<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: MARCH 31, 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 May 11, 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>
March 31, December 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................................... $ 734,647 $ 1,018,534
Accounts receivable, net of allowance for doubtful accounts of
$276,900 at March 31, 1999 and $276,900 at December 31, 1998 ............................ 3,460,450 3,091,011
Unbilled revenue ............................................................................. 516,099 296,120
Inventories .................................................................................. 192,160 124,188
Refundable income taxes ...................................................................... 179,592 179,603
Deferred income taxes ........................................................................ 152,579 152,579
Loans receivable - officer ................................................................... 114,281 114,281
Prepaid expenses and other current assets .................................................... 102,294 15,591
------------ ------------
TOTAL CURRENT ASSETS ................................................................. 5,452,102 4,991,907
PROPERTY AND EQUIPMENT, Net ...................................................................... 697,036 715,833
OTHER ASSETS
Goodwill, net ............................................................................... 10,799,489 10,938,526
Deposits .................................................................................... 56,765 35,878
------------ ------------
TOTAL OTHER ASSETS ...................................................................... 10,856,254 $ 10,974,404
------------ ------------
TOTAL ASSETS ................................ $ 17,005,392 $ 16,682,144
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank credit line payable .................................................................... $ 298,666 $ 297,775
Current portion of long-term debt ........................................................... 60,512 60,512
Notes payable to officers ................................................................... 3,500,000 3,500,000
Income taxes payable ........................................................................ 744,888 1,045,343
Accrued salaries, vacation and payroll taxes ................................................ 653,413 378,771
Cash overdraft .............................................................................. - 69,437
Accounts payable ............................................................................ 1,144,371 676,088
Accrued expenses ............................................................................ 286,662 -
Accrued interest ............................................................................ 77,362 77,363
Other current liabilities ................................................................... - 171,063
------------ ------------
TOTAL CURRENT LIABILITIES ............................................................ 6,765,874 6,276,352
LONG-TERM DEBT, net of current portion ........................................................... 81,540 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 ......................................................................... (674,932) (523,384)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ........................................................... 10,084,071 10,235,619
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 17,005,392 16,682,144
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1999 1998
----------------------
(Unaudited) (Unaudited)
REVENUES .................................. $ 5,114,284 $ 570,838
COST OF REVENUES .......................... 3,649,891 309,650
------------ ------------
GROSS PROFIT .............................. 1,464,393 261,188
OPERATING EXPENSES ........................ 1,525,294 246,011
------------ ------------
INCOME (LOSS) FROM OPERATIONS ............. (60,901) 15,177
OTHER INCOME (EXPENSE)
Interest income ...................... 1,639 219
Interest expense ..................... (95,169) (4,276)
Miscellaneous Income ................. 2,883 -
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ....... (90,647) (4,057)
NET INCOME (LOSS) ......................... $ (151,548) $ 11,120
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ................... 20,054,946 12,498,107
============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.00
============ ============
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................................... $ (151,548) $ 11,120
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................................... 190,422 9,731
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable and unbilled revenue................................ (589,418) (78,454)
Inventories ............................................................ (67,971) 44,416
Prepaid expenses and other current assets .............................. (86,692) (31,961)
Increase (decrease) in:
Accounts payable and accrued expenses .................................. 858,523 (42,593)
Customer's deposit ..................................................... - (156,880)
Income taxes payable ................................................... (300,455) -
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES .................................. (147,139) (244,621)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................................. (32,589) --
Deposits ............................................................................ (20,886) 5,810
Loans receivable - officer .......................................................... - (14,910)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .................................. (53,475) (9,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from bank credit line .................................................... - 170,000
Cash overdraft ...................................................................... (69,437) 15,027
Principal payments on short-term and long-term borrowings ........................... (13,836) (13,102)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .................... (83,273) 171,925
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................... (283,887) (81,796)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................................... 1,018,534 85,082
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................. $ 734,647 $ 3,286
========= =========
CASH PAID FOR:
Interest ............................................................................. $ 95,169 $ 4,276
</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 months ended March 31, 1999 and 1998, (b) the
financial position at March 31, 1999 and (c) the cash flows for the
three months ended March 31, 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.
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. Service-related
revenues, maintenance and client outsourcing services, through its wholly owned
subsidiary, ICF Communications Solutions Inc. ("ICF"), represents the majority
of total revenues. The remaining revenue consists primarily of the installation
of third-party hardware. 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 $5,114,284 and $570,838 for the quarters ended March
31, 1999 and 1998, respectively, representing an increase of 796%. This increase
was due primarily to the merger with ICF which merged with COMC on August 17,
1998.
Cost of revenues was $3,649,891 and $309,650 for the quarter ended March 31,
1999 and 1998, respectively, representing an increase of 1,079%. This increase
was primarily due to the merger with ICF. Gross margin decreased to 29 % for the
quarter ended March 31, 1999 from 46% for the quarter ended March 31, 1998.
Operating expenses $1,525,294 and $246,011 for the quarter ended March 31, 1999
and 1998, respectively, representing an increase of 520%. This increase was
primarily due to the merger with ICF.
Depreciation and amortization expenses were $190,422 and $9,731 for the quarter
ended March 31, 1999 and 1998, respectively. This increase was primarily due to
the amortization of goodwill resulting from the merger with 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 $90,647 and $4,057 for the quarter ended March 31, 1999 and
1998, respectively, representing an increase of 2,134%. 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 $734,647 at March 31, 1999. For the three
months ended March 31, 1999, cash used in operating activities was $147,139
which resulted primarily from an increase in the Company's investment in
accounts receivables of $589,418, and the payment of income tax payable to the
Internal Revenue Service ("IRS"), of $300,455 as hereinafter described.
For the three months ended March 31, 1999, cash used in investing activities was
$53,475, as a result of purchases of equipment of $32,589 and deposits of
$20,886.
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 $104,167 as
of March 31, 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 March 31, 1999 the outstanding balance was $298,666.
At March 31, 1999, the Company had working capital deficiency of $1,313,772.
This includes $744,888 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: May 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of May 19, 1998 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 financial information extracted from the
Company's financial statements for the quarter ended March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 734,647
<SECURITIES> 0
<RECEIVABLES> 4,253,449
<ALLOWANCES> 276,900
<INVENTORY> 192,160
<CURRENT-ASSETS> 5,452,102
<PP&E> 1,173,070
<DEPRECIATION> 476,034
<TOTAL-ASSETS> 17,005,392
<CURRENT-LIABILITIES> 6,765,874
<BONDS> 81,540
0
0
<COMMON> 200,549
<OTHER-SE> 9,883,522
<TOTAL-LIABILITY-AND-EQUITY> 17,005,392
<SALES> 0
<TOTAL-REVENUES> 5,114,185
<CGS> 0
<TOTAL-COSTS> 5,175,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,169
<INCOME-PRETAX> (151,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (151,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,548)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
