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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, 1997 Commission File Number 0-16472
COMC, INC.
(Exact Name of Registrant as Specified in its Charter)
Illinois 36-3021754
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) 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
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 X No
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, computed by reference to the last sales
price of such stock as of March 27, 1998, was $325,147.50.
The number of shares outstanding of Registrant's Common Stock as of
March 31,1998 : 12,498,107
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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 a therapy for
the treatment of cancer and other conditions. Because the Company was
unable to raise capital to continue clinical trials of its therapy for
cancer, in early 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
it 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.
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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.
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, Sanwa Bank, Cedars 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.
The Company's revenues are generated by the sale of equipment
and by services provided.and represent 40% and 60% of the Company's total
revenue, respectively. For the fiscal year ended December 31, 1997, the
Company generated total revenues of $2,650,386 . Its gross profits for
the same period were $1,071,234 with a loss before income taxes of
$146,257. For the fiscal year ended December 31, 1996 revenues were
$3,033,583 with gross profits of $891,452 and a loss before income taxes
of $120,099.
Under an acquisition and consolidation strategy, the Company is
attempting to build its operations and expand its presence in the high
growth markets of Los Angeles, San Francisco and San Diego California;
Phoenix, Arizona; Las Vegas and Reno, Nevada.
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. While this letter of
intent has expired, the Company has renewed discussions with ACI and hope
to proceed with a new letter of intent in the very near future.
In April 1997 the Company entered into a letter of intent
providing for a business combination with ICF Communications, Inc.
("ICF") a full service telecommunications provider of voice, data and
other client service support. While this original letter of intent
expired, in March 1998 the Company entered into a new letter of intent
with ICF. Under the terms of this new letter of intent, the Company will
acquire ICF in consideration for a cash payment of $3,000,000 and a note
payable for $1,000,000. In addition, the Company will issue $12,000,000
worth of the Company's Common Stock. Consummation of the transaction is
contingent upon financing arrangements and the satisfactory completion of
the Company's due diligence investigation of ICF's affairs, neither of
which can be assured at this time.
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 secure
additional independent outside sales personnel. It is anticipated that
such salesmen will be compensated solely 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.
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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.
Employees
As of March 31. 1998, the Company employed approximately 13
persons, of whom two are executive personnel, one acts as administrative
support and 10 are involved in operations. The Company has decided to
outsource many of the more non-technical functions as well as some of the
Project Manager positions.
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 $3,700. 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 had received notice from the Labor Commissioner of
the State of California ofr five claims from five former employees
totaling $44,000 plus accrued interest. The claims allege unpaid
commissions for the period of January 1, 1997 to April 30, 1997. Four of
the claims totaling $4,000 were dismissed by the Labor Commission in
November 1997. The remaining claim for $40,000 was allowed to proceed to
the hearing level. The Company believes that the remaining claim is also
without merit and intends to vigorously defend against it.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No trading information was available for the Company's
securities from 1992 to through February 19, 1998 as the Company was
inactive. On February 20, 1998 the Company stock began trading under
symbol CINJ on the OTC Bulletin Board and as of April 1, 1998 the closing
bid price was $2.00 per share.
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
Company's financial statements and related notes thereto of the Company
included elsewhere herein.
Initially, the Company's purpose was the research and
development of a therapy for cancer and other conditions. Because the
Company was unable to raise capital to continue the clinical trials of
its cancer therapy, in the spring of 1992 it ceased 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, 1996 and 1997.
The new focus of the Company will be to follow an acquisition
and consolidation growth strategy. The Company is attempting to build its
operations and expand its presence in the high growth markets of Los
Angeles, San Francisco and San Diego California; Phoenix, Arizona; Las
Vegas and Reno, Nevada.
Results of Operations
Revenues decreased approximately $383,000 or 12.6% from 1996 to
1997. This was primarily due to the fact that in 1997, projects from the
Company's largest customer (Western Carlson Design) which totaled
$1,023,000 was not sufficient to replace the loss of the Company's two
largest customers in 1996 (Cedars Sinai Medical Center and Digital Corp.)
which totaled $2,156,000. Additional revenues came from new customers
such as EDS Unigraphics, Sanwa Bank, NBC Studios and Nortel/Wiltel
Communications. Cost of revenues decreased $563,000 or 26.3%. Materials
purchased increased $288,000 or 52.3% due to requirements for the Bank of
America and Western Carlson Design projects. Technician labor decreased
by $861,000 or 120.8% due to the reduced activity with Cedars Sinai
Medical Center which was labor intense and low margin. Operating expenses
rose $249,000 or 26.9%. This was due to an added allowance for bad debts
of $60,000, increased outside sales commissions of $20,000 for
diversification of the customer base, increased business and health
insurance costs of $58,000 and an additional $90,000 for professional,
consulting and travel related costs necessary for maintaining the public
company. Other expenses decreased $44,000 or 53.8% primarily due to
non-recurring charges in 1996 attributed to consulting fees in the search
of publicly held shell companies. Interest expense increased $8,000 or
19.0% due to the utilization of two new lines of credit primarily for
acquisition costs and maintenance of the public company incurred in 1995,
1996 and 1997. As a result of the above, income before taxes decreased
$26,158 or 21.8% reflecting a loss in 1997 of $146,257.
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The Company depends on a few large customers for the majority of
its revenue. A loss of any one could have a material effect on the
Company's liquidity. Due to the quality of the Company's major customers,
the collectibility of accounts receivable has not been a problem.
For the year ended December 31, 1997 Western Carlson Design and
Bank of America accounted for 39% and 10% of the Company's revenue,
respectively. These same customers represented 2% and 6% of the revenue
for the year ended December 31, 1996, 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, 1997 GTE
Supply, Cable Connector Warehouse and Anicom, Inc. accounted for 35%, 23%
and 18% of the Company's total material purchases, respectively. Of these
suppliers, only Cable Connector Warehouse was used in the comparable
period last year and accounted for 6% of total material purchased.
Liquidity and Capital Resources
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. While this letter of
intent has expired, the Company has renewed discussions with ACI and
hopes to proceed with a new letter of intent in the very near future.
In April 1997, the Company entered into a letter of intent
providing for a business combination with ICF Communications, Inc.
("ICF") a full service telecommunications provider of voice, data and
other client service support. While this original letter of intent
expired, in March 1998 the Company entered into a new letter of intent
with ICF. Under the terms of the letter of intent, the Company will
acquire ICF in consideration for a cash payment of $3,000,000 and a note
payable for $1,000,000. In addition, the Company will issue $12,000,000
worth of Common Stock. Consummation of the transaction is contingent upon
financing arrangements and the satisfactory completion of the Company's
due diligence investigation of ICF's affairs, neither of which can be
assured at this time.
The Company intends to continue its search for additional merger
and acquisition candidates that will expand its existing markets in
related products and services.
Cash and cash equivalents increased $37,014 for the year
ended December 31, 1997, compared to a decrease of $115,170 for the year
ended December 31, 1996. Cash provided by operating activities amounted
to $429,472 in 1997 primarily due to a decrease in accounts receivable
and customer deposits required on selected projects offset by the period
loss. Cash used in investing activities in 1997 increased to $51,570 from
$41,312 in 1996 due to loans to officers offset by a reduction in the
purchase of property and equipment. Financing activities used an
additional $350,000 in 1997 for principal payments on short-term and
long-term borrowings.
The Company has a $250,000 loan agreement with a bank, principal
payable in a monthly installment of $4,167 and interest at the bank's
prime rate plus 2.5%. The note matures on April 15, 2001 and has an
outstanding balance of $158,333 as of March 14, 1998. The Company has a
revolving credit agreement available for $300,000 with the same bank,
interest at the bank's prime rate plus 2.5% and as of March 16, 1998 has
used $170,000. The Company has dropped its $100,000 equipment line of
credit.
Item 7. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page
F-1.
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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.
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:
Name Age Position
---- --- --------
John Ackerman 39 President, Chief Executive Officer
and Director
Donald Baker 68 Director
Richard F. Horowitz 57 Director, Secretary
Marvin Loeb 71 Director
Albert P. Vasquez 39 Director
Ernest C. Mauritson 41 Controller
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John Ackerman has over ten years of experience in the communication
industry, starting CCI, Inc in 1987. He began his professional career in 1978.
Immediately after college he was recruited as an import/export broker with the
firm Justwise Limited based in London. He quickly rose to the position of
European Sales Coordinator and was responsible for overseeing all European Sales
and Accounts. Upon returning from England in 1985, Ackerman entered the field of
communications through an entry position as a data and voice technician. He was
placed at the Security Pacific National Bank account and was responsible for the
Beaudry Restack Project with a telecommunications budget of approximately $4
million dollars. During this time Mr. Ackerman developed the expertise of
customer relations in the field of telecommunications and discovered the
need for cost
effective installation and maintenance of computer networks and telephone
systems. Thus CCI was born. Founded in 1987 by John Ackerman the Company
installs and maintains a wide range of telephone systems and computer networks.
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., which formerly operated an
airline 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 Trimedyne,
Inc., Cardiodyne, Inc. and Cardiomedics, Inc., of Irvine, California.
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.
Marvin P. Loeb served as Chairman and 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 company involved in the manufacture of medical lasers ("Trimedyne").
He has also been a director of Pharmos, Inc. (formerly Pharmatec, Inc.),
a publicly held company 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. 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. 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 States University and a Bachelor of
Science Degree from the University of Illinois.
Albert P. Vasquez has over 15 years experience in corporate
finance and in mergers and acquisitions. Mr. Vasquez is currently a
Managing Director at Chatworth Capital where he runs the private
placement group focusing on the technology and healthcare sectors. Mr.
Vasquez was a Senior Vice President of HSBC James Capel, a subsidiary of
the Hong Kong & Shanghai Bank for more than six years where he was
responsible for all technology-related offerings. Mr. Vasquez was also a
Director and Partner in Capitalcorp International, a Hong Kong based
investment firm and Managing Director of a $62 million publicly traded
investment company that provided equity for MBO and later stage venture
capital investments in the US. The Fund generated 62% annual return for
each of the two years that he ran the portfolio. Mr. Vasquez also worked
for Booz, Allen & Hamilton's Technology Management Group as an Associate.
Mr. Vasquez has an MBA in Finance and Strategic Planning from the Wharton
School and a BA in Mathematics from Amherst College.
Ernest C. 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.
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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 January, 1, 1997 through
December 31, 1997, all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners
were complied with
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued
by the Company during the four fiscal years ended December 31, 1997 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
Restricted
Year Salary Bonus Stock Awards
---- ------ ----- ------------
John Ackerman 1997 $96,400 -0- -0-
" 1996 $11,200 -0- -0-
" 1995 -0- -0- -0-
" 1994 -0- -0- -0-
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Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth, as of March 31, 1998, 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 of Owner Number of Shares(1) Percent of Class
------------------------- -------------------- ----------------
<S> <C> <C>
John Ackerman 400 N. Glenoaks Blvd. Burbank, CA 91502 8,500,000 68%
Donald Baker 20,251 *
Richard F. Horowitz(3) 292 Madison Ave. New York, NY 10017 20,075 *
Marvin P. Loeb(2) 2801 Barranca Rd. Irvine, CA 92619 1,544,298 12%
Albert P. Vasquez One East Putnam Ave. Greenwich, CT 06830 1,000,000 8%
Ernest C. Mauritson 400 N. Glenoaks Blvd. Burbank, CA 91502 500,000 4%
All Officers and Directors
as a Group (6 persons) 11,584,624 93%
</TABLE>
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* 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
On February 3, 1998 John Ackerman President , Chief Executive
Officer and Director sold 1,000,000 shares of Common Stock to Albert P.
Vasquez, Director and 500,000 shares of Common Stock to Ernest C.
Mauritson, Controller at par value.
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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 on page F-1 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, 1997 as follows:
None
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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 1, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below as of April 1, 1998 by the
following persons on behalf of Registrant and in the capacities
indicated.
/s/ John Ackerman
John Ackerman, Chairman and President
/s/ Donald Baker
Donald Baker, Director
/s/ Richard F. Horowitz
Richard F. Horowitz, Director
/s/ Marvin Loeb
Marvin Loeb, Director
/s/ Albert P. Vasquez
Albert P. Vasquez, Director
/s/ Ernest C. Mauritson
Chief Financial and Accounting Officer
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EXHIBITS
The following Exhibits are incorporated herein by reference:
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)
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(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
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COMC, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<PAGE>
COMC, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
Reports of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997 F-2
Consolidated Statements of Operations - F-3
For the Years Ended December 31, 1996 and 1997
Consolidated Statement of Stockholders' Equity - F-4
For the Years Ended December 31, 1996 and 1997
Consolidated Statements of Cash Flows - F-5
For the Years Ended December 31, 1996 and 1997
Notes to Consolidated Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders COMC, Inc.
We have audited the accompanying consolidated balance sheets of COMC, INC. and
subsidiary as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 1997, and the results of operations,
stockholders' equity and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Hollander, Gilbert & Co.
Los Angeles, California
February 5, 1998
F-1
<PAGE>
COMC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 57,180 $ 85,082
Accounts receivable (net of allowance for uncollectible
accounts of $62,164 in 1997) 738,724 360,702
Inventories 97,040 106,806
Loans receivable - officer (Note 8) 43,885
Prepaid expenses and other currents assets 21,103 36,247
TOTAL CURRENT ASSETS 914,047 632,722
PROPERTY AND EQUIPMENT, Net (Note 2) 115,177 110,090
OTHER ASSETS
Deposits 17,825 17,825
$ 1,047,049 $ 760,637
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 192,284 $ 200,049
Accrued expenses 47,323 43,540
Income taxes payable 2,045 --
Customer's deposit 207,908
Current portion of long-term debt (Note 3) 50,000 50,000
Notes payable (Note 3) 300,000 --
TOTAL CURRENT LIABILITIES 591,652 501,497
LONG-TERM DEBT, net of current portion (Note 3) 166,667 116,667
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 1997 124,981 124,981
Additional paid-in capital 210,022 210,022
Accumulated deficit (46,273) (192,530)
TOTAL STOCKHOLDERS' EQUITY 288,730 142,473
$ 1,047,049 $ 760,637
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
REVENUES $ 3,033,583 $ 2,650,386
COST OF REVENUES 2,142,131 1,579,152
GROSS PROFIT 891,452 1,071,234
OPERATING EXPENSES 929,986 1,179,867
OPERATING LOSS (38,534) (108,633)
OTHER INCOME (EXPENSE)
Interest income 2,462 3,450
Other income 6,115 9,350
Interest expense (42,370) (50,424)
Non-recurring charges (47,772) --
TOTAL OTHER INCOME (EXPENSE) (81,565) (37,624)
LOSS BEFORE INCOME TAXES (120,099) (146,257)
INCOME TAXES 2,446 --
NET LOSS $ (122,545) $ (146,257)
BASIC LOSS PER SHARE $ (.01) $ (.02)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,270,000 12,498,107
</TABLE>
F-3
<PAGE>
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
<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, 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 dissenting
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) -- 288,730
Net loss (146,257) (146,257)
-------------- ----------- ----------- ----------- --------- ----------
BALANCE, December 31, 1997 12,498,107 $ 124,981 $ 210,022 $ (192,530) $ -- $ 142,473
-------------- ----------- ----------- ----------- --------- ----------
-------------- ----------- ----------- ----------- --------- ----------
</TABLE>
F-4
<PAGE>
COMC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (122,545) $ (146,257)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 49,387 12,772
Gain from disposal of property and equipment (312)
(Increase) decrease in:
Accounts receivable 36,344 378,022
Securities available for sale (5,463) --
Inventories (97,040) (9,766)
Prepaid expenses and other current assets 14,949 (15,144)
Increase (decrease) in:
Account payable and accrued expenses (98,036) 3,982
Customer's deposits 207,908
Income taxes payable (2,307) (2,045)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (225,023) 429,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,312) (7,685)
Proceeds from sale of property and equipment 9,000 --
Loans receivable - officer (43,885)
NET CASH USED IN INVESTING ACTIVITIES (41,312) (51,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to stockholder (115,313) --
Repurchase of common stock (189) --
Proceeds from short-term borrowings 300,000 327,123
Principal payments on short-term and long-term borrowings (33,333) (677,123)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 151,165 (350,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (115,170) 27,902
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,350 57,180
CASH AND CASH EQUIVALENTS, END OF YEAR $ 57,180 $ 85,082
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ 38,047 $ 52,630
Cash paid during the year for income taxes $ 2,720 $ 2,045
</TABLE>
F-5
<PAGE>
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated in December 1978. On November 21,
1997 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 acquirer and the financial statements in 1996 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 1997.
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.
Basic Loss Per Share - Basic loss per share is based upon the
weighted average number of common shares outstanding during the
periods presented.
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.
F-6
<PAGE>
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Concentration of Credit Risk - The Company makes periodic
evaluations of the creditworthiness of its customers and
generally does not require collateral. As of December 31, 1996,
two customers accounted for 43% and 12%, of total accounts
receivable. As of December 31, 1997, three customers accounted
for approximately 26%, 20% and 15% of total accounts receivable.
2. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
Office Furniture & Equipment $ 192,905 $ 193,511
Machinery and Equipment 3,902 10,982
Leasehold Improvements 8,639 8,639
205,446 213,132
Less: accumulated depreciation 90,269 103,042
$ 115,177 $ 110,090
</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 plus 2.5%. The lines of credit expired
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 which were all repaid during 1997.
In April 1997, the Company entered into a new revolving line of
credit agreement with the same bank which provide for borrowings
up to $300,000. Interest is payable monthly at the bank's prime
rate plus 2.5%. The line of credit expires on May 10, 1998.
There were no outstanding borrowing on this line of credit at
December 31, 1997.
In April 1996, the Company entered 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 plus
2.5%. The note matures on April 15, 2001. As of December 31,
1996 and 1997, the Company had an outstanding balance of
$216,667 and $166,667, respectively.
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.
Annual maturities of long-term debt for years ending December
31, are as follows:
1998 $ 50,000
1999 50,000
2000 50,000
2001 16,667
$ 166,667
-----------------
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
F-7
<PAGE>
COMC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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.
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 in 1996 consisted of state income taxes of
$2,446.
As of December 31, 1997, the Company had a net operating loss
carryforward of approximately $193,000 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.
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, 1997:
Year Ended December 31,
1998 $ 44,119
1999 46,326
2000 11,721
$ 102,166
------------------
Rent expense for the years ended December 31, 1996 and 1997 was
$44,141 and $45,617, respectively.
Legal Proceedings- The Company had received notices from the
Labor Commissioner of the State of California of five claims
from five former employees totaling $44,000 plus accrued
interest. The claims allege unpaid commissions for the period of
January 1, 1997 to April 30, 1997. Four of the claims totaling
$4,000 were dismissed by the Labor Commissioner in November
1997. The remaining claim for $40,000 was allowed to proceed to
the hearing level. The company believes that the remaining claim
is without merit and intends to vigorously defend against it.
7. MAJOR CUSTOMERS
Two customers accounted for approximately 33% and 17% of
revenues in 1996 and 39% and 10% in 1997.
8. RELATED PARTY TRANSACTION
As of December 31, 1997, the Company had an outstanding loan
receivable of $43,885 from the Company's President. The loan
bears interest at 12% and is payable on demand.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 85,082
<SECURITIES> 0
<RECEIVABLES> 360,702
<ALLOWANCES> 0
<INVENTORY> 106,806
<CURRENT-ASSETS> 632,722
<PP&E> 110,090
<DEPRECIATION> 0
<TOTAL-ASSETS> 760,637
<CURRENT-LIABILITIES> 501,497
<BONDS> 0
0
0
<COMMON> 124,981
<OTHER-SE> 17,492
<TOTAL-LIABILITY-AND-EQUITY> 760,637
<SALES> 0
<TOTAL-REVENUES> 2,650,386
<CGS> 0
<TOTAL-COSTS> 1,579,152
<OTHER-EXPENSES> 1,179,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,424
<INCOME-PRETAX> (146,257)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,257)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0.000
</TABLE>
