<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: SEPTEMBER 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 October 28,
1999, was 16,374,543.
Transitional Small Business Disclosure Format. Yes / / No /X/
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 769,158 $ 1,018,534
Accounts receivable, net of allowance for doubtful accounts of
$273,098 at Sept. 30, 1999 and $276,900 at Dec. 31, 1998 $ 3,474,098 $ 3,091,011
Unbilled Revenue $ 987,641 $ 296,120
Inventories $ 198,979 $ 124,188
Refundable income taxes $ 13,892 $ 179,603
Deferred income taxes $ 152,579 $ 152,579
Loans receivable from officer $ -- $ 114,281
Prepaid expenses and other current assets $ 56,509 $ 15,591
------------ ------------
TOTAL CURRENT ASSETS $ 5,652,856 $ 4,991,907
PROPERTY AND EQUIPMENT, Net $ 600,369 $ 715,833
OTHER ASSETS
Goodwill, net $ 10,521,393 $ 10,938,526
Capitalized costs related to Note restructuring, Net $ 21,813 $ --
Deferred Finance charges $ 298,788 $ --
Deposits $ 52,602 $ 35,878
------------ ------------
TOTAL OTHER ASSETS $ 10,894,596 $ 10,974,404
------------ ------------
$ 17,147,821 $ 16,682,144
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank credit line payable $ 311,857 $ 297,775
Current portion of long-term debt $ 115,944 $ 60,512
Income taxes payable $ 452,707 $ 1,045,343
Accounts payable $ 1,179,176 $ 676,088
Accrued salaries, vacation and payroll taxes $ 844,173 $ 378,771
Cash overdraft $ 69,437 $ --
Accrued interest $ 29,167 $ 77,363
Other current liabilities $ 146,146 $ 171,063
------------ ------------
TOTAL CURRENT LIABILITIES $ 3,079,170 $ 2,776,352
------------ ------------
LONG-TERM DEBT, net of current portion $ 22,756 $ 96,266
NOTES PAYABLE TO STOCKHOLDERS $ 3,500,000 $ 3,500,000
DEFERRED TAX $ 73,907 $ 73,907
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized - 40,000,000 shares;
issued and outstanding - 20,026,491 and 16,374,543 shares $ 200,549 $ 200,549
Treasury Stock $ (1,825,974) $ --
Additional paid-in capital $ 12,384,428 $ 10,558,454
Additional paid-in capital - Stock Options $ 1,533,818 $ --
Accumulated deficit $ (1,820,833) $ (523,384)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 10,471,988 $ 10,235,619
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,147,821 $ 13,182,144
============ ============
</TABLE>
See accompanying notes.
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COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES $ 15,321,031 $ 3,096,409
COSTS AND EXPENSES:
Cost of revenues $ 10,686,004 $ 1,868,343
Operating expenses $ 3,792,611 $ 1,138,699
Administrative expense $ 1,034,836 $ --
Consulting expense $ 182,618 $ --
Amortization of goodwill $ 417,133 $ 46,020
Depreciation $ 156,031 $ 42,235
------------ ------------
TOTAL COSTS AND EXPENSES $ 16,269,233 $ 3,095,297
------------ ------------
INCOME (LOSS) FROM OPERATIONS $ (948,202) $ 1,112
------------ ------------
OTHER INCOME (EXPENSE):
Interest income $ 7,583 $ 1,463
Interest expense $ (359,181) $ (24,717)
Finance charge $ (17,576) $ --
Penalties $ (2,370) $ --
Other, net $ 22,297 $ 3,222
------------ ------------
TOTAL OTHER INCOME (EXPENSE) $ (349,247) $ (20,032)
LOSS BEFORE INCOME TAXES $ (1,297,449) $ (18,920)
INCOME TAXES $ -- $ 154,430
------------ ------------
NET LOSS $ (1,297,449) $ (173,350)
============ ============
LOSS PER SHARE $ (.07) $ (.01)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,214,947 20,026,491
</TABLE>
See accompanying notes.
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES $ 5,407,998 $ 2,214,794
COSTS AND EXPENSES:
Cost of revenues $ 3,828,157 $ 1,381,438
Operating expenses $ 1,185,135 $ 681,010
Administrative costs $ 1,034,836 $ --
Consulting expense $ 182,618 $ --
Amortization of goodwill $ 140,331 $ 46,020
Depreciation $ 52,229 $ 22,774
------------ ------------
TOTAL COSTS AND EXPENSES $ 6,423,306 $ 2,131,242
------------ ------------
INCOME (LOSS) FROM OPERATIONS $ (1,015,308) $ 83,552
OTHER INCOME (EXPENSE):
Interest income $ 3,851 $ 1,244
Interest expense $ (160,322) $ (10,904)
Finance charge $ (17,576) $ --
Penalties $ (1,178) $ --
Other, net $ 18,045 $ 3,222
------------ ------------
TOTAL OTHER INCOME (EXPENSE) $ (157,180) $ (6,438)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES $ (1,172,488) $ 77,114
INCOME TAXES $ -- $ 154,430
------------ ------------
NET LOSS $ (1,172,488) $ (77,316)
============ ============
LOSS PER SHARE $ (.07) $ (0)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 17,591,859 20,026,491
</TABLE>
See accompanying notes.
<PAGE>
COMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,297,449) (173,350)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of goodwill 417,133 46,020
Depreciation 156,031 42,235
Refundable Income taxes 165,711 --
Administrative, consulting and finance charge expense 1,235,030 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,074,608) (211,632)
Inventories (74,791) 22,914
Prepaid expenses and other current assets (40,918) 23,674
Increase (decrease) in:
Income taxes payable (592,636) 105,087
Accounts payable and accrued liabilities 825,940 (455,041)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (280,557) (600,093)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired from purchase business combination -- 1,149,296
Cash paid to selling stockholders of ICF -- (1,500,000)
Expenses related to purchase of ICF -- (135,646)
Expenses related to market evaluation of shares (21,813) --
Deposits (16,724) 1,923
Loans receivable from officer 114,281 (46,190)
Purchases of property and equipment (40,567) (30,773)
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 35,177 (561,390)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of offering costs -- 1,424,000
Net borrowings under line of credit 14,082 325,252
Principal payments on Long-term debt (18,078) (38,893)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,996) 1,710,359
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (249,376) 548,876
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,018,534 85,085
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 769,158 633,961
========== ==========
CASH PAID FOR:
Interest 359,181 24,717
Income taxes 507,416 49,343
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the quarter ended September 30, 1999, the Company granted 3,651,948
stock options, with a fair market value of $0.50 per share and an exercise
price of $.08 per share. The excess of the fair market value over the
exercise price of $1,533,818 consists of administrative, consulting and
finance charge expense of $1,235,030 and deferred finance charges of
$298,788.
See accompanying notes.
<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 nine months
ended September 30, 1999 and 1998, (b) the financial position at September 30,
1999 and (c) the cash flows for the nine months ended September 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 1998 Annual Report on Form 10-KSB and the Company's Form 8-K, 8-KA and
8-K filed on August 31, 1998, November 2, 1998 and October 15, 1999,
respectively.
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 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 financial institutions, municipalities and telecommunications
companies. Through its wholly owned subsidiary, ICF Communication Solutions Inc.
("ICF"), the Company's services include the purchase, delivery, installation and
maintenance of voice and data equipment, contract maintenance and repair work,
as well as client outsourcing services. ICF will represent 100% of the Company's
1999 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 larger
customers, the Company operates under contract with terms of one or more years
in length.
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Under an acquisition and consolidation strategy, COMC intends to build its
operations and to expand its presence primarily in the high growth markets of
the eastern and western regions of the United States.
Results of Operations
The Company's revenues were $15,321,031 and $3,096,409 for the nine months ended
September 30, 1999 and 1998, respectively, representing an increase of 395%.
This increase was due primarily to the inclusion of ICF (purchased in August,
1998) for nine months of operations as compared with one month in the prior
comparable 1998 period. ICF's revenues for the nine months ending September 30,
1998 was $13,769,047, representing an 11% increase over the comparable nine
month period in 1998. This increase was largely attributable to increased
business activity within its existing customer base as well as revenue from new
customers.
Cost of revenues was $10,686,004 and $1,868,343 for the nine months ended
September 30, 1999 and 1998, respectively, representing an increase of 472%.
This increase was due to the inclusion of ICF cost of revenues during the
period. Gross margin decreased to 30% for the nine months ended September 30,
1999 from 40% for the nine months ended September 30, 1998 due primarily to
differences in the classification of expenses between COMC prior to the purchase
of ICF, and that of ICF. ICF's gross profits and gross margin for the nine
months ended September 30, 1998 were $3,975,222 and 29%, respectively,
representing an 17% increase in ICF gross profits for the comparable nine month
period for 1998. The increase in gross margin was the result of an increased
proportion of higher margin service revenue compared with equipment sales.
Operating expenses for the Company were $3,791,317 and $1,138,699 for the nine
months ended September 30, 1999 and 1998, respectively, representing an increase
of 233%. This increase was due to the inclusion of ICF operating expenses.
The Company recognized extraordinary administrative and consulting expenses of
$1,034,837 and $182,618, respectively, for the nine months ended September 30,
1999 due to a grant of stock options on August 10, 1999 to a key employee and a
consultant, respectively, at an exercise price below fair market value, as
disclosed in the Company's 8-K dated October 15, 1999. The grant of stock
options occurred simultaneously with the contribution of certain shares of the
Company's common stock into treasury by an officer and director of the Company
and did not increase the number of the Company's shares issued. See Debt
Restructuring below.
Depreciation expenses were $156,031 and $42,235 for the nine months ended
September 30, 1999 and 1998, respectively. This increase was due to the purchase
of ICF. Amortization expenses were $418,427 and $46,020 for the nine months
ended September 30, 1999 and 1998, respectively. This increase was primarily due
to the amortization of increased goodwill 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.
<PAGE>
Net other expense was $349,248 and $20,032 for the nine months ended September
30, 1999 and 1998, respectively, representing an increase of 1,643%. This
increase was primarily due to increased interest expense related to notes
payable to the selling stockholders of ICF.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $769,158 as of September 30, 1999. For the
nine months ended September 30, 1999, cash used in operating activities was
$280,557, primarily to support an increase in accounts receivable and the
payment of income tax liabilities in the period.
For the nine months ended September 30, 1999, cash used in investing activities
was $79,104, as a result of purchases of equipment of $40,567, the execution of
a fair market valuation analysis of the Company's stock of $21,813 and increases
in deposits and other assets of $16,724. The Company's investment activities
were offset by the repayment of loans to officers in the amount of $114,281
during the third fiscal quarter.
As of September 30, 1999, the Company had a term loan agreement with a lending
which had an outstanding balance of $108,559. The Company also had a revolving
credit agreement with an outstanding balance of $311,857. On October 5, 1999,
the Company refinanced these loans, along with certain federal income and state
franchise taxes payable in the amount of $452,707, with a new two-year,
$3,000,000 line of credit facility priced at Prime rate plus 2% per annum from a
new lending institution.
At September 30, 1999, the Company had net working capital of $2,573,686. Notes
payable in the amount of $3,500,000 to stockholders, who are the former owners
of ICF, was restructured on August 10, 1999 into three-year, interest-only
notes, with a fixed rate of interest of 10% per annum. At that time, these notes
were reclassified as long term liabilities.
The Company intends to continue its search for additional merger and acquisition
candidates that will expand its existing markets in related products and
services, as well as additional equity and debt capital to support the purchase
of these acquisitions. The Company has depended on a few large customers for the
majority of its revenue to date. A loss of any one could have a material adverse
effect on the Company's liquidity. Due to the quality of the Company's major
customers, the collection of account receivables 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
<PAGE>
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.
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.
Debt Restructuring
As part of an overall restructuring of certain Company debt obligations to
two of its officers and directors, the Company entered into a series of
agreements on August 10, 1999. The agreements which the Company entered into as
of August 10, 1999, may be summarized as follows: (i) two separate loan
agreements pursuant to which the Company restructured its debt obligations to
William M. Burns and Charles E. Lincoln and extended the re-payment term of
these debt obligations to August 10, 2002; (ii) two separate promissory notes,
pursuant to which the Company memorialized its obligation, as restructured, to
repay a total of $1,750,000 to Mr. Burns and $1,750,000 to Mr. Lincoln; (iii) an
employment agreement with Mr. Burns, pursuant to which the Company agreed to
employ Mr. Burns for a term of two years as the Company's Secretary and Chief
Operations Officer, and President of ICF; (iv) an employment agreement with Mr.
Lincoln, pursuant to which the Company agreed to employ Mr. Lincoln for a term
of two years as the Company's President, and CEO of ICF; (v) nine separate Stock
Purchase Agreements, pursuant to which various accredited investors acquired a
total of 1,015,000 shares of Common Stock from John J. Ackerman, the Chairman
and of the Company; (vi) a Contribution Agreement by and between the Company and
Mr. Ackerman pursuant to which Mr. Ackerman contributed 3,651,948 outstanding
shares of Common Stock to the Company in order to fund options granted by the
Company to Messrs. Burns, Lincoln and Christopher Smith, and Gramercy National
Partners, LLC; (vii) four separate stock option agreements, pursuant to which
Messrs. Burns, Lincoln, Smith, and Gramercy were granted options to acquire a
total of 3,651,948 shares of Common Stock; (viii) a Registration Rights
Agreement, pursuant to which the Company granted certain registration rights to
Messrs. Burns, Lincoln and Smith, and certain other accredited investors with
respect to their shares of Common Stock; (ix) a Stockholders Agreement by and
between the Company, Burns Family Trust, Lincoln Family Trust, and Messrs.
Ackerman and Smith; (x) an employment agreement with Mr. Smith, pursuant to
which
<PAGE>
the Company agreed to employee Mr. Smith for a term of two years as the
Company's Chief Financial Officer and Executive Vice President of ICF.
Based upon the above referenced transactions, the total number of Company shares
issued and outstanding decreased from 20,026,491 to 16,374,543, and a total of
3,651,948 shares are now held in treasury.
Part II. OTHER INFORMATION
Item 1. Legal proceedings
Not Applicable
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
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
On October 15, 1999, the Company filed an 8-K report regarding a debt
restructuring and other agreements entered into on August 10, 1999 as more fully
described above.
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/ Christopher Smith
------------------------
Christopher Smith, Chief Financial Officer
<PAGE>
Dated: November 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below as of November 15, 1999 by the following persons on
behalf of Registrant and in the capacities indicated.
/s/ Christopher Smith
-----------------------
(Principal Financial and Accounting Officer)
