<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission File No. 0-16472
COMC, INC.
(Exact Name of Registrant as Specified in its Charter)
Illinois 36-3021754
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 N. Glenoaks Blvd.
Burbank, California 91502
----------------------------------------
(Address of principal executive offices)
(818) 556-3333
---------------------------
(Issuer's telephone number)
Check whether the issuer filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter Period that the registrant was required to file such reports), and
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of Registrants Common Stock as of July 30,
1999, was 20,054,946.
Transitional Small Business Disclosure Format. Yes / / No /X/
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 886,114 $1,018,534
Accounts receivable, net of allowance for doubtful accounts of
$273,098 at June 30, 1999 and $276,900 at December 31, 1998........ 2,717,736 3,091,011
Unbilled revenue ...................................................... 642,208 296,120
Inventories ........................................................... 196,227 124,188
Refundable income taxes ............................................... 13,092 179,603
Deferred income taxes ................................................. 152,579 152,579
Loans receivable - officer ............................................ 119,281 114,281
Prepaid expenses and other current assets ............................. 66,262 15,591
------------ ----------
TOTAL CURRENT ASSETS .......................................... 4,793,499 4,991,907
PROPERTY AND EQUIPMENT, Net ............................................... 646,672 715,833
OTHER ASSETS
Goodwill, net ........................................................ 10,660,441 10,938,526
Deposits ............................................................. 54,158 35,878
------------ ----------
TOTAL OTHER ASSETS ............................................... $ 10,714,599 10,974,404
------------ ----------
TOTAL ASSETS .......................... $ 16,154,770 $16,682,144
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank credit line payable ............................................. $ 303,853 $ 297,775
Current portion of long-term debt .................................... 112,500 60,512
Notes payable to officers ............................................ 3,500,000 3,500,000
Income taxes payable ................................................. 600,171 1,045,343
Accrued salaries, vacation and payroll taxes ......................... 573,318 378,771
Cash overdraft ....................................................... -- 69,437
Accounts payable ..................................................... 656,668 676,088
Accrued expenses ..................................................... 133,192 --
Accrued interest ..................................................... 126,665 77,363
Other current liabilities ............................................ -- 171,063
------------ ----------
TOTAL CURRENT LIABILITIES ..................................... 6,006,367 6,276,352
LONG-TERM DEBT, net of current portion .................................... 25,092 96,266
DEFERRED TAX .............................................................. 73,907 73,907
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized - 40,000,000
shares; issued and outstanding - 20,054,946 shares ................ 200,549 200,549
Additional paid-in capital ........................................... 10,558,454 10,558,454
Accumulated Deficit .................................................. (709,599) (523,384)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY ................................................ 10,049,404 10,235,619
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,154,770 16,682,144
============ ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30th June 30th,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES .......................................... $ 4,798,748 $ 310,777 $ 9,913,032 $ 881,615
COST OF REVENUES .................................. $ 3,207,956 $ 177,255 6,857,847 486,905
----------- ----------- ----------- -----------
GROSS PROFIT ...................................... $ 1,590,792 $ 133,522 3,055,185 394,710
OPERATING EXPENSES ................................ $ 1,462,786 $ 231,139 2,988,080 477,150
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS .................... $ 128,006 $ (97,617) 67,105 (82,440)
OTHER INCOME (EXPENSE)
Interest income .............................. 2,093 -- 3,732 219
Interest expense ............................. (103,690) (9,537) (198,859) (13,813)
Miscellaneous Income ......................... 176 -- 3,059 --
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) ................... $ (101,421) (9,537) (192,068) (13,594)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES ............................. $ 26,585 $ (107,154) $ (124,963) $ (96,034)
Income Taxes ...................................... 61,253 -- (61,253) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) ................................. $ (34,253) $ (107,154) $ (186,216) $ (96,034)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ........................... 20,054,946 12,498,107 20,054,946 12,498,107
----------- ----------- ----------- -----------
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE .................................. $ -- $ (.01) $ (.01) (.01)
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30th,
-------------------------
1999 1998
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)............................................................ $ (186,215) $ (96,034)
Adjustments to reconcile net (loss) to net cash used
in operating activities:
Depreciation and amortization................................ 381,899 19,461
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable and unbilled revenue................. 27,187 36,960
Inventories ............................................. (72,039) 35,422
Prepaid expenses and other current assets ............... (50,660) (34,217)
Increase (decrease) in:
Accounts payable and accrued expenses ................... 186,558 (81,449)
Customer's deposit ...................................... -- (145,371)
Income taxes payable .................................... (278,672) --
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ................... 8,058 (265,228)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .................................. (34,642) --
Deposits and other assets ............................................ (18,291) 5,810
Loans receivable - officer ........................................... (5,000) (29,123)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (57,933) (23,313)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from bank credit line ..................................... -- 236,500
Cash overdraft ....................................................... (69,437) --
Principal payments on short-term and long-term borrowings ............ (13,108) (25,000)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ..... (82,545) 211,500
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... (132,420) (77,041)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ 1,018,534 85,082
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 886,114 $ 8,041
========== ==========
CASH PAID FOR:
Interest ............................................................. $ 198,859 $ 13,813
Income taxes ......................................................... $ 473,000 $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
COMC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been
prepared by COMC, Inc. (the "Company") without audit and, in the
opinion of the management, reflect all adjustments of a normal
recurring nature necessary for a fair statement of (a) the results of
operations for the three and six months ended June 30, 1999 and 1998,
(b) the financial position at June 30, 1999 and (c) the cash flows for
the six months ended June 30, 1999 and 1998. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1998 has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The
consolidated financial statements and notes are condensed as permitted
by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated
financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-KSB and the Company's Form 8-K and
8-KA filed on August 31, 1998 and November 2, 1998 respectively.
SUBSEQUENT EVENT
On August 10, 1999, the Company entered in various agreements in
connection with restructuring the Company's short-term debt due
officers and entering an employment agreement with a new executive
officer. The agreement to restructure Notes payable to officers in the
amount of $3,500,000 modified the terms to include the extension of the
maturity date for an additional three-year term at a fixed rate of 10%
per annum. Concurrent with this debt restructuring and the employment
of a new executive officer, the Chairman of the Company entered into an
agreement to contribute 3,651,948 of his shares of the Company' common
stock to provide shares under various option agreements. In connection
with these agreements, the principal shareholders of the Company and
the new executive officer entered into a stockholders agreement.
5
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain statements of a forward-looking nature
relating to future performance of the Company. Prospective investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially.
Overview
COMC, Inc. ("COMC" or the "Company") designs, implements, supports and manages
telecommunication and voice equipment, computer network systems, and premise
wiring for healthcare organizations, financial institutions, and the
entertainment sector. The Company's services include the purchase, delivery,
installation and maintenance of voice and data equipment as well as maintenance
contracts and repair work, and client outsourcing services, all through its
wholly owned subsidiary acquired August 1998, ICF Communications Solutions Inc.
("ICF"), representing 100% of the company's revenue. The Company's gross margin
varies significantly depending on the percentage of service revenues versus
revenues from the sale and installation of products (with respect to which the
Company obtains a lower margin). For its major customers, the Company typically
provides these services under contracts with one or more years in duration.
Under an acquisition and consolidation strategy, COMC intends to build its
operations and to expands its presence primarily in the high growth markets of
Los Angeles, San Francisco and San Diego California; Phoenix, Arizona; Las Vegas
and Reno, Nevada; Dallas and Houston, Texas.
Results of Operations
The Company's revenues were $9,913,032 and $881,615 for the six months ended
June 30, 1999 and 1998, respectively, representing an increase of 1025%. This
increase was due to the purchase of ICF by COMC on August 17, 1998. The increase
in unbilled revenue is also due to the purchase of ICF by COMC. Many projects
can not be billed until the project is 100% completed therefore increasing the
value of unbilled revenue at any time during which these projects exist.
Cost of revenues was $6,857,847 and $486,905 for the six months ended June 30,
1999 and 1998, respectively, representing an increase of 1,308%. This increase
was due to the purchase of ICF. Gross margin decreased to 31 % for the six
months ended June 30, 1999 from 45% for the six months ended June 30, 1998.
ICF's gross margin for the twelve months ended Dec 31, 1998 was 31%.
Operating expenses $2,988,080 and $477,150 for the six months ended June 30,
1999 and 1998, respectively, representing an increase of 526%. This increase was
due to the purchase of ICF.
Depreciation and amortization expenses were $381,899 and $19,461 for the six
months ended June 30, 1999 and 1998, respectively. This increase was primarily
due to the amortization of goodwill of $278,096 resulting from the purchase of
ICF. The Company expects that depreciation will continue to increase in dollar
terms as a result of additional investments in capital equipment required to
support the anticipated growth in the Company's business.
Other expense was $192,068 and $13,594 for the six months ended June 30, 1999
and 1998, respectively, representing an increase of 1,313%. This increase was
primarily due to increased interest expense related to notes payable to the
selling stockholders of ICF.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents amounted to $886,114 at June 30, 1999. For the six
months ended June 30, 1999, cash used in operating activities was $8,058.
For the six months ended June 30, 1999, cash used in investing activities was
$57,933, as a result of purchases of equipment of $34,642 and deposits and other
assets of $18,291 and officer loan of $5,000.
The Company has a $250,000 term 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 $101,988 as
of June 30, 1999. The Company has a revolving credit agreement available for
$300,000 with the same bank. Interest is at the bank's prime rate plus 2.5% and
as of June 30, 1999 the outstanding balance was $303,853.
At June 30, 1999, the Company had working capital deficiency of $1,151,615. This
includes $705,418 of income taxes payable. The income tax payable is the result
of a change in accounting policy from cash to accrual based accounting at ICF.
In January of 1999, the IRS approved the Company's request to pay in
installments requiring monthly payments of $100,000 plus interest and penalties
until the total amount is paid in full. The Company has not entered into any
negotiations with the State of California. The current liabilities also include
$3,500,000 in notes payable to stockholders, who are former stockholders of ICF.
The Company is under current negotiations to restructure the terms and
conditions of all notes currently in default and outstanding. The Company has
reached a preliminary understanding with the holders of these notes to extend
the term of the notes into a three-year note payable in lump sum amount at the
end of the third year. Interest accruing at 10% per annum will be payable
monthly.
The Company intends to recapitalize its balance sheet and shift some of the
current liabilities to long term obligations. The Company is currently in
discussions with a financial institution to secure up to $5 million in senior
debt financing ("Senior Debt Facility"). It is contemplated that the Senior Debt
Facility will be secured by substantially all of the assets of the Company and
will contain customary covenants and restrictions. The Company intends to use
the Senior Debt Facility for: i) the balance of income tax payable due the
Internal Revenue Service; and ii) working capital purposes including additional
acquisition financing. There can be no assurance that the Company can secure
this Senior Debt Facility.
Despite the deficiency in working capital, the Company believes that its current
cash flow from operations plus its present sources of liquidity from current
assets will be sufficient to finance operations for the foreseeable future and
meet its short-term obligations.
The Company intends to continue its search for additional merger and acquisition
candidates that will expand its existing markets in related products and
services. COMC has depended on a few large customers for the majority of its
revenue to date. 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.
Year 2000 Compliance
The Company has reviewed its computer systems to identify those areas
that could be adversely affected by Year 2000 software failures. The Company
uses a number of computer software programs and operating systems in its
operations, including in financial business systems, marketing and various other
administrative functions. To the extent that these software applications contain
source code that is unable to appropriately interpret the upcoming year 2000,
some level of modification or possibly replacement of such applications may be
necessary.
<PAGE>
The Company has converted almost all of its information systems to be
Year 2000 compliant. To date, the Company has incurred approximately $140,000
and it believes that approximately $8,500 will be incurred during the fiscal
year 1999 to complete the information system conversions. Although the Company
expects, based on currently available information, that any additional
expenditures that may be required in connection with Year 2000 conversions will
not be material, there can be no assurance in this regard. The Company believes
that certain of its customers may be impacted by the Year 2000 problem, which
could in turn affect the Company. Currently, the Company cannot predict the
effect of the Year 2000 problem on entities with which it transacts business and
there can be no assurance it will not have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
The Company will be formulating a contingency plan to address the possible
effects of any of its customers experiencing Year 2000 problems.
<PAGE>
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
7
<PAGE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
8
<PAGE>
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 CEO
Dated: August 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of August 13, 1999 by the following persons
on behalf of Registrant and in the capacities indicated.
/s/ John Ackerman
-----------------
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary fiancial information extracted from the
Company's financial statements for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 886,114
<SECURITIES> 0
<RECEIVABLES> 3,633,042
<ALLOWANCES> 273,098
<INVENTORY> 196,227
<CURRENT-ASSETS> 4,793,499
<PP&E> 646,672
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,154,770
<CURRENT-LIABILITIES> 6,006,367
<BONDS> 25,092
0
0
<COMMON> 200,549
<OTHER-SE> 9,848,855
<TOTAL-LIABILITY-AND-EQUITY> 10,049,404
<SALES> 0
<TOTAL-REVENUES> 9,913,032
<CGS> 0
<TOTAL-COSTS> 9,845,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (198,859)
<INCOME-PRETAX> (124,963)
<INCOME-TAX> 61,253
<INCOME-CONTINUING> (186,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,216)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (1.01)
</TABLE>
