney in New York City for the past 32 years. He has been a member of the
firm of Heller, Horowitz and Feit, P.C. & Feit since January 1979. Heller,
Horowitz & Feit, P.C. has been securities counsel to the Company and to other
entities with which Mr. Loeb is associated. Mr. Horowitz is a graduate of
Columbia College and Columbia Law School.
DONALD BAKER has been a director of the Company since 1993. Mr. Baker
recently retired after 39 years as a partner of the law firm of Baker &
McKenzie. Mr. Baker recently retired as Secretary, General Counsel and a
Director of Air South, Inc., an airline operating in the Southeast. He holds a
J.D.S. degree from the University of Chicago Law School. He is a director of the
Mid-America Committee on International Business and Government Cooperation,
Chicago, and Cardiomedics, Inc., Santa Ana, California.
ERNIE MAURITSON has been the Company's controller since December 1996.
Prior thereto he was the controller at Penske Truck Leasing, which operates the
second largest full service equipment leasing business in the country, from 1994
until 1996. During 1993-1994 he was Chief Operating Officer at Custom Rotational
Molding, Inc., a plastic manufacturing and polymer processing company. From 1978
until 1993 he held positions at Dart International, a privately held
distribution company, as controller and Vice President Administration. Mr.
Mauritson holds a B.S. in business administration from the University of
Southern California.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from October 1, 1995 through December 31, 1996,
with the exception of a Form 4 for Mr. Loeb, and a Form 3 for Mr. Ackerman all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
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<PAGE> 9
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended December 31, 1996 to its President
and Chief Executive Officer. No employee of the Company received compensation in
excess of $100,000 per year during these periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Restricted
Year Salary Bonus Stock Awards
---- ------ ----- ------------
<S> <C> <C> <C> <C>
Marvin P. Loeb 1996 -0- -0- $62,500
John Ackerman 1996 $11,200 -0- -0-
1995 -0- -0- -0-
1994 -0- -0- -0-
</TABLE>
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<PAGE> 10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth, as of March 31, 1997, information regarding
the beneficial ownership of the Company's Common Stock based upon the most
recent information available to the Company for (i) each person known by the
Company to own beneficially more than five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's officers and directors and
(iii) all officers and directors of the Company as a group. Unless otherwise
indicated in the footnotes, the address for all parties is c/o COMC, Inc., 400
N. Glenoaks Boulevard, Burbank, California 91502.
<TABLE>
<CAPTION>
Name and Address Number of Percent of
of Owner Shares(1) Class
- ---------------- --------- ----------
<S> <C> <C>
John Ackerman 10,000,000 80%
Marvin P. Loeb (2) 1,118,278 9%
Richard F. Horowitz (3) 373,000(3) 3%
292 Madison Avenue
New York, NY 10017
Donald Baker 20,000 *
Ernie Mauritson -0- *
All Officers and Directors
as a Group (5 persons) (2)(3) 11,511,278 92%
</TABLE>
- -------------------
* Less than one percent.
(1) Unless otherwise indicated, all shares are owned beneficially and of record.
(2) Includes 56,127 shares owned by The Marvin P. Loeb Irrevocable Living Trust,
of which Mr. Loeb is the sole trustee and by Mr. Loeb as nominee for his
children. Mr. Loeb disclaims beneficial ownership in such shares.
(3) Includes 17,300 shares beneficially owned by the law firm of Heller,
Horowitz & Feit, P.C, of which Mr. Horowitz is a principal.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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<PAGE> 11
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements are listed in the Index to Financial Statements
and are filed as part of this annual report.
3. Exhibits
The Index to Exhibits following the Signature Page indicates the exhibits
which are being filed herewith and the exhibits which are incorporated herein by
reference.
(b) Reports on Form 8-K
Reports on form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1996 as follows:
- December 5, 1996
- December 13, 1996
- December 31, 1996, as subsequently amended on December 31,
1996 (amended 12/13/96 filing)
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<PAGE> 12
COMC, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C>
Reports of Independent Auditors F-1 and F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations - F-4
For the Years Ended December 31, 1996 and 1995
Consolidated Statement of Stockholders' Equity - F-5
For the Years Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows - F-6
For the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements F-7
</TABLE>
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
COMC, Inc.
We have audited the accompanying consolidated balance sheet of COMC, INC. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The financial statements of Complete
Communications Incorporated as of December 31, 1995 and for the year then ended,
were audited by other auditors whose report dated July 23, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of COMC, INC. and
subsidiary as of December 31, 1996, and the results of operations, stockholders'
equity and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Hollander, Gilbert & Co.
Los Angeles, California
March 17, 1997
F-1
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Complete Communications Incorporated
We have audited the accompanying balance sheet of Complete Communications
Incorporated as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Complete Communications
Incorporated as of December 31, 1995, and the results of operations,
stockholders' equity and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Oppenheim & Ostrick, C.P.A.'s
Culver City, California
July 23, 1996
F-2
<PAGE> 15
COMC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 57,180 $ 172,350
Securities available for sale 2,156
Accounts receivable 738,724 775,068
Inventories 97,040
Prepaid expenses and other currents assets 21,103 36,052
----------- -----------
TOTAL CURRENT ASSETS 914,047 985,626
PROPERTY AND EQUIPMENT, Net (Note 2) 115,177 122,940
OTHER ASSETS
Deposits 17,825 17,825
----------- -----------
$ 1,047,049 $ 1,126,391
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 192,284 $ 171,779
Accrued expenses 47,323 165,864
Income taxes payable (Note 5) 2,045
Deferred income tax (Note 5) 4,352
Current portion of long-term debt (Note 3) 50,000
Notes payable (Note 3) 300,000 250,000
----------- -----------
TOTAL CURRENT LIABILITIES 591,652 591,995
----------- -----------
LONG-TERM DEBT, net of current portion (Note 3) 166,667
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 4)
Common stock - authorized 40,000,000 shares, $.01 par value, issued and
outstanding - 12,498,107 shares in 1996 and 10,000,000
shares in 1995 124,981 100,000
Additional paid-in capital 210,022 (99,000)
Unrealized gain on securities 7,619
Retained earnings (Accumulated deficit) (46,273) 525,777
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 288,730 534,396
----------- -----------
$ 1,047,049 $ 1,126,391
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 16
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES $ 3,033,583 $ 3,081,440
COST OF REVENUES 2,142,131 1,757,783
------------ ------------
GROSS PROFIT 891,452 1,323,657
OPERATING EXPENSES 929,986 808,057
------------ ------------
OPERATING INCOME (LOSS) (38,534) 515,600
OTHER INCOME (EXPENSE)
Interest income 2,462 547
Other income 6,115 5,808
Interest expense (42,370) (2,047)
Non-recurring charges (47,772) (207,500)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (81,565) (203,192)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (120,099) 312,408
INCOME TAXES 2,446 5,000
------------ ------------
NET INCOME (LOSS) $ (122,545) $ 307,408
============ ============
NET INCOME (LOSS) PER SHARE $ (.01) $ .03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,270,000 10,000,000
============ ============
PRO FORMA:
Historical income (loss) before income taxes $ (120,099) $ 312,408
Adjustment to officer's compensation (37,000)
------------ ------------
Pro forma income (loss) before income taxes (157,099) 312,408
Pro forma income taxes (benefit) (Note 5) (62,600) 132,600
------------ ------------
Pro forma net income $ (94,499) $ 179,808
============ ============
Pro forma net income (loss) per share $ (.01) $ .02
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 17
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Retained
Additional Earnings Unrealized
Common Stock Paid-in Accumulated Gain On
----------------------
Shares Amount Capital Deficit) Securities Total
---------- --------- --------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 10,000,000 $ 100,000 $ (99,000) $ 592,671 $ 72 $593,743
Distribution to stockholder (374,302) (374,302)
Unrealized gain on securities 7,547 7,547
Net income 307,408 307,408
----------- --------- --------- --------- ------ --------
BALANCE, December 31, 1995 10,000,000 100,000 (99,000) 525,777 7,619 534,396
Distribution to stockholder (115,313) (115,313)
Undistributed earnings at November
21, 1996 constructively distributed
to stockholder and followed by a
contribution to the capital of the Company 334,192 (334,192)
Shares issued to pre-merger stockholders
of COMC, Inc. 2,500,000 25,000 (25,000)
Repurchase of shares from disserting
stockholders (1,893) (19) (170) (189)
Decrease in unrealized gain on securities (7,619) (7,619)
Net loss (122,545) (122,545)
----------- --------- --------- --------- ------ --------
BALANCE, December 31, 1996 12,498,107 $ 124,981 $ 210,022 $ (46,273) $-0- $288,730
=========== ========= ========= ========= ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 18
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(122,545) $ 307,408
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 49,387 30,553
Gain on securities (2,106)
Gain from disposal of property and equipment (312) 0
(Increase) decrease in:
Accounts receivable 36,344 (274,027)
Securities available for sale (5,463) 9,497
Inventories (97,040) 0
Prepaid expenses and other current assets 14,949 (29,439)
Deposits (7,825)
Increase (decrease) in:
Account payable and accrued expenses (98,036) 174,152
Income taxes payable and deferred income tax (2,307) (2,870)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (225,023) 205,343
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,312) (134,688)
Proceeds from sale of property and equipment 9,000 0
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (41,312) (134,688)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to stockholder (115,313) (374,302)
Repurchase of common stock (189)
Proceeds from short-term borrowings 300,000 266,633
Principal payments on long-term borrowings (33,333)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 151,165 (107,669)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (115,170) (37,014)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,350 209,364
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 57,180 $ 172,350
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ 38,047 $ 2,911
========= =========
Cash paid during the year for income taxes $ 2,720 $ 5,437
========= =========
</TABLE>
F-6
<PAGE> 19
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated in December 1978. Initially, its purpose
was the research and development of medical technologies for the
treatment of cancer and other conditions. On March 25, 1987, the
Company commenced an initial public offering of its securities in which
it raised $4,500,000. Because the Company was unable to raise capital
to continue the clinical trials with respect to the medical device for
cancer treatment which it had designed, in the spring of 1992, it
ceased its operations. As a consequence, the Board of Directors of the
Company began to investigate the possibility of a new business
direction and to search for viable acquisition or merger candidates
which would enable the Company to maximize value to shareholders. In
1992, the Company ceased making the required public filings under the
Securities and Exchange Act of 1934, as amended.
On November 21, 1996 the Company acquired 100% interest in Complete
Communications Incorporated (CCI) for 10,000,000 shares of the
Company's Common Stock (after the reverse stock split). Upon closing
the sole selling shareholder owned 80% of the Company's Common Stock.
Effective as of the closing date the acquisition is considered a
reverse acquisition whereas the CCI is deemed the accounting acquiror
and the financial statements in 1996 and 1995 are those of CCI.
CCI, a California corporation, provides voice and data services, to
major companies that are undergoing changes in their telecommunications
and data communication infrastructures. It assists its clients by being
a full-service provider in the area of computer networks and telephone
systems.
Principles of Consolidation - The consolidated financial statements
include the accounts of COMC, Inc. and Complete Communications
Incorporated, its wholly-owned subsidiary (collectively, the
"Company"). All significant intercompany transactions and balances have
been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Impairment of Long-Lived Assets - Effective January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement provides guidelines for
recognition of impairment losses related to long-term assets. A loss is
recognized when expected undiscounted future cash flows are less than
the carrying amount of the asset. The impairment loss is the difference
by which the carrying amount of the asset exceeds its fair value. The
adoption of this standard did not have a material effect on the
Company's consolidated financial statements.
Stock-Based Compensation - Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement No. 123"). This
statement encourages, but does not require, a fair value based method
of accounting for employee stock options. The Company elected to
continue to measure compensation costs under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and to comply with the pro
forma disclosure requirements of Statement No. 123. The adoption of
this statement had no impact on the Company's consolidated financial
statements. The Company did not grant any options during the years
ended December 31, 1996 and 1995.
Cash Equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Inventories - Inventories consisting of various parts and equipment for
sale are stated at the lower of cost or market determined on a
first-in, first-out (FIFO) basis.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed on the straight-line method over estimated
useful lives ranging from 5 to 7 years. Leasehold improvements are
amortized using the straight-line method over the term of the lease or
the useful life of the asset, whichever is shorter.
F-7
<PAGE> 20
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Net Income (loss) Per Share - Net income (loss) per share is based upon
the weighted average number of common shares outstanding during the
periods presented.
The pro forma net income (loss) per share information for the years
ended December 31, 1996 and 1995 gives effect to the proposed level of
officer's compensation at a base of $104,000 plus 1% of gross revenues
per annum net of amounts already charged to operations, and pro forma
income taxes assuming the Company was subject to federal and state
income taxes.
Revenue Recognition - Contract revenue is recognized principally on the
percentage-of-completion method in the ratio that cost incurred bears
to estimated cost at completion. Other revenue is recorded on the basis
of shipment of products or performance of services. The Company
generally enters into short-term contracts, less than one year. As of
December 31, 1996 and 1995, there were no contracts in progress.
Non-Recurring Charges - In 1995, the Company incurred $207,500 in
consulting fees in the search, negotiation and acquisition of publicly
held shell companies. The purpose was to raise equity capital to
develop new product lines. In 1996, the Company incurred $47,772 in
legal, accounting and consulting fees in its acquisition of COMC, Inc.,
a publicly held shell company.
Concentration of Credit Risk - The Company makes periodic evaluations
of the creditworthiness of its customers and generally does not require
collateral. To date, the Company has not experienced any material bad
debts or collection problems. As of December 31, 1996, two customers
accounted for 43% and 12%, respectively, of total accounts receivable
and 15% and 13% as of December 31, 1995, respectively.
Reclassifications - Certain 1995 balances have been reclassified to
conform with the current year's presentation.
2. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Office Furniture & Equipment $192,905 $151,618
Machinery and Equipment 3,902
Leasehold Improvements 8,639 8,639
Vehicle 15,000
-------- --------
205,446 175,257
Less: accumulated depreciation 90,269 52,317
-------- --------
$115,177 $122,940
======== ========
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
In 1996, the Company entered into two revolving lines of credit
agreement with a bank which provide for borrowings up to $100,000 and
$200,000, respectively. Interest is payable monthly at the bank's prime
rate (8.25% at December 31, 1996) plus 2.5%. The lines of credit expire
on April 10, 1997. The Company had outstanding borrowings of $100,000
and $200,000, respectively, on each line of credit as of December 31,
1996.
In 1995, the Company entered into a revolving line of credit agreement
with a bank providing for borrowings up to $250,000, interest payable
monthly at the bank's prime rate plus 1.5%. In April 1996, the Company
converted the outstanding balance on the line of credit into a $250,000
term loan agreement with the same bank, principal payable in monthly
installment of $4,167 and interest at the bank's prime rate (8.25% at
December 31, 1996) plus 2.5%. The note matures on April 15, 2001. As of
December 31, 1996, the Company had an outstanding balance of $216,667
on the term loan.
The aforementioned lines of credit and term loan are secured by all
assets of the Company, guaranteed by the majority stockholder of the
Company and contain certain financial covenants and restrictions. As of
December 31, 1996, the Company was in compliance with such covenants
and restrictions.
F-8
<PAGE> 21
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Annual maturities of long-term debt for years ending December 31, are
as follows:
<TABLE>
<S> <C> <C>
1997 $ 50,000
1998 50,000
1999 50,000
2000 50,000
2001 16,667
---------
$216,667
=========
</TABLE>
4. STOCKHOLDERS' EQUITY
In November 1996, the Board of Directors of the Company and the holders
of two thirds of the shares entitled to vote thereon adopted an
amendment to the Articles of Incorporation of the Company to (i) effect
a one for ten reverse stock split of she Company's currently issued and
outstanding Common Stock, (ii) increase the number of shares of Common
Stock the Company is authorized to issue to 40,000,000, (iii) change
the Company's name to COMC, INC., and (iv) eliminate the Class B Common
Stock. Prior to the adoption, the Company was authorized to issue
20,000,000 shares of Common Stock, $01 par value and 2,250,000 shares
of Class B Common Stock, $.01 par value.
Shares of Common Stock and Class B Common Stock carried identical
rights, except that holders of Class B Common Stock were entitled to
elect a majority of the Company's Board of Directors, and the Class B
Common Stock was convertible on a share-for-share basis at any time
into common stock. Total shares increased by 625,000 shares at $.01 per
shares or $62,500 related to the reverse acquisition, $25,000 shares of
common stock and 100,000 shares of Class B common stock were issued for
funding the acquisition.
5. INCOME TAXES
On August 5, 1992, the Company elected to be taxed under the provisions
of Subchapter S of the Internal revenue Code. Under those provisions,
the Company generally does not pay federal corporate income taxes on
its taxable income. Instead, the stockholders are liable for individual
federal income taxes on their respective share of the Company's taxable
income. Certain states do not recognize the Subchapter S election and,
accordingly, require the payment of taxes by the Company. The Company
reported its income on a cash basis for income tax purposes until
December 31, 1995. Effective January 1, 1996, the Company changed its
accounting method to accrual basis for income tax purposes. On November
21, 1996, the Company terminated its status as an S corporation.
The income taxes consisted of state income taxes of $2,446 and $5,000
for the years ended December 31, 1996 and 1995, respectively.
The components of deferred taxes were as follows at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 10,039 $ 0
Valuation allowance (10,039) 0
-------- -------
Deferred tax liability:
Accruals recognized in different
periods for tax purposes 0 4,352
-------- -------
Net deferred taxes $ 0 $(4,352)
======== =======
</TABLE>
F-9
<PAGE> 22
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of December 31, 1996, the Company had a net operating loss
carryforward of approximately $44,000 for federal tax purposes which is
available to offset future taxable income, if any, through 2011. The
Company has established a valuation allowance against this deferred
asset.
Pro forma income taxes - The pro forma information presented in the
statements of operations reflect pro forma income taxes assuming the
Company was subject to federal and state income taxes in 1996 and 1995.
Pro forma income taxes (benefit) amounted to $(62,600) in 1996 and
$132,600 in 1995. The pro forma income taxes differs from the expected
tax expense (benefit) (computed by applying the federal corporate tax
rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Expected tax expense (benefit) $ (53,000) $106,000
State income tax, net of federal tax benefit (9,600) 21,000
Other 5,600
--------- --------
$ (62,600) $132,600
========= ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Operating Lease - The majority stockholder on behalf of the Company
leases its office, under operating lease with initial term of five
years with an option for an additional five years or a right of first
refusal to purchase the building. Future minimum lease payments by year
and in the aggregate, under noncancelable operating leases with initial
or remaining lease terms in excess of one year, consisted of the
following at December 31, 1996:
Year Ended December 31,
<TABLE>
<S> <C>
1997 $ 42,019
1998 44,119
1999 46,326
2000 11,721
----------
$ 144,185
==========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 was $44,141
and $35,126, respectively.
7. MAJOR CUSTOMERS
Two customers accounted for approximately 33% and 17% of revenues for
the year ended December 31, 1996, respectively, and 57% and 33% for the
year ended December 31, 1995, respectively.
8. PENDING ACQUISITION
In December 1996, the Company entered into a letter of intent to
acquire a certain provider of interconnect services of voice and data
for a cash payment of $1,000,000 and the issuance of 450,000 shares of
common stock as well as payment of $960,000 over four years under
employment and consulting agreements with its principals. Consummation
of the transaction is contingent upon financing arrangements and the
satisfactory completion of due diligence of the acquiree's affairs.
F-10
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMC, INC.
By: /s/ John Ackerman
-------------------------------------
John Ackerman, Chairman and President
Dated: April 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below as of April 10, 1997 by the following persons on
behalf of Registrant and in the capacities indicated.
/s/ John Ackerman
-------------------------------------
John Ackerman, Chairman and President
(Chief Financial and Accounting Officer)
/s/ Donald Baker
-------------------------------------
Donald Baker, Director
/s/ Richard F. Horowitz
-------------------------------------
Richard F. Horowitz, Director
/s/ Marvin Loeb
-------------------------------------
Marvin Loeb, Director
-12-
<PAGE> 24
EXHIBITS
<TABLE>
<S> <C>
2.01 Letter Agreement with Complete Communications, Inc. dated as of June 3, 1996(1)
3.01 Certificate of Incorporation as amended(1)
3.02 By-laws(2)
16.1 Letter from Oppenheim & Ostrick, CPA's dated January 8, 1997 (3)
</TABLE>
- ----------------------------
(1) Incorporated by reference to the Company's Information Statement dated
September 15, 1996
(2) Incorporated by reference to the Company's Registration Statement
(declared effective March 25, 1987)
(3) Incorporated by reference to the Company's Current Report on Form 8-K/A
dated January 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COMC, INC. AND SUBSIDIARY AS OF DECEMBER
31, 1996 INCLUDED IN THE ANNUAL REPORT ON FORM-10KSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 57,180
<SECURITIES> 0
<RECEIVABLES> 738,724
<ALLOWANCES> 0
<INVENTORY> 97,040
<CURRENT-ASSETS> 914,047
<PP&E> 205,446
<DEPRECIATION> 90,269
<TOTAL-ASSETS> 1,047,049
<CURRENT-LIABILITIES> 591,652
<BONDS> 166,667
0
0
<COMMON> 124,981
<OTHER-SE> 163,749
<TOTAL-LIABILITY-AND-EQUITY> 1,047,049
<SALES> 0
<TOTAL-REVENUES> 3,033,583
<CGS> 0
<TOTAL-COSTS> 2,142,131
<OTHER-EXPENSES> 929,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,370
<INCOME-PRETAX> (120,099)
<INCOME-TAX> 2,446
<INCOME-CONTINUING> (122,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,545)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
