<PAGE>
As filed with the Securities and Exchange Commission on June 9, 2000
Registration No. ________
-----------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------------
COMC, INC.
(Name of issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Illinois 4899 95-4628378
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification Number)
John Ackerman, Chairman
2840 Howe Road, Suite D 400 N. Glenoaks Boulevard
Martinez, California 94553 Burbank, California 91502
925-335-4000 818-556-3333
(Address and telephone number (Name, address and telephone
of registrant's principal executive number of agent for service)
offices and principal place of business)
</TABLE>
Copies to:
Stephen C. Ryan
Scott C. Smith, Esq.
McCutchen Doyle Brown & Enersen, LLP
3 Embarcadero
San Francisco, California 94111-4067
Telephone: (415) 393-2000
Approximate date of commencement of proposed sale to public: At such
time after the effective date of this registration statement as the selling
security holders shall determine.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of this form is a post-effective amendment filed pursuant
to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ]
If delivery of this Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
1
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------- -------------- ----------------------------- -------------------------- --------------------
Title of Each Class of Securities to Amount To Be Proposed Maximum Offering Proposed Maximum Amount of
be Registered Registered Price Per Security (1) Aggregate Offering Price Registration Fee
--------------------------------------- -------------- ----------------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 17,386,456 $ 1.34 $ 23,297,851 $6,150.63
--------------------------------------- -------------- ----------------------------- -------------------------- --------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to rule 457(c) promulgated under the Securities Act based on
the average bid and asked prices of the small business issuer's Common
Stock in the over the counter market for the five business days prior
to June 7, 2000.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
2
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time that the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 9, 2000
-----------------
COMC, INC.
17,386,456 Shares of Common Stock
$1.34 PER SHARE
This Prospectus relates to an aggregate of 17,386,456 shares (the
"Shares") of the common stock, par value $.01 per share (the "Common Stock"), of
COMC, Inc. ("we" or "us" or the "Company"), including 306,666 shares of Common
Stock issuable upon exercise of currently outstanding warrants ("Warrants") and
3,752,487 shares of Common Stock issuable upon exercise of currently outstanding
options ("Options"). The Shares covered by this Prospectus are being offered by
those shareholders identified under the section of this Prospectus entitled
"Registering Shareholders," or their transferees (the "Registering
Shareholders"). See "PLAN OF DISTRIBUTION" at Page 22.
We will not receive any part of the proceeds from the sale of any of
these Shares by the Registering Shareholders. However, we will receive funds
from the holders of the Warrants and Options payable upon exercise of the
Warrants and/or Options. By agreement with the Registering Shareholders, we will
pay all of the expenses incident to the registration of the Shares under the
Securities Act of 1933, as amended (the "Securities Act") (other than
underwriter's commissions and discounts, if any, which will be paid by the
Registering Shareholders).
We have been advised that the Registering Shareholders intend to sell
the Shares offered hereby at various times for their own account in the open
market at the then prevailing prices or in individually negotiated transactions
at such prices as may be agreed upon. The Registering Shareholders will bear all
expenses with respect to the offering and sale of Shares owned by them except
the costs associated with this registration of their Shares under the Securities
Act and the preparation and printing of this Prospectus.
<TABLE>
<CAPTION>
========================== ======================== ======================== ======================== =========================
Proceeds to Registering
Price to Public (1) Underwriting Discount Shareholders Proceeds to Company (2)
-------------------------- ------------------------ ------------------------ ------------------------ -------------------------
<S> <C> <C> <C> <C>
Per Share $ 1.34 -0- $1.34 Unable to determine. See
footnote 2, below
-------------------------- ------------------------ ------------------------ ------------------------ -------------------------
Total $ 23,297,851 -0- $23,297,851 Unable to determine. See
footnote 2, below
-------------------------- ------------------------ ------------------------ ------------------------ -------------------------
</TABLE>
<PAGE>
(1) Not determinable at the present time.
(2) We will not receive any part of the proceeds realized from the sale of
Common Stock by the Registering Shareholders. However, we will receive
funds from the holders of Warrants and Options payable to us upon the
exercise of the Warrants and/or Options. The amount of proceeds that we
will receive depends upon the number of Warrants and Options that are
exercised. We have issued 100,000 warrants to date covered by this
Prospectus that are priced at $1.50 per share and 206,666 warrants to date
that are covered by this Prospectus priced at $2.00 per share. We have
issued 3,564,987 options to date that are covered by this Prospectus priced
at $.08 per share and 187,500 options to date covered by this Prospectus
priced at $1.00 per share. If all Warrants covered by this Prospectus were
exercised, we would receive a total of $563,332. If all Options covered by
this Prospectus were exercised, we would receive a total of $472,699. Thus,
if all Warrants and Options covered by this Prospectus were exercised, we
would receive a total of $1,036,031. After taking into account estimated
offering expenses of approximately $63,150.63 in connection with this
offering, the net proceeds we would receive upon the exercise of all
Options and Warrants converted hereunder is equal to $972,880.40.
Our Common Stock is quoted on the OTC Bulletin Board under the trading
symbol "CINJ." On June 8, 2000, the closing sale price of our Common Stock, as
reported by the OTC Bulletin Board, was $1.37 per share.
4
<PAGE>
Investing In Our Common Stock Involves A High Degree of Risk.
You Should Purchase Shares Only If You Can Afford A Complete Loss.
See "RISK FACTORS" Beginning on Page 11.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
COMC INC.
Prospectus Dated June 9, 2000
You should read this Prospectus carefully before making any decision to
invest in our Common Stock. It describes our business, services and finances. We
have prepared this prospectus so that you will have the information necessary to
make an investment decision. You should pay particular attention to the
information contained in this Prospectus under the heading "Risk Factors" and in
the financial statements and related notes appearing in this Prospectus. In
addition, you should consult your own advisors in order to understand fully the
consequences of an investment in our Common Stock.
You should only rely on the information contained in this Prospectus.
We have not authorized anyone to provide you with different information from
that contained in this Prospectus. The information contained in this Prospectus
is accurate only as of the date of this Prospectus, regardless of the date of
delivery of this Prospectus or of any sale of our Common Stock.
Table of Contents
Page
No.
1. Prospectus Summary ............................................... 4
2. Risk Factors ..................................................... 11
3. Forward Looking Statements ....................................... 19
4. Registering Shareholders ......................................... 20
5. Use of Proceeds .................................................. 22
6. Plan of Distribution ............................................. 22
7. Description of Our Business ...................................... 24
8. Description of Property .......................................... 35
9. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 36
10. Financial Statements ............................................. 46
11. Certain Relationships and Related Transactions ................... 46
12. Market For Common Equity & Related Stockholders Matters .......... 49
13. Legal Proceedings ................................................ 51
14. Description of Securities ........................................ 51
15. Directors, Executive Officers, Promoters & Control Persons ....... 52
16. Executive Compensation ........................................... 56
17. Changes In and Disagreements with Accountants on Accounting
& Financial Disclosure ......................................... 58
18. Experts .......................................................... 59
19. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ................................. 59
20. Where You Can Get More Information ............................... 60
21. Index to Consolidated Financial Statements ....................... 61
22. Independent Auditors' Reports .................................... F-1
23. Consolidated Financial Statements
March 31, 2000 (unaudited) &
December 31, 1999 (audited)..................................... F-2
24. Consolidated Unaudited Statements of Operations Quarters
Ended March 31, 2000 & 1999 .................................... F-3
25. Consolidated Unaudited Statements of Cash Flows Quarter
Ended March 31, 2000 & 1999 .................................... F-4
26. Consolidated Audited Balance Sheets Years Ended
December 31, 1999 & 1998 ....................................... F-5
27. Consolidated Audited Statements of Operations Years Ended
December 31, 1999 & 1998........................................ F-6
28. Consolidated Audited Statements of Shareholders Equity
Years Ended December 31, 1999 & 1998............................ F-7
29. Consolidated Audited Statements of Cash Flows Years Ended
December 31, 1999 & 1998........................................ F-8
30. Notes to Consolidated Financial Statements ....................... F-9
PROSPECTUS SUMMARY
This summary is only a highlight of selected information contained
elsewhere in this Prospectus. This summary is not complete and may not contain
all of the information that is important to you. To fully understand this
offering, you should read the entire Prospectus. Most importantly, you should
read the "Risk Factors" beginning on Page 11.
<PAGE>
COMC, INC.
In November of 1996, we consummated the acquisition of Complete
Communications, Inc., a California corporation ("CCI"). At the time, CCI was
primarily engaged in the business of providing computer network and telephone
system services, which included the design and installation of such networks and
telephone systems. As consideration for the acquisition of CCI, we issued
10,000,000 shares of our Common Stock to John Ackerman, the sole shareholder of
CCI. As a result of this transaction, Mr. Ackerman owned 80% of our securities.
In connection with this transaction, we changed our name to COMC, Inc.
In August of 1998, we acquired ICF, a California corporation based in
Martinez, California. At the time that we acquired ICF, ICF was a telephone
service provider with operations that focused on the San Francisco Bay Area and
the western United States. ICF's operations focused on the design, installation,
maintenance, and service of data and voice networks. ICF's customer base
included primarily large financial institutions as well as municipalities
located in the greater San Francisco Bay Area. Our acquisition of ICF was part
of our strategy to expand operations and revenues through acquisitions of small
and mid-sized companies that generate most of their revenues through maintenance
service contracts, and that are strategically located in high growth markets,
such as the western and southwestern United States. ICF has become our base of
5
<PAGE>
operations and the source from which all of our revenues are generated. CCI's
customer base was absorbed by ICF in August of 1998.
We were originally incorporated in December of 1978, in the State of
Illinois, under the name Automedix Sciences, Inc. Initially our purpose was to
research and develop medical technologies for the treatment of cancer and other
medical conditions. In the Spring of 1992, Automedix ceased operations due to
the fact that we were unable to raise capital to continue clinical trials with
respect to a medical device for cancer treatment that Automedix designed. As a
consequence, our then Board of Directors began to investigate the possibility of
a new business direction and to search for viable acquisition or merger
candidates that would enable us to maximize value to our shareholders.
Today, through ICF's data and voice services division, we provide voice
communications and data network design, equipment sales, installation, systems
integration consulting, and maintenance to Fortune 1000 size companies and
municipalities. In addition, through ICF's Recruitment Services division, we
provide technical employee recruitment, leasing and permanent placement
services.
Founded in 1989 to provide telephone systems and services to Bank of
America, ICF is currently servicing in excess of 250 customers at over 4,000
customer location sites. ICF employs over 150 service professionals and is
headquartered in Martinez, California. ICF has additional sales and service
offices in Burbank and Fresno, California, as well as Houston, Texas, Phoenix,
Arizona, and Birmingham, Alabama.
Our expertise in voice communications and data networks permits us to
offer customers a wide range of professional services, including network
planning, design, implementation, management, maintenance and optimization. Our
broad range of distribution of various voice and data equipment manufacturers
allows us to serve our customers as a vendor-neutral, single-source provider of
communications equipment and service.
Through ICF, we currently market our products in the following industry
segments or arenas:
o Banking, Insurance and Financial Services
o Federal, State and Local Government Agencies
o Local and Higher Education Institutions
o Healthcare, Medical, and Pharmaceutical institutions
o Retail and Service Companies
From its inception, ICF has provided local, statewide and nationwide
support for such clients as Bank of America, Wells Fargo Bank, the University of
California-Berkeley, Orchard Supply Hardware and the City of El Monte. Through
ICF we distribute the products and services of a number of leading
communications suppliers. In voice systems, we are an authorized dealer for
Lucent Technologies, NorTel Networks, and NEC, but also sell and support VSR and
T-Metrics. In data systems, we sell and support Cisco Systems, Lucent
Technologies, and 3Com. In wiring systems, we sell and support Lucent, IBM,
Siemens, Krone-Belden and
6
<PAGE>
Ortronics. By offering equipment from a variety of vendors, we can provide
businesses with tailored, scalable solutions.
In 1996, ICF created a Recruitment Services division to provide ICF's
clients with short- and long-term technical consultants, and to make permanent
placements of technical personnel. We specialize in the placement of
telecommunications and information systems personnel on a national basis,
particularly in the areas of telecom design, administration and maintenance,
application development, project management, operations, facilities engineering,
technical sales and marketing.
Approximately $16.3 million and $6.0 million of our revenues were
recorded for data and voice services during 1999 and 1998, respectively.
Approximately $4.8 million and $1.9 million of our revenues were recorded for
Recruitment Services placement fees during 1999 and 1998, respectively.
Our principal executive offices are located at 2840 Howe Road, Suite D,
Martinez, California 94553. Our telephone number is (925) 335-4000. ICF is also
headquartered in our Martinez, California office and has additional offices in
Burbank and Fresno, California, Houston, Texas, Phoenix, Arizona and Birmingham,
Alabama.
Recent Developments
On February 3, 1999, Albert P. Vasquez tendered his resignation as a
member of our Board of Directors, which became effective February 18, 1999. On
May 10, 1999, Richard F. Horowitz resigned as a member of our Board of
Directors. The letters of resignation submitted by Mr. Vasquez and Mr. Horowitz
did not state any reason for their resignations. On July 1, 1999, Marvin P. Loeb
resigned as a member of our Board of Directors. Mr. Loeb's letter of resignation
states that his resignation was due to the demands of Mr. Loeb's other business
concerns.
As part of an overall restructuring of our debt obligations to William
M. Burns ("Burns") and Charles E. Lincoln ("Lincoln"), originally incurred in
connection with our acquisition of ICF in 1998, we entered into a series of
related agreements on August 10, 1999. Specifically, we entered into loan
agreements with Messrs. Burns and Lincoln and executed subordinated promissory
notes in favor of Messrs. Burns and Lincoln, thereby consolidating our
pre-existing debt obligations to Messrs. Burns and Lincoln and extending the
repayment term of our debt obligations to three years from August 10, 1999. We
also entered into an employment agreement with Christopher R. Smith ("Smith") at
this time, which provided for Mr. Smith to commence employment as our Chief
Financial Officer on August 23, 1999. Finally, we entered into new employment
agreements with Messrs. Burns and Lincoln pursuant to which we agreed to employ
Mr. Burns as our Chief Operations Officer and as the President of ICF, and Mr.
Lincoln as our President and as the CEO of ICF.
Related to these transactions, we entered into another group of
agreements on August 10, 1999. These transactions involved the sale of Common
Stock owned by John J. Ackerman ("Ackerman"), the Chairman of our Board of
Directors, to certain accredited investors, and Mr. Ackerman's contribution of
3,651,948 shares of Common Stock to the Company in order to fund
7
<PAGE>
certain stock options. Based upon the above referenced transactions, and Mr.
Ackerman's contribution of shares of Common Stock to the Company, the total
number of shares of our Common Stock issued and outstanding decreased from
19,401,491 to 15,749,543. Mr. Ackerman's stock ownership decreased from
8,000,000 to 3,333,252. After the exercise of certain options we granted on
August 10, 1999, we now hold a total of 3,564,987 shares of our Common Stock in
treasury. Mr. Smith now owns 200,000 shares and the option to purchase an
additional 2,463,896 shares. Other accredited investors purchased a total of
800,000 shares from Mr. Ackerman. Messrs. Burns and Lincoln were each granted
options to purchase a total of 376,623 shares of our Common Stock.
On September 24, 1999, ICF established a $3 million dollar credit
facility with Coast Business Credit, a division of Southern Pacific Bank. This
credit facility has a two-year term and all amounts borrowed will accrue
interest at 2% over the prime rate. Amounts borrowed have been used in order to
consolidate various notes payable and to pay certain income taxes payable. This
credit facility will also be used to supply working capital and perhaps to
finance acquisitions in the immediate future.
Effective October 11, 1999, we instituted a number of organizational
and administrative changes involving certain of our key personnel. Specifically,
Mr. Ackerman resigned from his position as our Chief Executive Officer and was
appointed the Chairman of the Board of ICF. Mr. Ackerman continues to serve as
the Chairman of our Board. Mr. Lincoln was appointed as our Chief Executive
Officer and continued to serve as our President. Mr. Burns was appointed the
President and CEO of ICF. These changes were motivated by a desire to streamline
our management, as well as the management of ICF, and to allow these key
employees to focus on those areas where their strengths are greatest. These
changes were approved by our Board of Directors and the Board of Directors of
ICF effective as of October 11, 1999.
On November 30, 1999, Mr. Smith was appointed to our Board of Directors
in order to fill one of the vacancies created by the resignations of Messrs.
Vasquez, Horowitz and Loeb in 1999.
Between February 2, 2000 and March 27, 2000, we went through certain
changes in our independent public accountants, which are described in greater
detail beginning on Page 58, below. On March 27, 2000, at a meeting of our Board
of Directors, our Board of Directors decided to retain BDO Seidman, LLP as our
new independent public accountants. We formally retained BDO Seidman, LLP as our
independent public accountants on March 28, 2000.
During a meeting of our Board of Directors that took place on March 27,
2000, our Board of Directors approved resolutions that, among other things,
authorized the following: (i) the sale of Two Million Six Hundred Twenty-five
Thousand Dollars worth of our common stock (ii) the termination of Mr. Lincoln's
employment with the Company and the negotiation of a settlement and mutual
release agreement by and between the Company, ICF and Mr. Lincoln. Our Board of
Directors determined that the termination of Mr. Lincoln was necessary due to
differences in management styles between Mr. Lincoln and our other officers and
different visions for the future of the Company.
8
<PAGE>
From April 17, 2000 through May 15, 2000, we raised approximately
$1,320,000 through a private placement of 1,320,000 shares of our common stock
and options to purchase 660,000 shares of our common stock for $1.00 per share
with various accredited investors.
On May 10, 2000, we entered into a Settlement and Release Agreement
with Mr. Lincoln. ICF was also a party to this agreement. This Settlement and
Release Agreement provided for, among other things: a) the termination of Mr.
Lincoln's Employment as our President and Chief Executive Officer and the
termination of our Employment Agreement with Mr. Lincoln; b) our agreement to
repay all amounts owing under our note made in favor of Mr. Lincoln in the
original principal amount of $1,750,000; c) our agreement to pay a lump sum of
$185,291.73 to Mr. Lincoln as an aggregate severance payment under Mr. Lincoln's
Employment Agreement; d) our agreement to pay for Mr. Lincoln's continued
participation in the Company's health insurance and disability insurance
programs to the extent offered such programs were previously offered to Mr.
Lincoln and continued participation is permitted under such programs, until
August 10, 2001; and e) the mutual release of all claims that we or ICF has or
may have against Mr. Lincoln, and vice versa.
On May 11, 2000, Mr. Lincoln tendered his resignation as a member of
our Board of Directors, to be effective immediately. Mr. Lincoln's letter of
resignation does not state any reason for his resignation.
Effective as of May 18, 2000, Mr. Smith was appointed as our Chief
Executive Officer. At this time, Mr. Smith was also appointed as our President
until such time that our Board of Directors is able to locate a successor or a
new President is elected by our Board of Directors at the next annual meeting of
our Board of Directors, whichever occurs earlier.
The Offering
This offering relates to 17,386,456 shares of our Common Stock,
including 306,666 shares of Common Stock issuable upon exercise of the Warrants
and 3,752,487 shares of Common Stock issuable upon exercise of the Options. The
offering price for the Shares being registered hereunder shall be $1.34 per
share, or such other price per share as the Registering Shareholders shall
determine. All Shares are being offered for the account of the Registering
Shareholders identified under the section below entitled "Registering
Shareholders." We will not receive any part of the proceeds realized from the
sale of our Common Stock by the Registering Shareholders. However, we will
receive funds from the holders of the Warrants and the Options payable to us
upon exercise of the Warrants and Options. By agreement with the Registering
Shareholders, we will pay all of the expenses of registration of the Shares
hereunder (other than underwriters' commissions and discounts, if any, which
will be paid by the Registering Shareholders).
Summary Consolidated Financial Data
The following consolidated financial information reflects our
operations for the years ended December 31, 1998 and 1999, and for the
three-month period beginning January 1, 2000, and ending March 31, 2000. This
summary financial information has been derived from our consolidated financial
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<PAGE>
statements and those of our subsidiary, ICF, which appear later in this
Prospectus. This data should be read in conjunction with those consolidated
financial statements and related notes.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 , ENDED MARCH 31,
----------------------------- ---------------
1998 1999 1999 2000
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net Revenues $7,927 $21,095 $5,114 $5,953
Total Operating Expenses $7,656 $19,462 $4,984 $4,522
Total Non Cash Charges $281 $11,350 $191 $56
Operating Income (Loss) ($10) ($9,717) ($61) $1,375
Earnings Before Interest, Taxes, Depreciation
and Amortization ("EBITDA") $271 $1,633 $130 $1,431
Net Income (Loss) ($331) ($10,570) ($152) $738
Basic and Diluted Net Income (Loss) per share ($0.02) ($0.55) ($0.007) $0.038
Weighted Average Common Shares Outstanding $15,012 ($19,154) $20,055 $19,401
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000 AS OF MARCH 31, 1999
-------------------- --------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents $385 $311
Working Capital $4,964 $6,746
Total Assets $6,279 $7,963
Long Term Debt $3,520 $3,518
Total Liabilities $6,040 $6,986
Total Stockholders' Equity $239 $977
</TABLE>
10
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RISK FACTORS
You should carefully consider each of the risks and uncertainties
described below, as well as all of the other information in this prospectus,
before making a decision to buy our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also adversely affect our business operations.
If any of the events described in the following risks actually occur,
our business, financial condition or results of operations could be adversely
affected, the trading price of our common stock could decline, and you could
lose all or part of your investment. You should also refer to the other
information set forth in this prospectus, including our financial statements and
the related notes.
RISKS RELATED TO OUR OPERATING HISTORY
We Have a History of Losses
We have only recently achieved profitability for the three months ended
March 31, 2000 and have experienced operating losses for the past four fiscal
years ended December 31, 1996, 1997, 1998 and 1999. Although our revenues have
grown in recent quarters, we may not achieve sufficient revenues for
profitability throughout the year. Even if we achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
If revenues grow slower than we anticipate, or if operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operations and financial condition will be adversely affected. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," below.
We Have a Limited Operating History and therefore Our Business Is
Extremely Difficult To Evaluate
Our current business has been operational since November 1996. In
August of 1998, we acquired ICF and our operations expanded significantly. As a
result of our limited operating history and our recent growth, it will be
necessary to implement new and expanded operational, financial and
administrative systems and control procedures to enable us to expand, train and
manage our employees and coordinate the efforts of our various departments. Our
limited operating history may prevent us from achieving success in our business.
The revenues and income potential of our business and market are unproven. We
will encounter challenges and difficulties frequently encountered by early-stage
companies in new and rapidly evolving markets. We may not successfully address
any of these challenges and the failure to do so would seriously harm our
business and operating results. In addition, because of our limited operating
history, we have limited insights into trends that may emerge and affect our
business.
Our Quarterly Operating Results Are Volatile and Future Operating
Results Remain Uncertain
Our quarterly operating results have varied significantly in the past
and will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as indicators of our future performance. In the
future, our operating results may be below the expectations of securities
11
<PAGE>
analysts and investors. Our failure to meet these expectations could seriously
harm the market price of our common stock. Operating results vary depending on a
number of factors, many of which are outside our control.
We anticipate that the size of customer orders may increase as we focus
on larger business accounts. As a result, a delay in recognizing revenue, even
from just one account, could have a significant negative impact on our operating
results. In the past, significant portions of our sales have been realized near
the end of a quarter. As a result, a delay in an anticipated sale past the end
of a particular quarter could negatively impact our operating results.
We generally expect that revenues in the first quarter of each year
will be lower than revenues in the fourth quarter of the preceding year due to
annual nature of companies' purchasing and budgeting cycles and the year-to-date
structure of our sales incentive program. Our expense levels are relatively
fixed and are based, in part, on expectations as to future revenues. As a
result, if revenue levels fall below our expectations, our net income (loss)
could decrease (increase) because only small portions of our expenses vary with
our revenues.
RISKS RELATED TO OUR CUSTOMERS
We Depend on the Growth of Our Customer Base
Our success is substantially dependent on the continued growth of our
customer base. Currently, our customer base is very concentrated. In 1999, 26%
and 33% of ICF's revenues were derived from Bank of America and Wells Fargo,
respectively. While we are actively diversifying our customer base beyond these
two customers, we continue to receive an increasing amount of our revenues from
Bank of America and Wells Fargo. If we fail to increase our customer base, our
business and operating results may be seriously harmed.
Our ability to attract new customers will depend on a variety of
factors, including the reliability, security, and cost-effectiveness of our
products and services as well as our ability to effectively market our products
and services. In the past, we have lost potential customers to competitors for
various reasons, including lower prices.
12
<PAGE>
We Depend on Increased Business from Our Current Customers
If we fail to generate repeat and expanded business from our current
customers, our business and operating results would be seriously harmed. Many of
our customers initially make a limited purchase of our products and services for
pilot programs. These customers may not choose to purchase additional products
or services from us. Because the total amount of maintenance and support fees we
receive in any period, which constitutes a substantial portion of our revenues,
depends in large part on the products we previously sold, any downturn in our
sale of products would negatively impact our future service revenues. In
addition, if customers elect not to renew their maintenance agreements, our
service revenues could be significantly adversely affected.
RISKS RELATED TO OUR SUPPLIERS
We Depend upon Third-Party Distribution Relationships
We have a limited number of distributorship agreements and we may not
be able to increase our number of distribution relationships in the future or
maintain existing relationships. Currently, our distributorship agreements
authorize us to act as a distributor of communications products for various
vendors, including:
o Lucent Technologies
o NorTel Networks
o Cisco Systems
o NEC
o 3Com
Our current agreements with these suppliers do not prevent them from
doing business with others, and we cannot guarantee that we will continue to
receive the volume of products that we need at all times. Certain of our
distribution agreements are merely oral contracts that may be terminated by
either party at will. This is also true of certain of our written contracts.
Therefore, we cannot be certain that any vendor with whom we do business will
elect to continue their relationship with us in the future on substantially the
same terms and conditions. We believe that an interruption, or substantial
modification of our distribution relationships, particularly with Lucent or
NorTel, could have a material adverse effect on our business, operating results
and/or financial condition. Periodically, these distribution agreements expire
and must be renegotiated in order to continue distributing each vendor's
products at competitive prices.
RISKS RELATED TO OUR MARKET AND INDUSTRY
Our Market is Highly Competitive
Our markets are new, rapidly evolving and highly competitive, and we
expect this competition to persist and intensify in the future. Our failure to
maintain and enhance our competitive position could seriously harm our business
and operating results. We encounter current or potential competition from a
number of sources, including:
o Equipment manufacturers
o Equipment distributors
o Network integrators
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<PAGE>
The size of a client, the geographic scope and product platform
preferences of our target client base dictates the competition we face. The
market for both data network and voice communications services and products
sales is highly competitive on a local, regional and national basis. The level
of competition intensifies, while the number of qualified competitors diminishes
as the level of technological and design expertise rises and product
distribution rights narrow. As we are predominately a service company focusing
on maintenance contracts and installation projects, as well as the fact that
most of the customers we target are large enough to purchase direct, we seldom
compete with larger equipment distributors on the initial sale of equipment.
We are trained and certified on most legacy and current release
equipment manufactured by Lucent Technologies, NorTel Networks, NEC and Toshiba
for voice networks as well as Cisco Systems, Lucent and 3Com for data networks.
Maintaining expertise in these systems, while remaining vendor neutral, allows
us to competitively bid for service contracts representing approximately 80% of
the installed US base of voice and data network systems. We obtain a competitive
advantage in that many of the largest targeted customers operate their systems
on multiple-vendor platforms (for instance Lucent and NorTel voice switches and
Cisco and 3Com data hubs and routers at the same time) which we can service and
maintain under one general contract. Many of our competitors are limited to only
one major voice and/or one major data vendor relationship and service.
Our goal as a service company is to continuously expand our geographic
service coverage to a national level, as well as expand upon our growing
expertise within the above highlighted voice and data equipment platforms.
We face competition in our targeted Fortune 1000 sized and municipal
clients from GTE, Electronic Data Systems, Williams Communications, IBM Global,
Claricom, Inacom and AT&T Global. This competition covers larger voice and data
network design, installation, maintenance and monitoring projects and contracts
on a national basis. On a regional basis, we compete with NetsWork, Metro and
Syzygy. This competition covers cabling and voice service contracts as well as
project work for medium and large sized clients in California, Arizona, Nevada,
New Mexico and Utah.
Many of our competitors have significantly greater financial, technical
and marketing resources, and/or greater name recognition. Our competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements than we can. Some of our competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. Many of these companies have more extensive customer bases
and broader customer relationships that they could leverage, including
relationships with many of our current and potential customers. These companies
also have significantly more established customer support and professional
services organizations than we do. In addition, these companies may adopt
aggressive pricing policies.
Increased competition could lead to price reductions, decreased sales-
volume, under-utilization of employees, reduced operating margins and loss of
market share. There can be no assurance that we will be able to successfully
compete for customers in our market.
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<PAGE>
The Industry In Which We Operate is Rapidly Changing
New products and technologies will emerge and existing products and
technologies will further develop. We cannot predict the effect of these
technological changes on our business. While change in technology can create new
demand for products and services that we may provide, these new products and
technologies may reduce the demand for future services that we offer.
Alternatively, such changes in technology may not be made available to us for
sale or distribution. As a result, our most significant competitors in the
future may be new entrants to our markets with access to new technology and
products, who would not be burdened by a technical personnel base familiar with
older technology and equipment. Although we are constantly training our
personnel on the latest technologies and equipment, it may be cost prohibitive
for us to retrain personnel on an entirely new hardware/software platform. Our
future success depends, in part, on our ability to anticipate and adapt in a
timely manner to technological changes.
General Economic Conditions May Affect Our Ability To Succeed
In the last few years, the general U.S. economy has been relatively
strong and growing. To the extent the general economic health of the U.S.
declines or stagnates, or to the extent companies and individuals fear such a
decline or stagnation is imminent, these companies and individuals may reduce
expenditures such as those for our services. Any decline/stagnation or concern
about a decline or stagnation may delay decisions among some of our customers
and prospective customers to make evaluations of our services. Any of these
delayed decisions could cause our revenues to decline or be delayed.
RISKS RELATED TO OUR PERSONNEL AND EMPLOYEES
We Need to Develop and Expand Our Sales and Marketing Capabilities
We need to expand our marketing and direct sales operations in order to
increase market awareness of the products we sell and generate increased
revenues. However, competition for qualified sales personnel is intense and we
may not be able to hire enough qualified individuals in the future. Our products
and services require a sophisticated sales effort targeted at the senior
management of our prospective customers. New hires require extensive training
and typically take at least six months to achieve full productivity. In
addition, we have limited experience marketing our products broadly to a large
number of potential customers.
There can be no assurance that we will be able to expand our marketing
staff and sales force or that the cost of establishing such a marketing staff or
sales force will not exceed our revenues. We cannot guarantee that our direct
sales and marketing efforts will be successful or sufficient.
We Need To Attract and Retain Qualified Personnel
Our growth and future success will depend in large part on our ability
to attract, train and retain highly skilled and qualified personnel. The
competition for qualified personnel in the communications industry is intense.
If we are unable in the future to retain a sufficient number of qualified
employees, our ability to manage and maintain our business and our customers'
communications infrastructures would be significantly impaired.
We are Dependent on Certain Key Personnel, Who We Must Retain
We are dependent upon the services of John J. Ackerman, our Chairman,
Christopher R. Smith, our Chief Executive Officer, President and Chief Financial
Officer, and William M. Burns, our Chief Operations Officer and the President
and CEO of ICF, as well as other key personnel. The loss of any of these
individuals could materially affect our continuing sales, marketing and
development efforts. Our ability to maintain and service our current customers,
as well as to expand our development and service activities, is dependent upon
our ability to attract and maintain
15
<PAGE>
technologically competent employees, such as the individuals listed immediately
above, who will assist us in providing service and customer support.
RISKS RELATED TO OUR FUTURE OPERATIONS
We Expect Significant Increases In Our Operating Expenses
We intend to substantially increase our operating expenses as we:
o Increase our sales and marketing activities, including
expanding our sales force;
o Expand our customer support and professional services
organizations;
o Expand our distribution channels; and
o Acquire other companies or ownership interests in other
companies.
With these additional expenses, we must significantly increase our
revenues in order to become profitable. These expenses will be incurred before
we generate any revenues by this increased spending. If we do not significantly
increase revenues from these efforts, our business and operating results would
be seriously harmed.
We Need To Manage Our Future Growth
Part of our business strategy is to achieve rapid growth by expanding
our in-house sales force, through the acquisition of other voice and data
interconnect companies, by entering into strategic alliances and by taking
advantage of regulatory and technology changes and other industry developments.
To achieve and sustain growth, we must, among other things, do the following:
o Successfully build a national sales and marketing
organization;
o Attract and retain skilled personnel;
o Successfully complete targeted acquisitions;
o Develop more strategic alliances with existing equipment
vendors, emerging data management companies, and peripheral
service providers;
o Expand and improve operational, financial and other
information systems; and
o Control expenses
We cannot guarantee that we will successfully implement and maintain
our operational and financial systems or successfully obtain, integrate and
utilize employee, management, operational and financial resources necessary to
manage a developing and expanding business in an evolving and increasingly
competitive industry.
We May Need Additional Financing
Although we believe we will have sufficient funds to support internal
growth, we may need additional capital to complete acquisitions and strategic
alliances, as well as meet our other long-term business strategies. The actual
amount and timing of our future capital requirements may differ materially from
our estimates as a result of financial, business and other factors, many of
which are beyond our control. Our ability to arrange financing and the costs of
financing depend upon many factors, including:
o General economic and capital markets conditions;
o Conditions in the communications market;
o Regulatory developments;
o Credit availability from banks or other lenders;
o Investor confidence in the telecommunications industry and
COMC; and
o Provisions of tax and securities laws that are conducive to
raising capital
If we need additional funds in the future, and are unable to raise such
funds, our inability to raise such funds may have an adverse effect on our
operations. If we decide to raise additional funds through additional borrowing,
we may become subject to additional or more restrictive financial covenants and
ratios, as well as other unfavorable terms.
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<PAGE>
We May Undertake Acquisitions That May Be Difficult To Integrate,
Disrupt Our Operations, and Dilute Stockholder Value
Our strategy is to grow through acquisitions of and/or making
investments in complimentary businesses, technologies, services or products.
These acquisitions and investments could disrupt our ongoing business, distract
our management and employees, and/or increase our expenses. The success of any
acquisition or strategic alliance will depend upon our ability to value
accurately, and to integrate effectively, the business acquired or alliance
made. We have engaged in discussions with other companies regarding possible
acquisitions and/or strategic alliances. If we acquire a company, we could face
difficulty in assimilating that company's personnel, operations, technology and
software. In addition, we cannot guarantee that key personnel of an acquired
company will elect to work for us. We could also face difficulty in integrating
the products and services offered by an acquired company into our operations. We
may incur indebtedness or issue equity securities to pay for any future
acquisitions.
If we elect to acquire another company, we may use our stock as
consideration in connection with such transactions, as indicated above. The
issuance of equity securities in connection with such transactions could be
dillutive to our existing stockholders. We do not, in general, intend to submit
acquisitions to a stockholder vote, except as will be required by Illinois law.
We May Acquire Contingent or Unknown/Undisclosed Liabilities As a
Result of Acquisitions We May Undertake
If we acquire other companies, we may acquire liabilities that we do
not know about at the time of closing of such acquisitions. These liabilities
may be contingent or realized or prove to be larger than anticipated. If these
liabilities arise, they may be in excess of our ability to collect on our
indemnification rights against the former owners of the acquired company. In
that case, our cash reserves may decline.
We Do Not Maintain Liability Insurance For Product Liability Claims
The marketing and sale of services of the type we sell entails a risk
of product liability claims and claims of omission by consumers and others.
While we have a general policy of disclaiming liability arising from our work,
we do not have liability insurance covering these areas. In the event of a
successful liability claim against us, lack of insurance coverage could have a
material adverse effect.
RISKS RELATED TO OUR STOCK
The Market For Our Common Stock Is Limited
Our securities currently trade on the OTC Bulletin Board and only a
small number of shares are traded on a daily basis. As a result, there is a
limited market in our securities and there can be no assurance that a more
active market will develop. Accordingly, purchasers of the shares of Common
Stock offered hereby will find that their investment is highly illiquid and that
the shares are difficult to sell.
Our Stock Price May Be Volatile, Which May Affect Your Investment
Following this public offering, our common stock price may fluctuate
significantly as a result of:
- variations and fluctuations in our operating results and revenues;
- failure to meet analyst and investor expectations;
- announcements by us or our competitors of technological innovations or
new services;
- changes in our industry, including regulatory conditions;
- general economic and market conditions; and
- our common stock being held by relatively few owners.
The securities of numerous companies have experienced extreme price and
volume fluctuation in recent years and months that is often unrelated to their
operating performance. In addition, the market prices for securities of
communications and technology companies have frequently reached elevated levels
following public offerings. These levels are often not sustainable and may not
bear any relationship to such companys' operating performance. If the market
price of our common stock reaches an elevated level following this offering, it
may materially decline. In the past, companies that have experienced volatility
in the market price of their stock have been the object of securities class
action litigation. If we were the object of securities class action litigation,
it could result in substantial costs and diversion of management's attention and
resources.
Future Sales Of Our Common Stock In the Public Market Could Cause Our
Stock Price to Fall and Decrease the value of Your Investment
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding warrants and options, in the public market following this
offering. These sales might impede our ability to raise capital through the
sale of equity securities in the future at a time and price that we deem
appropriate.
Rule 144 Sales of Our Common Stock May Have a Depressive Effect on the
Price of Our Common Stock
As of May 15, 2000, approximately 20,957,741 shares of our Common Stock
were "restricted securities" or shares held by our "affiliates", as those terms
are defined in Rule 144 promulgated under the Act. Such shares may only be sold
in compliance with Rule 144, pursuant to registration under the Act or pursuant
to an exemption therefrom. Generally, under Rule 144, each person holding
restricted securities for a period of one year and each person who is an
affiliate and holds shares that are not restricted may, every three months, sell
in ordinary brokerage transactions an amount of shares which does not exceed the
greater of: (i) 1 % of the issuer's then outstanding securities or (ii) the
average weekly volume of trading of such securities as reported during the
preceding four calendar weeks. Certain non-affiliated persons may sell without
regard to such restrictions after holding restricted securities for two years.
We are unable to predict the effect that sales made under Rule 144 may have on
any then prevailing market price for our securities, although it is likely that
sales of a large number of shares would depress the market price for the Common
Stock.
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<PAGE>
We Have Never Paid Cash Dividends
We have not paid cash dividends on our common stock and do not expect
to pay cash dividends in the foreseeable future.
We May Issue Substantial Amounts of Additional Shares in the Future
Without Obtaining Stockholder Approval
We have an aggregate of approximately 19,042,259 shares of Common Stock
authorized but unissued and not reserved for specific purposes. All of such
shares may be issued without any action or approval by our stockholders. Except
as described herein there are no other present agreements, commitments or
undertakings with respect to the issuance of additional shares, or securities
convertible into any such shares. However, any additional issuance of shares
would further dilute the percentage ownership of our common stock held by
purchasers of Shares offered hereby and would likely have an adverse impact on
the market price of our common stock.
Penny Stock Regulations
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and, if the broker dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally, those persons with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse), the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. Consequently,
these requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security that becomes subject to
the penny stock rules. If our securities become subject to the penny stock
rules, purchasers of the Common Stock in this Offering may find it more
difficult to sell their shares.
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<PAGE>
We Are Controlled By Existing Stockholders, Officers and Directors
After the completion of this offering, a small group of our existing
stockholders, including our executive officers and certain of our directors,
will continue to beneficially own approximately 65% of our outstanding Common
Stock. As a result, these stockholders, acting together, will be able to
exercise significant control over all matters requiring stockholder approval.
These stockholders acting together will be able to continue to elect all of our
directors, thereby exercising control over our affairs. This control exercisable
by such stockholders may have the effect of delaying, deferring or preventing a
change in control, impeding a merger, consolidation, take-over or other business
combination involving us or discouraging a potential acquiror from making a
tender offer or otherwise attempting to obtain control of our business, even if
the transactions would be beneficial to our other stockholders.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. From time to time information
that we provide or statements made by our directors, officers or employees may
contain "forward-looking" information subject to numerous risks and
uncertainties. Forward looking statements include, but are not limited to,
statements concerning the characteristics and growth of our markets or
customers, our objectives or plans for future operations and products, future
revenues and costs and our expected liquidity and capital resources. These
statements may be identified by the use of words such as "believes," "expects,"
"estimates," "anticipates," "intends," "plans" and similar expressions. In
addition, any statements made under the caption "Risk Factors" above and
elsewhere in this Prospectus that are not statements of historical fact are
forward-looking statements. Such forward-looking statements are based on a
number of assumptions and involve a number of risks and uncertainties. These
risks and uncertainties include, among others,
o our potential liquidity problems;
o significant variability in operating results, including variability in
product revenues and gross margins;
o fluctuating demand for new and established products and services;
o dependence on development of new services;
o increasing expenses for marketing and development of new products and
services;
o historical lack of profitability;
o rapid technological change that affects our ability to respond to
customer or market demands;
o risks associated with national operations;
o the continued and future acceptance of our products and services;
o the rate of growth in the industries of our products and services;
o the presence of competitors with greater technical, marketing and
financial resources; and
o our ability to successfully expand our operations
Our actual results could differ materially from those anticipated in
the forward looking statements contained herein as a result of various factors,
including the above-referenced risks and uncertainties as well as those depicted
in the "Risk Factors" section above and elsewhere in this Prospectus.
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<PAGE>
REGISTERING SHAREHOLDERS
The Registering Shareholders, as well as the total number of Shares,
Options and Warrants owned by each are listed below.
We have engaged in various transactions with certain of the Registering
Shareholders, which are described below under "Certain Relationships and Related
Transactions" at Page 46.
<TABLE>
<CAPTION>
Name
Number of Shares
Shares to Owned After
Stock Options Warrants be Sold (1) Offering
----- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
William M. Burns 3,246,753 376,623 0 0 3,623,376
Charles E. Lincoln 3,246,753 376,623 0 0 3,623,876
John J. Ackerman 2,833,252 0 0 0 2,833,252
Christopher R. Smith 200,000 2,463,896 0 0 2,663,896
Peter Graf 550,000 0 0 550,000 0
Timary Koller & Richard E. Koller 500,000 0 0 0 500,000
Steven Richman 400,000 0 0 400,000 0
Douglas Abrams 312,500 0 0 312,500 0
Gramercy National Partners, LLC 40,000 204,752 0 244,752 0
Factum Invest AG 200,000 0 40,000 240,000 0
Verwaltungs und Privatbank AG 192,000 0 38,400 230,400 0
Paul Graf 175,000 0 0 175,000 0
Keusch & Merlo Invest AG 126,667 0 33,333 160,000 0
Gerhard Waldschutz 150,000 0 0 150,000 0
Nicholas Buoniconti 100,000 50,000 0 150,000 0
Heinrich Auwarter 100,000 0 30,000 130,000 0
Von Graffenried Privatbank AG 67,333 0 56,667 124,000 0
Gramercy Park Equity Capital, LP 0 112,112 0 112,112 0
Summer Associates, L.P. 110,000 0 0 110,000 0
George L. Malin 100,000 0 0 100,000 0
Liechensteinische Landesbank AG 80,000 0 16,000 96,000 0
A. Daniel Meiland 86,961 0 0 86,961 0
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Anita R. Toler 50,000 25,000 0 75,000 0
Paul M. Bakker 50,000 25,000 0 75,000 0
Richard P. Richman 75,000 0 0 75,000 0
E.M. Toler, IRA Rollover 50,000 25,000 0 75,000 0
Aaron M & Kimberly F. Toler 40,000 20,000 0 60,000 0
Gramercy Madison Fifty Seven Capital, LP 0 43,481 0 43,481 0
Oscar C. and Lois J. Sandberg Trust 33,334 0 6,666 40,000 0
Andre A. Cappon 30,000 5,000 0 35,000 0
Guy Manuel 30,000 5,000 0 35,000 0
Hyposwiss Zurich 28,000 0 5,600 33,600 0
Sandra Parker Richman 31,250 0 0 31,250 0
Isaldo Limited 15,000 0 10,000 25,000 0
Establissment Pour le Placement Prive 0 0 20,000 20,000 0
Maerco Treuhand AG 0 0 20,000 20,000 0
Gregory Taverrite 10,000 5,000 0 15,000 0
Patrick J. Guarino 10,000 5,000 0 15,000 0
Sam J. Domenico 10,000 5,000 0 15,000 0
John R. Repetti 12,500 0 0 12,500 0
Judy Gross 12,500 0 0 12,500 0
Tammy L. Martin 12,500 0 0 12,500 0
Appenzeller Innerrhodische Kantonalbank 0 0 10,000 10,000 0
Franco Merlo 0 0 10,000 10,000 0
Hansjorg Keusch 0 0 10,000 10,000 0
Linda J. Montag 5,000 2,500 0 7,500 0
Marcus Buri & Karen Phillips 4,000 2,000 0 6,000 0
Murielle Thinard 500 250 0 750 0
Vincent Kasbi 500 250 0 750 0
------------------------------------------------------------------
TOTAL 13,327,303 3,752,487 306,666 7,402,556 9,983,900
</TABLE>
21
<PAGE>
(1) The number of shares to be sold by the Registering Shareholders cannot
be determined with certainty at this time. The number of shares to be
sold will depend upon a number of different factors including the wants
and needs of Registering Shareholders, the individual circumstances of
such Registering Shareholders as well as prevailing market conditions
at the time of registration and proposed sale. However, for purposes of
the above chart we have assumed that all of the Registering
Shareholders except for Messrs. Burns, Lincoln, Ackerman & Smith as
well as Timary Koller & Richard E. Koller will sell the shares owned by
them. The shares owned by Messrs. Burns, Lincoln, Ackerman and Smith,
and Timary Koller and Richard E. Koller are subject to a Separate
Shareholders Agreement that places restrictions on sales to the general
public. The number of shares owned after this offering depends upon the
number of shares to be sold, which cannot be determined with certainty
at this time. Again, however, we have assumed that all of the
Registering Shareholders except for Messrs. Burns, Lincoln, Ackerman &
Smith, as well as Timery Koller & Richard E. Koller will sell the
shares owned by them and will own no shares after this offering.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares of Common
Stock by the Registering Shareholders. However, we will receive the exercise
price of the Warrants and Options upon exercise thereof.
The proceeds that we would receive upon the exercise of all of the
Warrants would be approximately $613,332. The proceeds that we would receive
upon the exercise of all Options would be approximately $479,656. After taking
into account estimated offering expenses of approximately $63,150.63, the net
proceeds we would receive upon the exercise of all options & all warrants
covered hereunder would equal approximately $972,880.40. There can be no
assurance that we will receive any proceeds from the exercise of the Warrants
and not all of the Warrants may be exercised. There can be no assurance that we
will receive any proceeds from the exercise of the Options and not all Options
may be exercised. In either case, the proceeds we would receive in connection
with this offering would be minimal after taking into account estimated offering
expenses incurred in connection herewith.
The net proceeds we receive from the exercise of the Warrants and/or
Options, if any, would be added to our working capital. We have no definite
plans for the use of any proceeds from this offering nor have we made any
specific allocations as to the use of such proceeds. We could use the proceeds
for current administrative, marketing and other expenses, the acquisition of
businesses or repayment of our debt or ICF's debt. Any such application of the
proceeds of this offering will be at the discretion of our Board of Directors.
PLAN OF DISTRIBUTION
The sale of the Shares of Common Stock by the Registering Shareholders,
or their transferees, may be effected from time to time. The determination of
if, when, how and how many of the Shares should be sold will be made by the
Registering Shareholders or their transferees. We do not know and do not have
any right to determine when, if and how Shares are to be sold by the holders
thereof.
We have agreed to pay all fees and expenses incident to the
registration of the Shares of Common Stock (other than underwriting discounts
and commissions, if any, which are to be paid by the Registering Shareholders).
In addition, we have agreed to indemnify certain of the Registering
Shareholders against certain liabilities, including liabilities under the
Securities Act, in connection with this registration, if any.
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<PAGE>
Ways in Which The Shares May Be Sold
The sale and distribution of the Shares of Common Stock by the
Registering Shareholders, or their transferees, may be effected in one or more
transactions that may take place in one or more of the following ways at (i)
prevailing market prices at the time of sale, (ii) prices related to prevailing
market prices or (iii) negotiated prices:
o in the over-the-counter market, including ordinary broker's
transactions,
o privately negotiated transactions; or
o through sales to one or more dealers for resale of such shares as
principals.
In addition, the Registering Shareholders or their transferees may also:
o pledge all or a portion of the shares owned as collateral for
margin accounts or in loan transactions, and the shares may be
resold pursuant to the terms of such pledges, accounts or loan
transactions (upon default by a Selling Shareholder, the pledgee
in such loan transaction would have the same rights of sale as
the Registering Shareholders under this Prospectus);
o enter into exchange traded listed option transactions which
require the delivery of the shares listed hereunder; or
o transfer shares owned in other ways not involving market makers
or established trading markets, including directly by gift,
distribution, or other transfer without consideration, and upon
any such transfer the transferee would have the same rights of
sale as the Registering Shareholders under this Prospectus.
Finally, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus.
Use of Brokers
Without limiting the foregoing, brokers may act as dealers by
purchasing any or all of the Shares either as agents for others or as principals
for their own accounts and reselling such Shares pursuant to this Prospectus.
Such brokers may receive compensation from the Registering Shareholders in the
form of commissions or discounts and may receive compensation from purchasers of
the Shares for whom they may act as agent or to whom they may sell as principal
in the form of commissions or discounts. Finally, the Registering Shareholders
and any brokers and dealers through whom sales of the Shares are made may be
deemed to be "underwriters" within the meaning of the Securities Act, and the
commissions or discounts and other compensation paid to such persons may be
regarded as underwriters' compensation.
To the extent required by law, the number of Shares to be sold, the
purchase price, the name of any agent or broker and any applicable commissions,
discounts or other compensation to such agents or brokers with respect to a
particular offering will be set forth in a Prospectus Supplement.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect
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to such Shares for a period of one or five business days prior to the
commencement of such distribution. In addition to, and without limiting the
foregoing, the Registering Shareholders and any other person participating in a
distribution will be subject to the applicable provisions of the Exchange Act
and the rules and regulations thereunder, including without limitation
Regulation M. These provisions may limit the timing of purchases and sales of
any of the Shares by the Registering Shareholders or any such other person. All
of the foregoing may affect the marketability of the Shares.
DESCRIPTION OF OUR BUSINESS
General
We are a technology service company in the telecommunications industry
with a rapidly expanding national geographic service coverage area. We design,
implement, support and manage LAN/WAN computer network systems, voice
communication network systems, and premise wiring for both data and voice. In
addition, we distribute and maintain equipment on behalf of major
telecommunication equipment manufacturers. Our target clients are primarily
Fortune 1000 sized enterprises demanding the highest level of service under
project, master and general maintenance contracts to support their complex and
growing national voice and data network systems. In servicing these customers,
we must provide highly trained and experienced technicians and design engineers
on a rapid-response basis to meet our customers' telecommunications planning,
design, installation, maintenance and emergency needs. As these and other
companies continue their geographic growth, technological expansion and
communications modernization, we will provide them with design, product,
maintenance and personnel on a turnkey, outsource basis.
In addition to the services described above, our Recruitment Services
division is providing our customers with permanent and temporary technical
professional recruitment and placement services to fill their internal staffing
needs.
Our assets are our employees. Our investments are in our employees.
While we do not design or take the research and development risk borne by the
manufacturers of the equipment we service, we continue to invest in the latest
training and certification for the networks we support for data products
designed by Cisco Systems, Inc., Lucent Technologies, Inc., Bay Networks (a
division of NorTel Networks) and 3Com, as well as voice products by Lucent
Technologies, Inc. and NorTel Networks, Inc.
To date, our target customers have included banking and financial
institutions, insurance companies, pharmaceutical companies and health care
organizations, as well as municipalities. Having refocused our sales and
marketing team in 1999, we are additionally targeting competitive local exchange
carriers ("CLEC").
1999 was a year of integration and rebuilding for us. We reported 1999
revenue, EBITDA and net losses of $21.1 million, $1.5 million and $10.6 million,
respectively. This was up significantly from reported 1998 revenue, EBITDA and
net losses of $7.9 million, $271,400 and $330,900, respectively. 1998 reflected
only four months of operations from the acquisition of ICF,
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our wholly-owned subsidiary, acquired in August of 1998. ICF represented 100% of
the Company's revenue in 1999.
Matt Burns, one of the former co-owners of ICF, is now the President
and Chief Executive Officer of ICF and a member of our Board of Directors. Mr.
Burns is also our Chief Operations Officer. John Ackerman is the Chairman of our
Board of Directors, as well as the Chairman of the Board of Directors of ICF.
Christopher Smith joined our executive management team in August 1999 as our
Chief Financial Officer and is now a member of our Board of Directors and our
President and CEO. Mr. Smith will lead our acquisition strategy and will be in
charge of our day to day operations and financial management. Mr. Smith is also
Executive Vice President of ICF. Mr. Smith comes to us with over fifteen years
of investment banking, financial management and management consulting
experience. Messrs. Burns, Ackerman and Smith are the core of our operating
management team and will be responsible for driving internal growth and
acquisition integration.
We plan to make several acquisitions of data and voice
service/outsourcing businesses, as well as data network consulting and service
companies in key markets. We are currently in discussions with several regional
voice and data networking companies regarding possible acquisitions. We
anticipate financing our acquisitions with a combination of bank debt, seller
financing and common stock.
Our History
In November of 1996, we consummated the acquisition of Complete
Communications, Inc., a California corporation ("CCI"). At the time, CCI was
primarily engaged in the business of providing computer network and telephone
system services, which included the design and installation of such networks and
systems. As consideration for the acquisition of CCI, we issued 10,000,000
shares of our Common Stock to John Ackerman, the sole shareholder of CCI. As a
result of this transaction, Mr. Ackerman owned 80% of our securities. In
connection with this transaction, we changed our name to COMC, Inc.
In August of 1998, we acquired ICF, a California corporation based in
Martinez, California. At the time that we acquired ICF, ICF was a telephone
service provider with operations that focused on the San Francisco Bay Area and
the western United States. ICF's operations focused on the design, installation,
maintenance, and servicing of data and voice networks. ICF's customer base
included primarily large financial institutions as well as municipalities
located in the greater San Francisco Bay Area. Our acquisition of ICF was part
of our strategy to expand operations and revenues through acquisitions of small
and mid-sized companies that generate most of their revenues through maintenance
service contracts, and that are strategically located in high growth markets,
such as the western and southwestern United States. ICF has become our base of
operations and the source from which all of our revenues are generated. CCI's
entire customer base was absorbed by ICF effective as of August, 1998.
We were originally incorporated in December of 1978, in the State of
Illinois, under the name Automedix Sciences, Inc. Initially, our purpose was to
research and develop medical technologies for the treatment of cancer and other
medical conditions. In the Spring of 1992,
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Automedix ceased operations due to the fact that we were unable to raise capital
to continue clinical trials with respect to a medical device for cancer
treatment that Automedix designed. As a consequence, our then Board of Directors
began to investigate the possibility of a new business direction and to search
for viable acquisition or merger candidates that would enable us to maximize
value to our shareholders.
ICF Communication Solutions
Today, through ICF's data and voice services division, we provide voice
communications and data network design, equipment sales, installation, systems
integration consulting, and maintenance to Fortune 1000 size companies and
municipalities. In addition, through ICF's Recruitment Services division, we
provide technical employee recruitment, leasing and permanent placement
services.
Founded in 1989 to provide telephone systems and services to Bank of
America, ICF is currently servicing in excess of 250 customers at over 4,000
customer location sites. ICF employs over 150 service professionals and is
headquartered in Martinez, California. ICF has additional sales and service
offices in Burbank and Fresno, California, as well as Houston, Texas, Phoenix,
Arizona, and Birmingham, Alabama.
Our expertise in voice communications and data networks permits us to
offer customers a wide range of professional services, including network
planning, design, implementation, management, maintenance and optimization. Our
broad range of distribution of various voice and data equipment manufacturers
allows us to serve our customers as a vendor-neutral, single-source provider of
communications equipment and service.
Through ICF, we currently market our products in the following industry
segments or arenas:
o Banking;
o Insurance and Financial Services;
o Federal, State and Local Government Agencies;
o Local and Higher Education Institutions;
o Healthcare, Medical, and Pharmaceutical institutions;
o Retail and Service Companies;
From its inception, ICF has provided local, statewide and nationwide
support for such clients as Bank of America, Wells Fargo Bank, the University of
California-Berkeley, Orchard Supply Hardware, and the City of El Monte.
Through ICF we distribute the products and services of a number of
leading communications suppliers. In voice systems, we are an authorized dealer
for Lucent Technologies, NorTel Networks, and NEC, but also sell and support
Toshiba, VSR and T-Metrics. In data systems, we sell and support Cisco Systems,
Lucent Technologies, Bay Networks, and 3Com. In wiring systems, we sell and
support Lucent, IBM, Siemens, Krone-Belden and Ortronics. By
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offering equipment from a variety of vendors, we can provide businesses with
tailored, scalable solutions.
In 1996, ICF created a Recruitment Services division to provide ICF's
clients with short- and long-term technical consultants, as well as permanent
placement of technical personnel. We specialize in telecommunications and
information systems personnel placements on a national basis, particularly in
the areas of telecom design, administration and maintenance, application
development, project management, operations, facilities engineering, technical
sales and marketing.
Approximately $16.3 million and $6.0 million of revenues were recorded
for data and voice services during 1999 and 1998, respectively. Approximately
$4.8 million and $1.9 million of revenues were recorded for Recruitment Services
placement fees during 1999 and 1998, respectively.
Industry and Market Opportunities
We believe that we are uniquely positioned to take advantage of the
numerous changes and developments in the communications industry described
above, as well as the following anticipated changes and developments described
immediately below:
- Innovations in Technology
Technological innovations are increasing both the supply of and demand
for high-bandwidth telecommunications transmission capacity while also driving
increased integration in voice and data networks. Innovations in optics
technologies, consisting of both higher quality fiber optic cable and improved
transmission electronics, have increased the capacity and speed of advanced
fiber optic networks while decreasing the unit cost of transmission. This
increased capacity and speed, combined with continuing advancements in
microprocessor power, has resulted in the development of bandwidth-intensive
applications, growth in Internet usage and increases in the number of network
users.
- Increasing Demand for Communications Services
We believe that there is and will continue to be significant growth in
demand for long distance data, Internet, voice and video services. The increase
in computing power, number of computers networked over the Internet, and
connection speeds of networked computers are driving tremendous increases in
communications use for Internet and data services. Prices for cellular and
long-distance voice services have decreased, resulting in increased demand for
these services. In addition, cost savings and network efficiencies are driving
demand for more robust voice and data network equipment. We believe video
conferencing, digital television and other multimedia applications being
developed will continue to increase demand for bandwidth.
- Increasing Demand for Outsourced Service
With the rapid increases in demand for communications services, the
acceleration of technologies, the tightening labor market for technical
personnel and the growing cost of
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information technology/information systems ("IT/IS"), we are experiencing a
growing demand for outsourcing and communications infrastructure personnel from
our targeted clients, large and small. It is becoming increasingly cost
efficient for clients to contract for their services and personnel, versus
managing these teams in-house. By retaining project and administrative
management in-house and sub-contracting their voice and data network maintenance
and emergency response, installations and conversion projects, our clients can
better manage their costs.
- Deregulation Within the Communications Industry
Around the world, the communications industry is experiencing
liberalization. In the U.S., the long distance market became highly competitive
in the 1980s following the break up of AT&T, and the passage of the
Telecommunications Act, which was designed to open local markets to competition.
New companies have formed to compete for markets that have been traditionally
dominated by a very small number of larger providers. Distribution channels have
become more fragmented as the barriers of entry have been removed and new
companies are emerging with new technologies to challenge the historic
gatekeepers of the communications infrastructure. These emerging companies will
need distributors and service providers for their new hardware and software
products. Interconnect service providers of data and voice are leveraging their
existing customer base to provide these companies with a new full service,
vendor-neutral channel.
- Increasing Specialization Within the Communications Industry
We believe industry specialization will continue to occur as
communications companies focus on their core competencies and outsource non-core
activities. In the interconnect markets, we believe that equipment manufacturers
will increasingly divest their service business units and service providers will
expand beyond their sole equipment manufacturer's representation to become more
vendor-neutral and client focused. We believe that this creates a tremendous
opportunity for a communications service provider such as COMC, which we believe
we are well positioned to take advantage of.
Sales and Marketing
We believe that we have built a strong base of Fortune 1000
corporations as clients. The 500 largest U.S. companies generally have annual
budgets that range between $1 million and $100 million for the purchase of voice
and data products and services to support national and regional internal
operations, as well as achieve efficiencies and cost savings. Other clients we
target have budgets ranging from $300,000 to $1 million per year.
We believe that long-term relationships based on quality customer
service, short response time and competitive pricing are the most effective way
of attaining our business objectives. Presently, we are balancing the expansion
of our client base through a more targeted solicitation of new clients in our
existing geographic markets, as well as strategic acquisitions into new
geographic markets. Through a proactive campaign we will also cross-market
telecommunication services with our clients in an attempt to capture a larger
share of our clients' business. Our plan is to establish cross-marketing
agreements with certain local and long distance carriers, hardware and
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software development companies, electrical service suppliers and custom data
network consulting firms.
We work with our clients to transition their communications departments
from in-house personnel to outsourcing whenever possible. Unlike certain of our
competitors, we focus on large corporations that have diversified needs and
substantial pent up demand to outsource their maintenance and service
requirements.
Our sales personnel are divided between local office sales calls to
coordinated National Account sales programs. Where local sale personnel rely on
relationships and leads, National Account sales personnel approach the
Fortune 1000 customer or municipality as a team, including design engineers and
project managers. We intend to hire additional sales personnel to meet our
growing local and national sales efforts. We hope to increase the size of our
sales force significantly through acquisitions as well as an aggressive hiring
campaign. It is anticipated that such sales personnel will be compensated
strictly on a commission basis utilizing leads generated through referrals,
periodic mailings, telemarketing and cold calls. We believe that building market
share through direct sales, cross-fertilization of services as well as mergers
and acquisitions will be an effective strategy for growth in the short term.
Services rendered to our clients are performed primarily under master
contracts. Each master contract contemplates hundreds of individual construction
and maintenance projects valued generally at less that $100,000 each. These
contracts typically are awarded on a competitive bid basis. We also have
contracts similar to master contracts with certain other clients. In addition to
services rendered pursuant to master contracts, we provide construction and
maintenance on individual projects awarded on a competitive bid basis. While
such projects are generally substantially larger than individual projects
covered by master contracts, such projects typically require the provision of
services similar to those rendered under master contracts. Master contracts may
extend for one to three years. Service agreements are generally terminable by
the customer at any time.
Our client relationships are with senior executives, chief information
or technology officers, IT/IS managers, or customer purchasing departments. With
our larger customers, we are often one of a few preferred vendors. Once on a
preferred vendor list, our sales personnel are eligible to work directly with
project managers or in-house consultants for additional work orders. To date,
most of our business has been generated through referrals, personal sales calls,
direct mailings and telemarketing. However, we intend to expand our marketing
efforts to include:
o improved graphic user interface and development of an
advertising presence on the World Wide Web;
o solicitation of manufacturers for on-line advertising and
promotional plans;
o trade magazine advertising; and
o regular participation in user group conferences and business
trade shows.
In addition, we will attempt to increase our client base with our
aggressive pricing policy and by acquiring additional distributors, thereby
broadening our product offering. We also intend
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to add technicians qualified to service these new products and services and
increase our flexibility in both pricing and in service offerings.
Products and Services
We provide a comprehensive array of communications products and
services. Our products and services fall into three categories:
o Professional Services
o Network Service and Equipment Sales
o Recruitment Services
- Professional Services
We design, build and operate advanced voice, data and integrated
networks. We plan to leverage our technical and recruiting expertise to provide
additional professional service offerings including outsourcing, advanced call
center applications, network engineering and network consulting. We will
continue to expand these services as client demand for advanced communications
solutions continues to grow.
We employ highly skilled network engineers with an expertise in data as
well as integrated voice and data networking. Our Network Engineering group
designs networking solutions, implements those solutions and provides ongoing
operational support utilizing standard technologies. We also provide engineers
on a fee-for-service basis for clients who seek to augment their own resources.
We are actively recruiting additional engineers to service our expanding client
base.
Our network consultants coordinate the operational plans of our clients
with their existing network capacity and capability in order to determine the
communications environment necessary to meet their business needs. Our
consultants provide a complete analysis of existing network status and predict
the impact of future changes on a network and also develop sophisticated
Internet applications.
- Network Service and Equipment Sales
We provide service, maintenance and support for our clients' growing
data and voice communications networks, as well as sell and install data and
voice communications equipment. We maintain and service our clients' networks
primarily through annual maintenance plans or through project-specific plans
based on time and materials. We can remotely monitor and manage the voice and
data equipment and network connectivity of our customers 365 days a year, 24
hours a day, through our advanced network management center.
We also design, build and operate data networks, integrated voice and
data networks and computer telephony integration. To meet our clients' needs, we
evaluate technologies such as Internet protocol, frame relay, DSL and ATM, and
then select, integrate and deploy the appropriate routers, switches, access
devices and other required equipment. The networks we build range from
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small local area networks (LAN's) supporting less than 50 users to wide area
networks (WAN's) supporting thousands of users and multiple technologies.
We offer our clients a variety of voice, telephone and video equipment
for the office environment. We also install, configure and integrate all of the
equipment we purchase on behalf of clients, primarily telephones, switches,
lines and computer servers. The voice systems range from between 15 and 50,000
internal telephone lines. This equipment includes PBX and key systems, building
wiring, call centers, voice mail systems and premise (as opposed to mobile)
wireless systems. We have the capability to install all connection lines
including twisted pair copper (Cat III, V and VII), ISDN, coaxial cable and
fiber optic, but often sub-contract this activity as well as any electrical
wiring needs a client may have in connection with the installation of our
equipment. However, we intend to bring more of this activity in-house.
- Recruitment Services Group
Our Recruitment Services group provides our clients with short- and
long-term technical consultants, as well as permanent placement of technical
personnel. We specialize in telecommunications and information systems industry
nationwide placements, particularly in the areas of telecom design,
administration and maintenance, application development, project management,
operations, facilities engineering, technical sales and marketing. We recruit
our candidates from a variety of sources utilizing our own web site, electronic
and print employment bulletin boards, cold calling and recruiter networking.
Approximately 80% of our Recruitment Services revenues are from leasing
employees on a temporary basis to our clients and 20% of our Recruitment
Services revenues are from permanent placement fees.
Vendor Relationships
We have agreements with the voice and data equipment manufacturers
listed immediately below.
o Lucent Technologies: authorized dealer since 1/98, entire voice
and data product line;
o NorTel Networks: authorized distributor since 1/94, products have
changed to Meridian from Norstar lines;
o Cisco Systems: authorized distributor since 1/97, entire product
line including switches and routers;
o NEC: authorized distributor since 1/94, entire voice and data
network product line; and,
o 3Com: authorized distributor since 1/97, entire product line
including NIC cards, HUB's and routers.
Our agreements with the above-referenced voice and data equipment
manufacturers provide for the distribution, resale or integration of products,
and/or acting as agents for these equipment manufacturers. Normally, we receive
volume purchase discounts on these manufacturers' products or service. We
estimate that revenues based on service and equipment sales of Lucent and NorTel
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products accounted for approximately 46% and 42%, respectively, of our data and
voice revenues of $16.3 million in 1999, and approximately 36% and 33% of our
total revenues in 1999.
Customers
We currently support approximately 250 clients at over 4,000 of their
customer sites across a broad range of industries, including banking, retail
distribution and manufacturing, as well as educational, local and federal
governmental and non-profit institutions. Our clients consist primarily of
Fortune 1000 sized companies with employees and workstations between 10,000 and
100,000. In 2000, we will also focus on small to medium sized customers with
employees and workstations between 50 and 10,000. We believe that our high level
of customer service has and will continue to enable us to capture an increasing
portion of each of our clients' communications budget in the future.
Our current customers include Bank of America, Wells Fargo Bank, Bank
of the West, the Good Guys, The University of California-Berkeley, Orchard
Supply Hardware, The City of El Monte, City of Upland, Burbank Unified School
District, Blue Cross, Western Carlson Design and Ameriflight. We also have
subcontract relationships with Southwestern Bell, Lucent Technologies,
Ameritech, Williams Communications, and Sprint Communications.
In November of 1999, we learned that our contract with the City of Los
Angeles, which was operating on a month to month basis since February of 1999,
would not be renewed. During 1999, we recognized approximately $1.6 million in
revenue from the City of Los Angeles contract. Also, in February of 2000, the
County of Sonoma informed us that they would no longer use us for service
maintenance after May of 2000. During 1999, we recognized approximately $1.8
million in revenue from our relationship with the County of Sonoma. We believe
that the revenue and contribution profits lost from these clients will be offset
by the growth in revenues and contribution profit from our existing clients, and
further offset by new clients.
Employees
As of December 31, 1999, we employed 169 persons at a total of six
different sales and service locations throughout the U.S. Of these 169 persons,
four were executive officers, 144 were technicians, six were engineering
personnel, six were engaged in sales, and nine were engaged in administrative
and clerical activities. As we continue to grow, we expect and will need to hire
additional personnel.
Our relations with our employees are satisfactory. None of our
employees are represented by a union or collective bargaining agreement, and we
have not experienced any work stoppages.
Competition
The size of a client, the geographic scope and product platform
preferences of the target client base dictates the competition we face. The
market for both data network and voice communication services and products sales
is highly competitive on a local, regional and national level. This competition
intensifies, and the number of qualified competitors diminishes as the level of
technological and design expertise rises and product distribution rights narrow.
Since we are predominately a service company focusing on maintenance contracts
and installation projects, and
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based upon the fact that most of the customers we target are large enough to
purchase direct, we seldom compete with larger equipment distributors on the
initial sale of equipment.
We are trained and certified on most of the legacy and current release
equipment manufactured by Lucent Technologies, NorTel Networks, NEC and Toshiba
for voice networks as well as Cisco Systems, Lucent and 3Com for data networks.
Maintaining expertise in these systems, while remaining vendor neutral, allows
us to competitively bid for service contracts representing approximately 80% of
the installed US base of voice and data network systems. We obtain a competitive
advantage based upon the fact that many of the largest targeted customers
operate their systems on multiple-vendor platforms (for instance Lucent and
NorTel voice switches and Cisco and 3Com data hubs and routers at the same time)
which we can service and maintain under one general contract. Many of our
competitors are limited to only one major voice and/or one major data vendor
relationship and service.
Our goal as a service company is to continuously expand our geographic
service coverage to a national level, as well as expand upon our growing
expertise within the above highlighted voice and data equipment platforms.
We face competition in our targeted Fortune 1000 sized and municipal
clients from GTE, Electronic Data Systems, Williams Communications, IBM Global,
Claricom, Inacom and AT&T Global. This competition covers larger voice and data
network design, installation, maintenance and monitoring projects and contracts
on a national basis. On a regional basis, we compete with NetsWork, Metro and
Syzygy. This competition covers cabling and voice service contracts as well as
project work for medium and large sized clients in California, Arizona, Nevada,
New Mexico and Utah.
Overview of the Industry
Telecommunications is the transmission of data, voice or video signals
across a distance. Data signals connect computers through local area networks,
wide area networks, and the Internet, or connect peripheral devices, such as
facsimile machines and printers. Voice signals usually connect people in
telephone conversations. Video signals include video Conferencing and television
signals. Telecommunications services are typically divided into long distance
and local services. The telecommunications industry includes the configuration,
sale, installation and maintenance of communications equipment, and technical
services for the design and operations of communication networks handling voice,
data and video traffic.
Recently, the telecommunications industry has been characterized by
rapid technological change, changes in the industry structure and increased
demand for services and equipment. The demand for all types of
telecommunications services has been increasing, with rapid growth in high-speed
data services, including the Internet.
Many of the largest equipment and service providers have achieved
growth through acquisitions and mergers. These combinations have provided access
to new markets, new products, and economies of scale. Despite this
consolidation, the number of new entrants is increasing and new entrants are
gaining market share from the large and established providers. In this highly
competitive environment, telecommunications providers are increasingly focusing
on core
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competencies and outsourcing non-core activities to other providers. In the
telecommunications equipment market segment, both Lucent Technologies and NorTel
Networks have attempted to divest their service and maintenance units in the
past two years to focus on equipment development and sales. This trend is a
significant departure from the traditional integrated model that has prevailed
in the industry since its inception, and represents an opportunity for us.
Advances in Telecommunications and Networking Technology
Telecommunications providers transmit voice, data and video signals
primarily over copper, coaxial and fiber optic cables, microwave systems and
satellites. Beginning in the 1960s, microwave systems began to replace copper
cable. By 1990, fiber optic cables had largely replaced copper cable for long
distance transmission. Fiber optic cables use light to transmit information in
digital format through ultra-thin strands of glass. Compared to copper,
fiberoptic cables provide significantly greater capacity at lower cost with
fewer errors and increased reliability.
Several advances in switching and electronics have further increased
the bandwidth, or transmission capacity, of telecommunications networks. Dense
wavelength division multiplexing (DWDM) transmits multiple light signals through
a single optical fiber and can currently increase the bandwidth of fiber optic
cables by up to 128 times the original fiber optic technology.
Historically, carriers have built telecommunications networks based on
circuit switching. Circuit switching establishes and keeps open a dedicated path
until the call is terminated. While circuit switching has worked well for
decades to provide voice communications, it does not efficiently use
transmission capacity. Once a circuit is dedicated, it is unavailable to
transmit any other information, even when the particular users of that circuit
are not speaking or otherwise transmitting information. Packet switching is
replacing circuit switching. Packet switching divides signals into small
"packets" which are then independently transmitted to their destination via the
quickest path. Upon their arrival, the packets are reassembled. Packet switching
provides more efficient use of the capacity in the network because the network
does not establish inefficient dedicated circuits, which waste unused capacity.
New packet networking technologies include Internet protocol (IP),
asynchronous transfer mode (ATM) and frame relay. These technologies operate at
very high speeds ranging from 1.544 megabits per second (or DS-1) to 2.488
gigabits per second (or OC-48) and beyond. By comparison, one voice call
requires roughly 64 kilobits per second. Packet networks are especially
efficient at carrying data signals. ATM service quality controls support
high-quality voice and video signals. Similar quality controls are being
developed for IP.
Data traffic, whether accommodated by circuit switching or packet
networking, is growing more rapidly than voice traffic. Annual growth in data
traffic is estimated at 25% to 40% per year, whereas voice is growing at 6%,
albeit on a much greater usage base. It is further estimated that by the year
2002, data will account for 95% of all global traffic. The drivers of this
growth are (i) the success of the Internet, (ii) cost and performance
improvements in computing, storage and modems, and (iii) embedded information
and applications (including e-commerce, electronic media, business intranets and
virtual private networks (VPR's)).
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Convergence of Data and Voice Services
Telecommunications network designs have traditionally created separate
networks using separate equipment for voice, data and video signals. The
evolution from `analog' to `digital' technologies, which convert voice and other
signals into a stream of "1"s and "0"s, eliminates the traditional distinctions
between data, voice and video transmission services. High-bandwidth networks
that use advanced packet-switched technology transmit mixed digital voice, data
and video signals over the same network. This enables telecommunications
customers to use a single device for voice, data and video communications.
Although these devices are new to the market, customer interest and acceptance
are rapidly growing.
Each evolution, from copper to fiber optic cables, from one to many
light signals, from circuit-switching to packet-switching and from analog to
digital signals, has produced significant increases in network capacity. When
considered together, these evolutions have produced enormous increases in the
ability to transfer large amounts of information across vast distances almost
instantaneously. With each new leap in transmission capacity, end-users have
come to rely on their ability to access and manipulate ever-greater amounts of
information quickly and easily. This reliance has consistently created demand
that outstrips the available capacity.
Equipment Manufacturing and Distribution Market
The telecommunications equipment industry in the U.S. has grown
substantially in the last several years through sales to local and long distance
carriers, end-users, Internet and other data service providers. The dramatic
growth of the telecommunications and data networking equipment industry stems in
part from: (a) the development of new technologies which allow systems to
provide integrated voice and data services, and (b) from increased corporate and
household bandwidth demand, which require both established and new carriers to
expand and upgrade their facilities. Manufacturers distribute telecommunications
equipment through their own sales forces as well as through interconnect service
providers as third parties.
Interconnect Services (Communications and Data Solutions) Market
Businesses seek solutions to the challenges of selecting, maintaining
and upgrading information and communications technologies and services amid
rapid technological advances. As a result, the demand for consultants' services
in systems integration and communications networks has been growing rapidly.
Businesses such as Williams Communications, Norstar, Inc. and International
Network Services on a national level and COMC on a regional level, assess
customers' communications and information technology needs, evaluate equipment
and services options, procure equipment and services, implement efficient
network solutions and manage the combination of technologies.
DESCRIPTION OF PROPERTY
Our headquarters are located at 2840 Howe Road, Suite D, Martinez,
California. We occupy 8,000 square feet, of which approximately 7,000 square
feet are dedicated to office space and 1,000 square feet are dedicated to
warehouse space. We pay monthly rent of $8,241 for our headquarters
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in Martinez under a lease that will expire in November 2002. ICF has recently
leased an additional 3,700 square feet of office space and 3,200 square feet of
warehouse space at 2840 Howe Road. ICF will pay a monthly rent of $6,750 under
the new lease that was signed in April 2000 and will expire November 2002. ICF
occupies a 2,700 square feet space in a commercial building at 400 N. Glenoaks
Boulevard, Burbank, California. ICF pays a monthly rent of $3,907 under a lease
that was signed in April 1995 and that expired in March 2000. We are currently
identifying larger space for lease in the area and will continue to lease the
existing facility on a month to month basis. ICF also occupies an office in a
commercial building at 5201 Mitchelldale, Suite B3, in Houston, Texas, of which
approximately 1,000 square feet are dedicated office space and 1,000 square feet
are dedicated to warehouse space. ICF pays a monthly rent of $1,340 for this
property located in Houston under a lease that will expire in October 2000. ICF
occupies an office in a commercial building at 2810 S. 24th Street, Suite 111,
Phoenix, Arizona, of which 3,693 square feet is office space and 1,729 square
feet is warehouse space. ICF pays a monthly rent of $3,546 for this property
located in Phoenix under a lease that will expire in September 2003. Finally,
ICF occupies an office in a commercial building at 1788 N. Helm, Suite 107,
Fresno, California, of which approximately 1,800 square feet is office space and
700 square feet is warehouse space. ICF pays a monthly rent of $1,000 for this
property located in Fresno under a lease that will expire in December 2001.
We believe that the above descibed properties are sufficient to meet
our requirements for the remainder of the year 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and our results of
operations should be read in conjunction with the audited Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
in the forward-looking statements below.
Overview
We are a technology service company in the telecommunications industry
with a rapidly expanding national geographic service coverage area. We design,
implement, support and manage LAN/WAN computer network systems, voice
communication network systems, and premise wiring for both data and voice. In
addition, we distribute and maintain equipment on behalf of major
telecommunication equipment manufacturers. Service-related revenues, maintenance
and client outsourcing services, through our wholly owned subsidiary ICF, now
represents 100% of our total revenues. Our gross margin varies significantly
depending on the percentage of service revenues versus revenues from the sale
and installation of products (with respect to which we obtain a lower margin).
For our major customers, we typically provide these services under contracts
with durations of one or more years.
Under an acquisition and consolidation strategy, we intend to build our
operations and to expand our presence primarily in high growth markets of the
United States.
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Results of Operations
Three Months Ended March 31, 2000 and 1999:
March 31 March 31
Dollars in Thousands 2000 1999
-------------------- ---- ----
Net Revenues
Data & Voice Services $5,155 $3,846
Recruitment Services $798 $1,268
---- ------
Total Revenues $5,953 $5,114
====== ======
Our revenues were $5,952,700 and $5,114,300 for the three months ended
March 31, 2000 and 1999, respectively, representing an increase of 16%. This
increase was due primarily to a 34% increase in Data and Voice Services revenue
for the period, offset by a 37% decline in Recruitment Services revenue. Data
and Voice Services benefited from a number of new client project billings, as
well as significant period conversion project work relating to one of our larger
existing clients. Recruitment Services revenue declined due to the unanticipated
loss of a number of key recruitment professionals, which have since been
replaced, as well as from a tightening of the labor market's effect on our
ability to identify qualified professionals for our clients in the period.
<TABLE>
<CAPTION>
Gross Gross
March 31 Profit March 31 Profit
Dollars in Thousands 2000 Margin 1999 Margin
-------------------- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Gross Profit
Data & Voice Services $2,550 49% $1,141 29%
Recruitment Services $269 34% $323 25%
-------------------- ---- ----
Total Gross Profit $2,818 47% $1,464 28%
</TABLE>
Cost of revenues was $3,133,800 and $3,649,900 for the three months
ended March 31, 2000 and 1999, respectively, representing a decrease of 14%.
Conversely, our Gross Profit for the comparable periods were $2,818,900 and
$1,464,400, respectively, representing an increase of 92%. Gross profit and
margin for Data and Voice Services were $2,549,500 and 49%, respectively, for
the three months ended March 31, 2000, as compared with $1,141,400 and 29%,
respectively for the three months ended March 31, 1999. The increase in margin
was due to more favorable pricing on services, more efficient management of
technical labor and lower comparable product sales, which typically carry a much
lower gross profit margin. Gross profit and margin for Recruitment Services were
$269,400 and 34%, respectively for the three months ended March 31, 2000, as
compared with $323,000 and 25%, respectively for the three months ended March
31, 1999. The increase in margin was due to a higher percentage of permanent
placement revenue as compared to the prior period, which has significantly
higher margin.
Selling, general and administrative expenses increased only 3% from
$1,334,900 for the three months ended March 31, 1999, to $1,387,700 for the
three months ended March 31, 2000, in light of revenue growth of 16%. This was
due to the focused management of our fixed operating costs period over period.
Our holding company expenses increased by $21,200 from $173,700 for the three
months ended March 31, 1999 to $194,900 for the three months ended March 31,
2000. SG&A expenses for ICF's operations increased from $1,161,200 for the three
months ended March 31, 1999 to $1,192,800 for the three months ended March 31,
2000.
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Depreciation expenses were $56,000 and $51,400 for the three months
ended March 31, 2000 and 1999, respectively. This slight increase was due to the
purchase additional field service and new office equipment. We expect 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
our business.
Amortization expense relating to goodwill was $0 and $139,100 for the
three months ended March 31, 2000 and 1999, respectively. The elimination of
goodwill amortization in 2000 was due to the write-off of goodwill in the fiscal
year ended December 31, 1999. In December 1999, under the guidelines of
Statement of Financial Accounting Standards No. 121, we assessed the
recoverability of certain of our long-lived assets, namely goodwill. We
estimated the fair value of our goodwill based on comparable assets within the
industry, our economic outlook and discounted future cashflows. These procedures
resulted in the determination that the aforementioned asset had been permanently
impaired, and a charge to earnings of $10,382,300 resulted in 1999 with the
write-off of all of our amortizable goodwill.
March 31, March 31,
Dollars in Thousands 2000 1999
-------------------- ---- ----
Earnings Before Interest, Tax,
Depreciation and Amortization $1,431 $130
Earnings before interest expense, income tax, depreciation and
amortization expenses ("EBITDA") increased by over 10 times to $1,431,200 for
the three months ended March 31, 2000 from $129,500 for the three months ended
March 31, 1999.
Interest Income increased slightly from $1,600 for the three months
ended March 31, 1999 to $2,200 for the three months ended March 31, 2000 due to
slightly higher average daily cash balances with interests rates earned
remaining relatively constant throughout the comparable periods.
Interest Expense increased for the three months ended March 31, 2000 to
$41,100 from $11,700 for the three months ended March 31, 1999, due to increased
borrowing of our working capital line of credit which was utilized to accelerate
the repayment of ICF's income tax liabilities relating to years prior to 1998,
as well as to fund the growth in our working capital.
Interest Expense - Related Party increased slightly for the comparable
period to $118,600 due to a slightly higher interest rate versus the prior year
on the same principal balance, and the inclusion of a non-cash charge relating
to the amortization of deferred finance charges of $30,000 in the Quarter.
Other Income (Expense) is comprised mostly of bank fees and charges
associated with our line of credit, offset by miscellaneous income for the
period, which resulted in income of $300 for the three months ended March 31,
2000, versus $2,900 for the three months ended March 31, 1999.
An Income Tax provision of $480,000 was taken for the three months
ended March 31, 2000 due to our increase in taxable income versus a year ago.
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Net Income increased to $738,000, or $.04 per share, fully-diluted for
the three months ended March 31, 2000 versus a Net Loss of $151,700 for the
three months ended March 31, 1999.
Results of Operations
Years Ended December 31, 1999 & 1998
Our consolidated statement of operations in 1998 includes our
results and the results of our wholly-owned subsidiary CCI for the twelve months
ended December 31, 1998, as well as the results of operations of ICF for the
four months ended December 31, 1998. CCI's customer base was absorbed by ICF
effective August of 1998. Our consolidated statement of operations in 1999
includes our results and the results of our wholly-owned subsidiary ICF for the
twelve months ended December 31, 1999.
Dollars in Thousands 1999 1998
-------------------- ---- ----
Net Revenues
Data & Voice Services $16,267 $6,037
Recruitment Services $4,829 $1,890
-------------------- ------ ------
Total Revenues $21,096 $7,927
======= ======
Revenues in 1999 grew by over 166% over the comparable 1998 period.
Data and Voice Services revenue grew by 169% over the prior year primarily due
to the inclusion of ICF for a full 12 month period versus only four months in
1998. Secondarily, a more focused sales effort was initiated to take advantage
of increased demand for services among our target customers. This increased
demand continues to be the result of favorable economic conditions, as well as
increased merger and acquisition activity in the banking and finance industries
that affected our most significant customers. Recruitment Services revenue
increased by 155% primarily due to the inclusion of ICF for a full 12 month
period versus only four months in 1998, but offset by increased competition and
a tightening labor pool for telecommunications specialists which we target.
<TABLE>
<CAPTION>
Gross Gross
Profit Profit
Dollars in Thousands 1999 Margin 1998 Margin
-------------------- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Gross Profits
Data & Voice Services $5,733 35.2% $2,343 38.8%
Recruitment Services $1,373 28.4% $ 573 30.3%
-------------------- ------ ------
Total Gross Profits $7,105 33.7% $2,916 36.8%
====== ======
</TABLE>
Cost of revenues increased 179% from 1999 over 1998. Data and Voice
cost of services increased 185%, while Recruitment costs of services grew by
162%, due primarily to the inclusion of ICF cost of services for a full 12 month
period versus only four months in comparable 1998. Gross profits grew an overall
143% during 1999 as compared with the Pro forma 1998. Data & Voice Services
gross profits grew by 144%, with gross margin decreasing from 38.8% of sales in
Pro forma 1998 to 35.2% of sales in 1999. The decrease in gross margin is the
result of the inclusion of only four months of ICF, which has slightly lower
margin on higher volume of service revenue as compared with CCI in 1998.
Recruitment Services gross profits increased 139%, with gross margins decreasing
from 30.3% in 1998 to 28.4% in 1999. The gross margin reported for
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1998 was not indicative of an annualized profit margin for Recruitment services,
but rather the result of a higher concentration of higher margin permanent
placement revenue in the last four months of 1998.
Selling, general and administrative expenses increased from $2,644,300
to $5,676,400, or 114% from 1998 to 1999. This was due to the inclusion of ICF's
selling, general and administrative expenses for a full 12 month period in 1999
versus only four months in 1998. Our holding company expenses declined from
$981,700 in 1998 to $613,100 in 1999 due to significant cost cutting and expense
rationalization during 1999. SG&A expenses for ICF's operations increased from
$1,662,600 for the four months of 1998 to $4,858,900 for the 12 months of 1999
in which ICF opened an addition service office in Fresno, California, added key
service technician, engineers and sales personnel, and increased sales
commissions and training expenses. In addition, a noncash charge of $204,400 for
a consulting expense was recognized within general and administrative expenses
relating to stock options granted to a consultant at below fair market value for
services rendered to us on the restructuring of related-party notes payable to
unsecured subordinated debt. This charge represents the difference between the
fair market value at the grant date and the exercise price.
Noncash expenses include depreciation, amortization, and a charge for
the impairment of long-term asset as discussed below:
Depreciation: Depreciation expense was $207,500 for 1999, compared with
$95,900 in 1998. The increase is due to the inclusion of ICF for a full 12 month
period versus only four months in 1998.
Amortization of Goodwill: Amortization of goodwill resulting from the
purchase of ICF increased to $556,200 in 1999 from $185,300 in 1998 due
amortizing four months in 1998 compared with 12 months in 1999.
Impairment of Long-term Asset: In December 1999, under the guidelines
of Statement of Financial Accounting Standards No. 121, we assessed the
recoverability of certain of our long-lived assets, namely Goodwill. We
estimated the fair value of our Goodwill based on comparable assets within the
industry, our economic outlook and discounted future cashflows. These procedures
resulted in the determination that the aforementioned asset had been permanently
impaired, and a charge to earnings of $10,382,300 resulted in 1999.
Interest Income remained unchanged in 1999 as compared with 1998 due to
the average daily cash balances and interests rates earned remaining relatively
constant on average throughout 1998 and 1999.
Interest Expense increased in 1999 to $221,900 due to increased
borrowing of our working capital line of credit which was utilized to accelerate
the repayment of ICF's income tax liabilities relating to years prior to 1998,
as well as to fund the growth in our working capital. This resulted in cash
interest expense of $171,700 in 1999. In addition, a noncash charge of $50,200
was recognized in 1999 relating to stock options granted to our President and
Chief Operations Officer as part of the restructuring of notes payable to them
by us into three-year, interest-only unsecured
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subordinated notes. The charge represents the difference between the fair market
value at the grant date and the exercise price, divided by 36 months, the life
of the new loan. We recognized five months of expense in 1999 of the 36 months.
Interest Expense - Related Party increased due to the inclusion of ICF
acquisition-related debt for a full 12 month period versus only four months in
1998.
Other Expense is comprised mostly of bank fees and charges associated
with our line of credit, and declined in 1999 to $18,200 from $47,700 in 1998
primarily due to an offsetting insurance claim income of $29.
Income Taxes increased to $146,000 in 1999 from $117,200 in 1998 due
greater reportable income from operations after adding back certain noncash
charges which were not deductible for taxes. The components of income taxes were
as follows for the years ended December 31, 1999:
1999 Federal State Total
---- ------- ----- -----
Current $214,000 $56,000 $270,000
Deferred ($42,300) ($3,000) ($45,300)
--------- ------- --------
$171,700 $53,000 $224,700
======== ======= ========
Net Loss increased to $10,570,200 due primarily to the extensive
noncash charge from the write-off of substantially all of our goodwill. Adjusted
for the noncash charges, our net income would have been approximately $572,700
in 1999 versus a Net Loss of $145,600 in 1998.
Results of 1999 Operations
As Compared with Pro forma 1998 Operations
Our consolidated statement of operations in 1998 includes our results
and the results of our wholly-owned subsidiary CCI for the twelve months ended
December 31, 1998, as well as the results of operations of ICF for the four
months ended December 31, 1998. CCI's customer base was absorbed by ICF
effective August of 1998. Our consolidated statement of operations in 1999
includes our results and the results of our wholly-owned subsidiary ICF for the
twelve months ended December 31, 1999. Due to 100% of our revenues being
generated by ICF, the Company and Management have also compared the results of
our 1999 operations with those of 1998 as if ICF had been acquired on January 1,
1998 ("Pro forma 1998").
Pro forma
Dollars in Thousands 1999 1998
-------------------- ---- ----
Net Revenues
Data & Voice Services $16,267 $14,278
Recruitment Services $4,829 $5,424
-------------------- ------ ------
Total Revenues $21,096 $19,702
======= =======
Revenues in 1999 grew in excess of 7% over the Pro forma 1998 revenues.
Data and Voice Services grew by 13.9% over the prior year as a more focused
sales effort was initiated to take advantage of increased demand for services
among our target customers. This increased demand continues to be the result of
favorable economic conditions, as well as increased merger and acquisition
activity in the banking industries which affected our most significant
customers.
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Recruitment Services revenues declined by 10% due to increased competition and a
tightening labor pool for telecommunications specialists which we target.
Gross Gross
Profit Pro forma Profit
Dollars in Thousands 1999 Margin 1998 Margin
-------------------- ---- ------ ---- ------
Gross Profits
Data & Voice Services $5,733 35.2% $4,742 33.2%
Recruitment Services $1,373 28.4% $1,527 28.1%
------ ------
Total Gross Profits $7,106 33.7% $6,269 31.8%
====== ======
Gross profits grew an overall 13.3% during 1999 as compared with the
Pro forma 1998. Data & Voice Services gross profits grew by 20.8%, with gross
margin increasing from 33.2% of sales in Pro forma 1998 to 35.2% of sales in
1999. The increase in gross margin is the result of a more efficient scheduling
of our technical staff availability causing a reduction in downtime, and a
decline in the percentage of equipment sales to overall sales which have a lower
profit margin than service revenues. Recruitment Services gross profits declined
10%, with gross margins increasing slightly from 28.1% in Pro forma 1998 to
28.4% in 1999. Margins improved slightly due to favorable increase in permanent
placements which carry a higher profit margin versus temporary placement
revenues which are slightly less.
Selling, general and administrative expenses increased only slightly
from $5,676,400 to $5,755,100, or 4% from Pro forma 1998 to 1999. Cost cutting
and expense rationalization in our holding company and corporate activities
reduced our holding company expenses from $981,700 in Pro forma 1998 to $613,100
in 1999. SG&A expenses for ICF's operations increased from $4,494,700 in Pro
forma 1998 to $4,858,900 in 1999. This increase was the result of opening an
addition service office in Fresno, California, the addition key service
technician, engineers and sales personnel, and increased sales commissions and
training expense. Additionally, other general and administrative expenses
included a noncash charge of $204,400 for a consulting expense was recognized
within general and administrative expenses relating to stock options granted to
a consultant at below fair market value for services rendered to us on the
restructuring of related-party notes payable to unsecured subordinated debt.
This charge represents the difference between the fair market value at the grant
date and the exercise price.
Earnings before interest, taxes, depreciation, amortization and other
non-cash charges ("EBITDA") increased from $792,700 in Pro forma 1998 to in
excess of $1,633,400 in 1999. Adding back expenses related to our holding
company and general corporate activities related to being a public company, our
EBITDA would have exceeded $2,246,500 in 1999.
Depreciation expense was $207,500 for 1999, compared with $202,000 in
Pro forma 1998. The slight increase is due to the purchase of additional
computer, testing and office equipment which is depreciated over a short period
than other fixed assets.
All other financial information related to Consulting expense,
Amortization expense, charge for Impairment of Long-term Asset, Interest
expense, and Other Income (Expense) are the same as above.
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Liquidity and Capital Resources as of March 31, 2000
Cash and cash equivalents decreased to $311,600 at March 31, 2000
compared to $385,100 at December 31, 1999.
Cash Flows From Operating Activities: For the three months ended March
31, 2000, cash used in operating activities was $32,500 which resulted primarily
from our net income of $738,000, increased by noncash charges of $266,000,
decreased by our growth in operating assets of $1,782,700 and increased by our
growth in liabilities of $746,200.
Accounts receivables increased $1,592,200 due to greater activity in
the first quarter of 2000 as well as overall growth in our business. Payables
and accruals increased due to greater purchases and accrued payroll.
Cash Flows From Investing Activities: For the three months ended March
31, 2000, net cash used for investing activities was $60,900, as a result of
$55,000 in new equipment purchases, offset by asset sales and deposit increases
of $5,900.
Cash Flows From Financing Activities: For the three months ended March
31, 2000, net cash generated from our financing activities was $19,900, due
primarily from our line of credit usage.
In September of 1999, ICF secured a $3 million Line of Credit facility
("Line of Credit Facility") with Coast Business Credit, a division of Southern
Pacific Bank. This credit facility has a two-year term and all amounts borrowed
will accrue interest at 2% over the prime rate. The Line of Credit Facility is
secured by substantially all of ICF's assets and contains customary covenants
and restrictions. The Line of Credit Facility is being used to support working
capital and may be used to finance smaller acquisitions. Specific uses of the
Line of Credit Facility included: (i) the payment of the balance of income taxes
due to the IRS and California Franchise Tax Board; (ii) the consolidation of
various notes payable; and (iii) various working capital purposes including
additional acquisition financing.
Our long-term liabilities also include $3,500,000 in Related Party
Notes Payable. In consideration for the sale of ICF to us, the two principal
owners of ICF, Messrs. Burns and Lincoln, received an aggregate of $14,000,000,
payable as follows: $1,500,000 in cash at the closing of the transaction;
$1,500,000 in promissory notes due and payable January 5, 1999, secured by all
of our accounts receivable; $1,000,000 in promissory notes due and payable
January 4, 1999; $1,000,000 in promissory notes due and payable August 17, 1999;
and 6,493,506 shares of our common stock valued at $9,000,000 or $1.386 per
share. We were unable to pay off the January 4, 1999, and January 5, 1999,
promissory notes as of their maturity dates. On August 10, 1999, we entered into
an agreement with the Messrs. Burns and Lincoln, to refinance these notes with
new notes under different terms and conditions. Specifically, we agreed with
Messrs. Burns and Lincoln to extend the term of each note to three years,
payable in full on the third anniversary (i.e., August 10, 2002). Interest is
accruing at 10% per annum and paid monthly.
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Our net working capital at March 31, 2000 was a positive $3,858,100, an
increase of $939,600. We believe that our current cash flow from operations plus
our present sources of liquidity from current assets, and funds from the Line of
Credit Facility, will be sufficient to finance operations for the foreseeable
future and meet our short-term obligations.
We intend to continue our search for additional merger and acquisition
candidates that will expand our existing markets in related products and
services. These potential acquisitions are anticipated being funded with a
combination of additional bank debt, debt provided by the sellers of the
companies we purchase, and from the private or public sale of additional equity
securities.
We have depended on a few large customers for the majority of our
revenue to date. A loss of any one could have a material effect on our
liquidity. Due to the quality of our major customers, the collectability of
accounts receivable has not been a problem.
Liquidity and Capital Resources as of December 31, 1999
Cash and cash equivalents decreased to $385,100 at December 31, 1999
compared to $1,018,500 at December 31, 1998.
Cash Flows From Operating Activities: For the year ended December 31,
1999, cash used in operating activities was $1,082,600 which resulted primarily
from our net loss of $10,570,200, offset by noncash expenses of $11,376,200,
increases in operating assets of $1,080,700 and liabilities of $807,900.
Accounts receivables increased $1,130,500 due to greater activity in
the fourth quarter as well as overall growth in business. Payables and accruals
declined slightly due to taking advantage of purchase discounts.
Income taxes payable were eliminated in 1999, declining $775,300 in
September of 1999. In June of 1998, ICF agreed to Income Tax Examination Changes
by the IRS which resulted in additional income tax liabilities to the IRS for
the years 1995, 1996 and 1997 of $1,114,827. At December 31, 1998, ICF had
income tax liabilities for those years of $786,409 to the IRS and $217,741 to
the State of California. In January of 1999, the IRS approved our request to pay
this tax liability in installments requiring monthly payments of $100,000 plus
interest and penalties until the total amount was paid in full.
Cash Flows From Investing Activities: For the year ended December 31,
1999, net cash received from investing activities was $85,700, as a result of a
$114,300 repayment from loans receivable from an officer, offset by capital
expenditures of $28,600.
Cash Flows From Financing Activities: For the year ended December 31,
1999, net cash generated from our financing activities was $393,500, as a result
of $7,400 received from the exercise and purchase of stock options, and
$6,644,100 from net borrowings on our credit line less payments of $6,132,100 as
well as a repayment of a long-term liability of $125,900.
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In September of 1999, ICF secured a $3 million Line of Credit facility
("Line of Credit Facility") with Coast Business Credit, a division of Southern
Pacific Bank. This credit facility has a two-year term and all amounts borrowed
will accrue interest at 2% over the prime rate. The Line of Credit Facility is
secured by substantially all of ICF's assets and contains customary covenants
and restrictions. The Line of Credit Facility is being used to support working
capital and may be used to finance smaller acquisitions. Specific uses of the
Line of Credit Facility included: (i) the payment of the balance of income taxes
due to the IRS and California Franchise Tax Board; (ii) the consolidation of
various notes payable; and (iii) various working capital purposes including
additional acquisition financing.
Our long-term liabilities also include $3,500,000 in Related Party
Notes Payable. In consideration for the sale of ICF to us, the two principal
owners of ICF, Messrs. Burns and Lincoln, received an aggregate of $14,000,000,
payable as follows: $1,500,000 in cash at the closing of the transaction;
$1,500,000 in promissory notes due and payable January 5, 1999, secured by all
of our accounts receivable; $1,000,000 in promissory notes due and payable
January 4, 1999; $1,000,000 in promissory notes due and payable August 17, 1999;
and 6,493,506 shares of our common stock valued at $9,000,000 or $1.386 per
share. We were unable to pay off the January 4, 1999, and January 5, 1999,
promissory notes as of their maturity dates. On August 10, 1999, we entered into
an agreement with the Messrs. Burns and Lincoln, to refinance these notes with
new notes under different terms and conditions. Specifically, we agreed with
Messrs. Burns and Lincoln to extend the term of each note to three years,
payable in full on the third anniversary (i.e., August 10, 2002). Interest is
accruing at 10% per annum and paid monthly.
Our net working capital at December 31, 1999 was a positive $2,975,000.
We believe that our current cash flow from operations plus our present sources
of liquidity from current assets, and funds from the Line of Credit Facility,
will be sufficient to finance operations for the foreseeable future and meet our
short-term obligations.
Year 2000 Compliance
Throughout 1999, we reviewed our computer systems to identify those
areas that could be adversely affected by Year 2000 software failures. We used a
number of computer software programs and operating systems in our operations,
including financial business systems, marketing and various other administrative
functions. To the extent that these software applications contained source code
that was unable to appropriately interpret the upcoming year 2000, some level of
modification and replacement of such applications was necessary.
We converted all of our information systems to be Year 2000 compliant.
During 1999, we incurred approximately $140,000 to complete the information
system conversions. To date, we have not incurred any complications or adverse
effects on our business from Year 2000 software failures.
Seasonality and Inflation
Our business is generally not impacted by seasonality, however, the
first quarter of the calendar and our fiscal year is generally our slowest
period. We do not believe that
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the effects of inflation will have a material impact on us, nor are we
aware of changes in prices of materials or other operating costs or in the
selling price of our services and products that will materially effect us.
FINANCIAL STATEMENTS
The financial statements are included herein commencing on Page 61.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to consulting, and purchase and sale agreements entered into
in January of 1998, John Ackerman, our Chairman, transferred 1,000,000 shares of
Common Stock and 500,000 shares of Common Stock at a price of $.01 per share
from his personal holdings to Albert Vasquez, one of our former directors, and
Ernie Mauritson, our former Chief Financial Officer, respectively. In April of
1999, the Audit Committee of our Board of Directors placed a value of $.01 per
share on these transactions, deeming the sale to be at fair market value, and
consequently the excess consideration was zero.
In October of 1998, John Ackerman transferred 500,000 shares of Common
Stock to a former employee of our wholly owned subsidiary, CCI, in settlement of
an employment dispute between CCI and this former employee arising in 1996 and
1997. The shares were transferred at a value of $.01 per share, the fair market
value of CCI at the time of the dispute.
On August 17, 1998, we consummated the acquisition of ICF. Under the
terms of the Agreement and Plan of Merger dated July 24, 1998 (as amended on
August 3, 1998, the "Agreement"), ICF merged with and into our wholly owned
subsidiary, COMC Acquisition Corp., which we created for purposes of this
transaction (the "Merger"). Immediately following the Merger, we changed the
name of COMC Acquisition Corp. to ICF Communication Solutions, Inc. As
consideration for the Merger, the two principals of ICF, Charles Lincoln and
William Burns, received consideration valued at $14,000,000, as follows:
$1,500,000 in cash at the closing of the Merger; $1,500,000 in promissory notes
due and payable on January 5, 1999, secured by all accounts receivable of ICF;
$1,000,000 in promissory notes due and payable January 4, 1999; $1,000,000 in
promissory notes due and payable August 17, 1999; and 6,493,506 shares of Common
Stock valued in the aggregate at $9,000,000 or $1.386 per share. We also agreed
to use our best efforts to register the shares of Common Stock issued in
connection with the Merger.
Under the Agreement, and pursuant to separate two-year employment
agreements, Messrs. Lincoln and Burns were elected to our Board of Directors.
Mr. Lincoln was also elected as our President, and as the Chief Executive
Officer of ICF. Mr. Burns was elected as our Chief Operations Officer and as the
President of ICF. Messrs. Burns' and Lincoln's employment agreements provided,
among other things, that they would each receive annual salaries of $135,000, as
well as annual bonuses at the discretion of the our Board of Directors. Messrs.
Burns recently changed his position with us and with ICF as a result of a recent
restructuring, and Mr. Lincoln's employment with us was recently terminated. Mr.
Lincoln also recently resigned from our Board of Directors. These recent events
are described on Page 48, below.
46
<PAGE>
In August of 1999, and as part of an overall restructuring of certain
of our outstanding debt obligations to Messrs. Burns and Lincoln, we entered
into a series of agreements related to such debt obligations. We also entered
into an employment agreement with Mr. Smith on August 10, 1999, which provided
for Mr. Smith to commence employment as our Chief Financial Officer on August
23, 1999, along with another group of related agreements. The agreements which
we entered into as of August 10, 1999, may be summarized as follows:
(i) two separate loan agreements, one between us and Mr. Burns, and the
other between us and Mr. Lincoln, pursuant to which we re-structured our debt
obligations to Messrs. Burns and Lincoln and extended the re-payment term of our
debt obligations to August 10, 2002;
(ii) two separate promissory notes, pursuant to which we memorialized
our 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 we
agreed to employ Mr. Burns for a term of two years as our Secretary and Chief
Operations Officer, and President of ICF;
(iv) an employment agreement with Mr. Lincoln, pursuant to which we
agreed to employ Mr. Lincoln for a term of two years as our President, and CEO
of ICF;
(v) nine separate Stock Purchase Agreements, pursuant to which various
accredited investors, including Mr. Smith, acquired a total of 1,015,000 shares
of Common Stock from Mr. Ackerman;
(vi) a Contribution Agreement by and between us and Mr. Ackerman
pursuant to which Mr. Ackerman contributed 3,651,948 outstanding shares of
Common Stock to us in order to fund options we granted to Messrs. Burns, Lincoln
and Smith, and Gramercy National Partners, LLC ("Gramercy");
(vii) four separate stock option agreements, pursuant to which we
granted Messrs. Burns, Lincoln, Smith, and Gramercy options to acquire a total
of 3,651,948 shares of Common Stock;
(viii) a Registration Rights Agreement, pursuant to which we 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 us, William M. Burns and
Nellie J. Burns, Trustees of the Burns Family Trust (the "Burns Trust"), Charles
E. Lincoln and Carolyn D. Lincoln, Trustees of the Lincoln Family Trust (the
"Lincoln Trust"), and Messrs. Ackerman and Smith, providing for, among other
things:
(A) the ability of the Burns Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis), the Lincoln Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis,) and Messrs. Ackerman (2,833,252
shares and 500,000 shares via irrevocable proxy) and Smith (200,000 shares,
2,663,896 shares on a fully diluted basis, and 815,000 shares via irrevocable
47
<PAGE>
proxy) to nominate one member of the Board of Directors at each annual meeting
and the four of them together to nominate a fifth member of the Board of
Directors,
(B) an agreement to vote for the election of those five
nominated directors, and
(C) certain rights of first refusal and restrictions on sales
of Common Stock by the parties to the agreement.
(x) an employment agreement with Mr. Smith, pursuant to which we agreed
to employ Mr. Smith for a term of two years as our Chief Financial Officer and
as Executive Vice President of ICF;
After the closing of the above referenced transactions, the total
number of issued and outstanding shares of our Common Stock was 19,401,491. Mr.
Ackerman's stock ownership decreased from 8,000,200 to 3,333,252. Mr. Smith now
owns 200,000 shares and the option to purchase an additional 2,463,896 shares.
Other accredited investors purchased a total of 800,000 shares from Mr. Ackerman
at $.50 per share. Mr. Ackerman used a portion of the proceeds from such sales
to re-pay the balance of a loan that we made to Mr. Ackerman, which, at the time
of re-payment, equaled $114,281. Gramercy purchased 15,000 shares from Mr.
Ackerman at $.50 per share and acquired the option to purchase an additional
434,806 shares from us. Messrs. Burns and Lincoln were granted options to
purchase 376,623 shares each from us.
Effective October 11, 1999, we instituted a number of organizational
and administrative changes involving certain key personnel. Specifically, Mr.
Ackerman resigned from his position as our Chief Executive Officer and was
appointed the Chairman of the Board of ICF. Mr. Ackerman continues to serve as
the Chairman of our Board of Directors. Mr. Lincoln was appointed as our Chief
Executive Officer and continued to serve as our President. Mr. Burns was
appointed the President and CEO of ICF. These changes were motivated by a desire
to streamline our management, as well as the management of ICF, and to allow
these key employees to focus on those areas where their strengths are greatest.
These changes were approved by our Board of Directors and the Board of Directors
of ICF effective as of October 11, 1999.
In November 1999, our Board of Directors determined that it was in the
best interests of the Company to adopt the COMC, Inc. 1999 Stock Option Plan
(the "1999Plan"). The 1999 Plan was adopted by our Board of Directors on
November 30,1999, and 240,000 shares of our common stock were reserved for
issuance under the 1999 Plan. Our Board of Directors plans to present the 1999
Plan for approval to our stockholders at their 2000 annual meeting. Subject to
the approval of our stockholders, in November, 1999, we granted incentive stock
options to our employees to acquire a total of shares of our common stock at an
exercise price of $.50 per share, with the right to exercises such options
vesting over a five year period.
On November 30, 1999, Mr. Smith was appointed to our Board of Directors
in order to fill one of the vacancies created by the resignations of Messrs.
Vasquez, Horowitz and Loeb in early 1999.
During a meeting of our Board of Directors that took place on March 27,
2000, our Board of Directors approved resolutions that, among other things,
authorized the following: (i) the sale of Two Million Six Hundred Twenty-five
Thousand Dollars worth of our common stock (ii) the
48
<PAGE>
termination of Mr. Lincoln's employment with the Company and the negotiation of
a settlement and mutual release agreement by and between the Company, ICF and
Mr. Lincoln. Our Board of Directors determined that the termination of Mr.
Lincoln was necessary due to differences in management styles between Mr.
Lincoln and our other officers and different visions for the future of the
Company.
On May 10, 2000, we entered into a Settlement and Release Agreement
with Mr. Lincoln. ICF was also a party to this agreement. This Settlement and
Release Agreement provided for, among other things: a) the termination of Mr.
Lincoln's Employment as our President and Chief Executive Officer and the
termination of our Employment Agreement with Mr. Lincoln; b) our agreement to
repay all amounts owing under our note made in favor of Mr. Lincoln in the
original principal amount of $1,750,000; c) our agreement to pay a lump sum of
$185,291.73 to Mr. Lincoln as an aggregate severance payment under Mr. Lincoln's
Employment Agreement; d) our agreement to pay for Mr. Lincoln's continued
participation in the Company's health insurance and disability insurance
programs (to the extent such programs were previously offered to Mr. Lincoln and
continued participation is permitted under such programs), until August 10,
2001; and e) the mutual release of all claims that we or ICF has or may have
against Mr. Lincoln, and vice versa.
On May 11, 2000, Mr. Lincoln tendered his resignation as a member of
our Board of Directors, to be effective immediately. Mr. Lincoln's letter of
resignation does not state any reason for his resignation.
Effective as of May 18, 2000, Mr. Smith was appointed as our CEO. At
this time, Mr. Smith was also appointed as our President until such time that
our Board of Directors is able to locate a successor or a new President is
elected by our directors at the next meeting of our Board of Directors,
whichever occurs earlier.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Equity
Our Common Stock is quoted Over The Counter on the electronic Bulletin
Board. The following table sets forth the high and low bid quotations for our
Common Stock through the quarter ended March 31, 2000. Prior to the fiscal
quarter ended March 31, 1998, no trading market existed for our securities.
These quotations have been reported by the National Association of Securities
Dealers, Inc. and represent quotations by dealers without adjustments for retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
Common Stock
Fiscal Quarter ---------------------------
Ended High Low
-------------- ------ ------
March 31, 1999 $2.125 $.50
June 30, 1999 $1.50 $1.00
September 30, 1999 $1.50 $.75
49
<PAGE>
December 31, 1999 $1.5625 $.125
March 31, 2000 $2.00 $.625
On March 31, 2000, the closing price for our Common Stock on the
Bulletin Board was $1.125 and there were approximately 2,893 registered holders
of record of our Common Stock. This does not include beneficial shareholders
whose Common Stock is held in street name. On June 8, 2000, the closing price
for our Common Stock on the Bulletin Board was $1.37.
See "Description of Securities" at Page 51 and "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" at Page 36.
Dividend Policy
We have never declared or paid a cash dividend on our Common Stock. We
intend to retain all earnings for the foreseeable future for use in the
operation and expansion of our business and, accordingly, we do not contemplate
declaring or paying any cash dividends on our Common Stock in the near future.
Payment of future dividends, if any, will be at the discretion of our Board of
Directors after taking into account various factors, including our financial
condition, operating results and current and anticipated cash needs.
Sales of Unregistered Securities
In July 1998, pursuant to a private placement, we issued a number of
foreign financial institutions units consisting of an aggregate of 1,000,000
shares of Common Stock and warrants to purchase 200,000 shares of our Common
Stock at $2.00 per share until July 31, 2000. These issuance's were exempt from
registration under Rule 506 promulgated under the Securities Act. The total
gross cash proceeds of this offering were $1,500,000. In the same month, an
additional 33,334 shares of our Common Stock and 6,666 warrants were sold to a
single U.S. investor on the same terms.
In connection with the aforementioned private placement, we issued
30,000 shares of Common Stock and 100,000 warrants to purchase Common Stock at
$1.50 per share until July 31, 2000 to nominees of an overseas entity that
provided assistance with the completion of this offering. These issuance's were
exempt from registration pursuant to Section 4(2) of the Securities Act.
In August 1998, we issued an aggregate of 6,493,506 shares of Common
Stock to Messrs. Lincoln and Burns in connection with our acquisition of ICF.
These issuance's were exempt from registration pursuant to Section 4(2) of the
Securities Act.
In August of 1999, we issued options to acquire a total of
3,651,948 shares of Common Stock in connection with the restructuring of certain
debt obligations to Messrs. Burns and Lincoln and in connection with the hiring
of Mr. Smith. Specifically, Messrs. Burns and Lincoln received options to
acquire a total of 376,623 shares of our Common Stock each, Mr. Smith received
options to acquire a total of 2,463,896 shares of our Common Stock, and Gramercy
National Partners, for its assistance in connection with the aforementioned debt
restructuring and the hiring of Mr. Smith, received options to acquire a total
of 434,806 shares of our Common Stock. These issuances were exempt from
registration pursuant to Section 4(2) of the Securities Act. Simultaneous with
these option grants, Mr. Ackerman
50
<PAGE>
contributed into our treasury 3,651,948 shares of Common Stock from his personal
holdings in order to fund these grants. Subsequently, in October of 1999, an
option for 86,961 shares of Common Stock was exercised and 86,961 shares of
Common Stock were issued from our treasury. As of December 31, 1999 we had
reserved 3,564,987 shares of Common Stock for issuance upon exercise of issued
and outstanding options.
In November 1999, our Board of Directors determined that it was in our
best interests to adopt the COMC, Inc. 1999 Stock Option Plan (the "1999 Plan")
for the benefit of certain of our key employees. The 1999 Plan was adopted by
our Board of Directors on November 30,1999, and 240,000 shares of our common
stock were reserved for issuance under the 1999 Plan. Our Board of Directors
plans to present the 1999 Plan for approval to our stockholders at their 2000
annual meeting. Subject to the approval of our stockholders, in November, 1999,
we granted incentive stock options to our employees to acquire shares of our
common stock at an exercise price of $.50 per share, with the right to exercise
such options vesting over a five year period.
From April 17, 2000, through May 15, 2000, we raised approximately
$1,320,000 through a private placement of 1,320,000 shares of our common stock
and options to purchase 660,000 shares of our common stock for $1.00 per share
with various accredited investors (the "Investors"). The options are exercisable
at any time within the next five years. On April 26, 2000, some of the Investors
exercised options and purchased 472,500 shares of common stock under their
option agreements. In connection therewith, 236,250 shares of our common stock
were surrendered to us at the April 26, 2000 OTCBB closing price of $2.00 per
share in a "cashless" transaction and in full payment of $472,500 due from
exercise. Consequently, only 236,250 shares of common stock were issued as a
result of this exercise of options. As of May 10, 2000, and based upon the above
referenced transactions, we have a total of 20,947,741 shares of common stock
issued and outstanding, of which 3,564,987 are held in Treasury.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings and to our knowledge no
legal proceedings are threatened against us.
DESCRIPTION OF SECURITIES
We are authorized to issue 40,000,000 shares of Common Stock, par value
$.01 per share. As of June 9, 2000 a total of 20,957,741 shares of our common
stock are currently issued and outstanding (of which 3,564,987 are held in
treasury for the exercise of stock options).
The following is a brief description of the securities offered hereby.
The rights of the holders of shares of our capital stock are established by our
Certificate of Incorporation, our By-laws and Illinois Law. The following
statements do not purport to be complete or give full effect to statutory or
common law, and are subject in all respects to the applicable provisions of our
Certificate of Incorporation, Bylaws and Illinois State law. For additional
information, please refer to our Certificate of Incorporation and Bylaws, which
are exhibits to this Prospectus.
Holders of Common Stock are entitled to one vote for each share held
and have no cumulative voting rights. In addition, a majority vote of our
stockholders is all that is required for most actions to be taken by our
stockholders, including the election of our directors. Accordingly, the holders
of more than 50% of the issued and outstanding shares of our Common Stock
entitled to vote for election of directors can elect all the directors if they
choose to do so. After completion of this offering, the current stockholders
collectively will continue to own more than 50% of the outstanding shares of
Common Stock. All shares of Common Stock now outstanding are fully paid and
nonassessable. Our Board of Directors is authorized to issue additional shares
of Common Stock within the limits authorized by our Certificate of Incorporation
without stockholder action.
The holders of our Common Stock have no preemptive or subscription
rights in later offerings of Common Stock and are entitled to share ratably: (i)
in such dividends as may be declared by our Board of Directors out of funds
legally available for such purpose and (ii) upon liquidation, in all of our
assets remaining after payment in full of all of our debts and obligations and
any preferences granted in the future to any preferred stock. To date, we have
not paid any dividends on our Common Stock.
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<PAGE>
All 14,058,700 shares of Common Stock beneficially owned or controlled
via proxy by Messrs. Ackerman, Burns, the Burns Trust, Lincoln, the Lincoln
Trust, and Smith are subject to a Stockholders Agreements by and between Messrs.
Ackerman, the Burns Trust, the Lincoln Trust, Smith and the Company, which
provides for, among other things:
(A) the ability of the Burns Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis), the Lincoln Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis,) and Messrs. Ackerman (2,833,252
shares and 500,000 shares via irrevocable proxy) and Smith (200,000 shares,
2,663,896 shares on a fully diluted basis, and 815,000 shares via irrevocable
proxy) to nominate one member of the Board of Directors at each annual meeting
and the four of them together to nominate a fifth member of the Board of
Directors,
(B) an agreement to vote for the election of those five
nominated directors, and
(C) certain rights of first refusal and restrictions on sales
of Common Stock by the parties to the agreement.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Officers and Directors
Our officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Position
------- ---- --------
<S> <C> <C>
John Ackerman 42 Chairman of the Board
Christopher R. Smith 36 Chief Executive Officer, Interim President,
Chief Financial Officer, Director
William M. Burns 41 Chief Operations Officer, Director
Donald Baker 70 Director
</TABLE>
John Ackerman has been our Chairman since November 1996, and served as
our Chief Executive Officer from November 1996 until October 1999. Mr. Ackerman
founded and had been the President and Chief Executive Officer of CCI since its
inception in 1987. From 1984-1987, Mr. Ackerman was employed as a technician at
Sunglo Electric. Mr. Ackerman was also formerly
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<PAGE>
employed as a Production Manager at International Television Services, and was
an import/export broker at London-based Justwise Limited, overseeing that firm's
European sales and operations.
Mr. Smith is our Chief Executive Officer, our interim President and
Chief Financial Officer. Mr. Smith is responsible for day to day management,
acquisitions, strategic planning and financial reporting on our behalf and on
behalf of our subsidiaries. Mr. Smith became one of our Directors in November of
1999. Prior to joining us in 1999, Mr. Smith spent over seven years as a
Managing Director with Wafra Partners, L.P., a New York-based private equity
investment fund. Prior to Wafra, Mr. Smith was a Vice President with Kouri
Capital, Inc., a private merchant bank group. Mr. Smith also held senior
positions with Lambert Brussels Capital Corp. (an affiliate of Drexel Burnham
Lambert) and First Union Corporation. Mr. Smith earned his degree in finance and
accounting from Florida State University in 1985.
Mr. Burns is our Chief Operations Officer, and a Director. Mr. Burns
was also a co-founder of and is now the President and CEO of ICF. Mr. Burns has
over eighteen years of experience in the communications industry, starting ICF's
predecessor in 1988. Prior to that, he held technical and management positions
at the PacTel-PacBell Company. Prior to that he was employed at John Jackson
Enterprises in Sacramento from 1978 through 1986. Mr. Burns attended four years
of college at Rockland, California.
Mr. Baker has been one of our Directors since 1993. Mr. Baker recently
retired after 39 years as a partner of the law firm of Baker & McKenzie, and as
Secretary, General Counsel and Director of AirSouth, Inc., an airline operating
in the Southeast. Mr. Baker holds a J.D.S. degree from the University of Chicago
Law School. Mr. Baker is a director of the Mid-America Committee on
International Business and Government Corporation, Chicago, and a director of
Cardiometrics, Inc., Santa Ana, California.
There is no family relationship among any of our directors, officers or
key employees.
Board of Directors
Our By-laws provide that the Board of Directors shall be composed of
five to seven members. Each director is elected at our annual meeting of
stockholders and holds office until the next annual meeting of stockholders, or
until his successor is elected and qualified. Our By-laws permit the Board of
Directors to fill any vacancy and the new director may serve until the next
annual meeting of stockholders or until his successor is elected and qualified.
Currently our Board of Directors consists of John J. Ackerman,
Chairman, Donald Baker, William M. Burns, and Christopher R. Smith. Charles E.
Lincoln recently resigned from our Board of Directors, as described above,
leaving a vacancy which we are planning to fill in the near future.
Pursuant to a Stockholders Agreement, Messrs. Ackerman, Burns, Lincoln
and Smith have agreed and vote all shares of our Common Stock beneficially owned
or controlled by them as a block on certain issues, including but not limited to
the nomination and election of our directors. As a result, these stockholders,
acting together will be able to nominate and elect all of our directors,
thereby exercising control over our affairs.
53
<PAGE>
Committees of the Board
We are in the process of selecting members for standing committees
previously established by our Board of Directors. Specifically, we are in the
process of selecting members for our Executive Committee, our Audit Committee,
our Compensation Committee, and our Option Committee.
Director Compensation
Our directors are not entitled to receive any compensation for serving
as such. Our directors are entitled to be reimbursed for reasonable expenses
incurred in the performance of their duties.
Officers
Officers are elected by our Board of Directors and their terms of
office are, except to the extent governed by employment contracts, at the
discretion of the Board. Presently, John J. Ackerman is our Chairman,
Christopher R. Smith is our Chief Executive Officer, Interim President and Chief
Financial Officer, and William M. Burns is our Chief Operations Officer. Our
Board of Directors has directed our officers to conduct a national search for a
permanent President who will fill the position that Mr. Smith is now holding on
an interim basis.
1999 Stock Option Plan
In November 1999, our Board of Directors determined that it was in our
best interests to adopt the COMC, INC. 1999 Stock Option Plan (the "1999 Plan")
governing the issuance of options to directors, officers, key employees,
consultants and advisors. At the time that our Board of Directors adopted the
1999 Plan, 240,000 shares of our common stock were reserved for issuance under
the 1999 Plan. Our Board of Directors plans to present the 1999 Plan for
approval to our stockholders at their 2000 annual meeting.
Options must be issued at prices not less than 100 percent and 85
percent, for incentive and non-statutory options, respectively of the estimated
fair value of the Common Stock on the date of grant and are exercisable for
periods not exceeding ten years from the date of grant. Options granted to
stockholders who own greater than 10 percent of the outstanding stock at the
time of grant are exercisable for periods not exceeding five years from the date
of grant and must be issued at prices not less than 110 percent of the estimated
fair value at the date of grant.
Options granted under the 1999 Plan generally vest ratably over four
years following the date of grant, although the Board of Directors may issue
options that vest over a period up to five years. We have certain repurchase
rights and rights of first refusal on shares purchased under the 1999 Plan.
Subject to the approval of our stockholders, in November, 1999, we
granted incentive stock options to our employees to acquire a total of shares of
our common stock at an exercise price of $.50 per share, with the right to
exercise such options vesting over a five year period.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent of a
registered class of our 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 us with copies of all Section 16(a) forms they file. Mr.
Ackerman, the Burns Trust and the Lincoln Trust have recently made necessary
Section 16(a) filings, and are now in compliance with all Section 16(a) filing
requirements. To our knowledge, Marvin Loeb and Albert Vasquez, who were both
formerly officers and directors, have not complied with all applicable Section
16(a) filing requirements. Mr. Loeb and Mr. Vasquez resigned from all of their
officer and director positions in the early part of 1999.
Limitation of Liability and Indemnification
Our bylaws provide that we will indemnify our directors, officers,
employees and agents, to the fullest extent permitted by Illinois law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Illinois law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty to COMC and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In addition, this provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws.
Each of our directors will continue to be subject to liability for:
- breach of the director's duty of loyalty to COMC;
- acts or omissions not in good faith or involving intentional
misconduct;
- knowing violations of law;
- any transaction from which the director derived an improper personal
benefit;
- improper transactions between the director and COMC; and
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of June 9, 2000, information regarding
the beneficial ownership of our Common Stock based upon the most recent
information available to us for: (i) each person known by us to own beneficially
more than five (5%) percent of our outstanding Common Stock, (ii) each of our
officers and directors and (iii) all of our officers and directors as a group.
Unless otherwise indicated in the footnotes, the address for all parties is c/o
COMC, Inc., 2840 Howe Road, Suite D, Martinez, California, 94553.
54
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Beneficially
and of Record (1)
-------------------------
Name and Address No. of Shares % of Total
---------------- ------------- ----------
<S> <C> <C>
John Ackerman(2) 3,333,252 15.9%
William Burns (3) 3,623,376 17.2%
Christopher R. Smith (4) 3,478,896 16.6%
Charles Lincoln (5) 3,623,376 17.2%
Marvin P. Loeb (6) 1,544,298 7.3%
All Five Percent Holders, Officers and Directors 15,602,998 74.4%
as a Group (5 persons)
</TABLE>
---------------------------------------------------
(1) Includes shares issuable within 60 days upon the exercise of all
options and warrants. Shares issuable under options or warrants are
owned beneficially but not of record.
(2) Includes 500,000 shares that Mr. Ackerman has the power to vote
pursuant to irrevocable proxies granted to Mr. Ackerman from two
individuals to whom a portion of Mr. Ackerman's stock was recently sold
in a private transaction.
(3) Consists of 3,246,753 shares of Common Stock held by a trust of which
Mr. Burns is a trustee and beneficiary, and includes 376,623 shares of
which Mr. Burns has a right to purchase upon exercise of options that
are currently exercisable.
(4) Consists of shares of Common Stock that Mr. Smith has a right to
purchase upon exercise of options that are currently exercisable, and
815,000 shares which Mr. Smith has the power to vote pursuant to
irrevocable proxies granted to Mr. Smith by certain accredited
investors.
(5) Consists of 3,246,753 shares of Common Stock held by a trust of which
Mr. Lincoln is a trustee and beneficiary, and includes 376,623 shares
of which Mr. Lincoln has a right to purchase upon exercise of options
that are currently exercisable.
(6) Consists of 200,000 shares of Common Stock owned directly by Mr. Smith,
2,463,896 Includes 56,127 shares of Common Stock held 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.
Shares Available for Future Sale
Upon completion of this offering, except as described below, all
17,386,456 shares included in this Prospectus (including 306,666 shares issuable
upon exercise of currently outstanding warrants and 3,752,487 shares issuable
upon exercise of currently outstanding options) will generally be freely
tradeable without restriction imposed by or further registration under the
Securities Act. An additional 3,350,485 shares of Common Stock may be deemed
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act. Such shares may be sold to the public commencing at
various dates, subject to volume restrictions, as described below.
55
<PAGE>
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including one of our
affiliates (or persons whose shares are aggregated with an affiliate of ours),
who has owned restricted shares of Common Stock beneficially for at least one
year is entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of 1 % of the total number of outstanding shares of
the same class or the average weekly trading volume of our Common Stock on all
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
one of our affiliates for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
All 14,058,700 shares of Common Stock beneficially owned or controlled
via proxy by Messrs. Ackerman, Burns, the Burns Trust, Lincoln, the Lincoln
Trust, and Smith are subject to a Stockholders Agreements by and between Messrs.
Ackerman, the Burns Trust, the Lincoln Trust, Smith and the Company, which
provides for, among other things:
(A) the ability of the Burns Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis), the Lincoln Trust (3,246,753 shares,
3,623,376 shares on a fully diluted basis,) and Messrs. Ackerman (2,833,252
shares and 500,000 shares via irrevocable proxy) and Smith (200,000 shares,
2,663,896 shares on a fully diluted basis, and 815,000 shares via irrevocable
proxy) to nominate one member of the Board of Directors at each annual meeting
and the four of them together to nominate a fifth member of the Board of
Directors,
(B) an agreement to vote for the election of those five
nominated directors, and
(C) certain rights of first refusal and restrictions on sales
of Common Stock by the parties to the agreement.
Transfer Agent
American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005, acts as Transfer Agent for our Common Stock.
Market for Our Securities
The Common Stock is currently included for quotation on the
OTC Bulletin Board under the symbol CINJ.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the compensation we and/or ICF have paid
or accrued to all executive officers during the fiscal years ended December 31,
1997, 1998, and 1999.
56
<PAGE>
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
Year Ended
Name/Principal Position December 31 Salary ($) Bonus ($) Restricted Stock Awards
========================= =================== ==================== ==================== =================================
<S> <C> <C> <C> <C>
John Ackerman 1999 137,692(/) -0- -0-
Chairman, COMC and ICF 1998 180,262 25,000 -0-
(3) 1997 96,400 -0- -0-
-------------------------------------------------------------------------------------------------------------------------
Christopher R. Smith, 1999 44,135 -0- 2,463,896
CEO, Interim President 1998 -0- -0- -0-
and CFO, of COMC, Exec. 1997 -0- -0- -0-
Vice President of ICF
-------------------------------------------------------------------------------------------------------------------------
William M Burns 1999 135,000 -0- 376,623
COO of COMC, 1998 31,731 40,000 -0-
President 1997 -0- -0- -0-
and CEO, ICF
-------------------------------------------------------------------------------------------------------------------------
Charles E. Lincoln, 1999 135,000 -0- 376,623
Former President, 1998 31,731 40,000 -0-
CEO, COMC 1997 -0- -0- -0-
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The above compensation does not include the use of an automobile and
other personal benefits, the total value of which do not exceed as to
any named officer or director or group of executive officers the lesser
of $50,000 or 10% of such person's or persons' cash compensation.
(2) Pursuant to the regulations promulgated by the Commission, the table
omits columns reserved for types of compensation not applicable to us.
(3) Mr. Ackerman resigned as President in August 1998. Mr. Ackerman
resigned as Chief Executive Officer in October 1999. Since October
1999, Mr. Ackerman has acted solely as the Chairman of the our Board of
Directors.
Stock Option Grants and Exercises
The following table sets forth information for our executive officers
who received salary compensation of more than $100,000 in 1999, relating to
option exercises in 1999 and the number and value of securities underlying
exercisable and unexercisable options held at December 31, 1999.
57
<PAGE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
Shares December 31, 1999 December 31, 1999(2)
Acquired Value --------------------------- ----------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William M. Burns 0 0 376,623 0 $393,571 0
Charles E. Lincoln 0 0 376,623 0 $393,571 0
Christopher R. Smith 0 0 2,463,896 0 $2,574,777 0
</TABLE>
(1) Value realized reflects the fair market value of our common stock
underlying the option on the date of exercise minus the aggregate
exercise price of the option.
(2) Value of unexercised in-the-money options are based on a value of
$1.125 per share, the fair market value of our common stock on
December 31, 1999 as determined by our Board of Directors. Amounts
reflected are based on the value of $1.125 per share, minus the
per share exercise price, multiplied by the number of shares
underlying the option.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective February 2, 2000, our Board of Directors decided to dismiss
Hollander, Lumer & Co. LLP ("Hollander") as our independent public accountants.
We believe and have been advised by Hollander that it concurs, that for the two
fiscal years ended December 31, 1998, and the subsequent interim period through
February 2, 2000, we did not have any disagreement with Hollander on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Hollander, would have caused Hollander to make reference in
connection with its report on our financial statements to the subject matter of
the disagreement.
The report of Hollander on our financial statements for the years
ending December 31, 1997 and December 31, 1998 did not contain an adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During that period, there
were no "reportable events" within the meaning of Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Act of 1933.
Hollander furnished a letter addressed to the Securities and Exchange
Commission stating that Hollander agreed with the above statements, which was
attached as Exhibit 1 to our Form 8-K describing the above referenced changes,
filed with the Commission on February 25, 2000.
On February 2, 2000, we engaged Deloitte & Touche LLP ("Deloitte") to
replace Hollander as our independent public accountants. On February 15, 2000,
Deloitte resigned as our independent auditors because Deloitte determined that,
prior to its engagement as auditors, it had performed certain valuation services
that could impact its independence. During the period of Deloitte's engagement,
we did not have any disagreement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope of procedure with
Deloitte, which disagreement, if not resolved to the satisfaction of Deloitte,
would have caused it to make reference in connection
58
<PAGE>
with its report on our financial statements to the subject matter of the
disagreement. Deloitte did not issue any reports on our financial statements.
Deloitte furnished a letter addressed to the Securities and Exchange
Commission stating that Deloitte agreed with the above statements, which was
attached as Exhibit 2 to our Form 8-K describing the above referenced changes,
filed on February 25, 2000.
Between February 25, 2000, and March 27, 2000, we received and reviewed
engagement proposals from other nationally recognized independent accounting
firms. On March 27, 2000, our Board of Directors decided to retain BDO Seidman,
LLP as our new independent public accountants to replace Deloitte. We formally
retained BDO Seidman, LLP as our independent public accountants on March 28,
2000. No other independent accounting firms were consulted by us on any
accounting and/or reporting matters between February 15, 2000, and March 28,
2000.
Additional details concerning these changes in our independent public
accountants may be found in Form 8K Current Reports that we filed with the SEC
on February 25, 2000 and March 29, 2000.
EXPERTS
Our audited financial statements as of December 31, 1998, and
for the fiscal year then ended is included herein and in the registration
statement in reliance upon the reports of Hollander, Lumer & Co. LLP independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Our audited financial statement as of December 31, 1999, and for the
fiscal year then ended is included herein and in the registration statement in
reliance upon the reports of BDO Seidman, LLP, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article 8.75 of the Illinois Business Corporation Act authorizes us to
indemnify any director or officer under certain prescribed circumstances and
subject to certain limitations against certain costs and expenses, including
attorneys' fees actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which such person is a party by reason of being a director or officer if it is
determined that such person acted in accordance with the applicable standard of
conduct set forth in such statutory provisions. Article 10 of our By-laws
contains provisions relating to the indemnification of directors and officers.
We may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which we could not indemnify such
person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we
59
<PAGE>
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
WHERE YOU CAN GET MORE INFORMATION
This Prospectus constitutes part of a Registration Statement on Form
SB-2 that we filed with the SEC under the Securities Act with respect to the
Shares. This Prospectus does not contain all of the information contained in the
Registration Statement. For further information about the Company and the
securities offered hereby, refer to the Registration Statement and its Exhibits.
Any statements contained in this Prospectus concerning the provisions of any
documents are not necessarily complete, and in each instance, reference is made
to the copy of such document filed as an Exhibit to the Registration Statement
or otherwise filed with the SEC. Each such statement is qualified in its
entirety by such reference. At your request, we will provide you, without
charge, a copy of any exhibits to the registration statement incorporated by
reference in this prospectus. If you want more information, write or call us at:
COMC, Inc.
2840 Howe Road, Suite D
Martinez, California 94553
(925) 335-4000
We are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and file reports and other
information with the SEC in accordance therewith. Such reports and other
information filed by the Company are available for inspection and copying at the
public reference facilities of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located at 7 World Trade Center, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, that file electronically with the SEC.
We will forward a copy of our Annual Report on Form 10-KSB/A to
security holders in conjunction with the filing as of April 27, 2000 with the
SEC of our Form 10-KSB/A for fiscal year 1999. The Annual Report includes
audited financial statements. Additional copies of the Annual Report can be
obtained from us at the address and telephone number listed above or from the
SEC as described above.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORTS............................................. 62
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (unaudited)
& DECEMBER 31, 1999 (audited)...................................... 64
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 2000 & 1999 .............................. 65
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 31, 2000 & 1999 .............................. 66
CONSOLIDATED AUDITED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1999 & 1998 .............................. 67
CONSOLIDATED AUDITED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 & 1998 .............................. 68
CONSOLIDATED AUDITED STATEMENTS OF SHAREHOLDERS'
EQUITY YEARS ENDED DECEMBER 31, 1999 & 1998 ....................... 69
CONSOLIDATED AUDITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 & 1998 .............................. 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ 71
61
<PAGE>
F-1
REPORT OF INDEPENDENT AUDITORS,
HOLLANDER, LUMER & CO. LLP
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
COMC, Inc.
We have audited the accompanying consolidated balance sheet of COMC, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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
misstatement. 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 consolidated financial position of COMC,
Inc. and subsidiaries as of December 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Hollander, Lumer & Co. LLP
HOLLANDER, LUMER & CO. LLP
Los Angeles, California
February 26, 1999
62
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders of
COMC, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of COMC, Inc. and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of COMC,
Inc. and subsidiaries as of December 31, 1999, and the results of their
consolidated operations and cash flows for the year then ended, in conformity
with generally accepted accounting principles.
BDO Seidman LLP
San Jose, California
April 2, 2000
63
<PAGE>
F-2
COMC, Inc. and Subsidiaries
Consolidated Financial Statements
March 31, 2000 (unaudited) and December 31, 1999 (audited)
<TABLE>
<CAPTION>
Consolidated Balance Sheets
-------------------------------------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $311,600 $385,100
Accounts receivable, less allowance for doubtful
accounts of $273,100 and $273,100, respectively 6,113,600 4,521,400
Inventories 225,900 194,000
Loans receivable from employee 15,600 -
Prepaid expenses and other current assets 161,200 34,900
Refundable income taxes 15,700 -
Deferred income taxes 213,500 213,500
-------------------------------------------------------------------------------------------------------------------
Total Current Assets 7,057,100 5,348,900
Property and Equipment, net 562,200 561,200
Other Assets 343,800 368,900
-------------------------------------------------------------------------------------------------------------------
$7,963,100 $6,279,000
===================================================================================================================
March 31, 2000 December 31, 1999
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
Liabilities and Shareholders' Equity
Current Liabilities:
Bank borrowings $901,600 $879,200
Accounts payable 802,300 648,000
Accrued expenses 768,000 572,800
Current portion of long-term debt 10,500 10,500
Customer 123,800 -
Accrued interest due related party 30,100 30,100
Income taxes payable 562,700 270,000
Other current liabilities - 19,800
-------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,199,000 2,430,400
Long-term Debt, less current portion 17,900 20,400
Related Party Notes Payable 3,500,000 3,500,000
Deferred Income Taxes 269,500 89,500
-------------------------------------------------------------------------------------------------------------------
Total Liabilities 6,986,400 6,040,300
-------------------------------------------------------------------------------------------------------------------
Commitments
Shareholders' Equity:
Common stock, $.01 par value; 40,000,000 shares authorized;
19,401,491 and 20,054,946 shares issued and outstanding,
respectively 194,000 194,000
Additional paid-in capital 12,918,100 12,918,100
Accumulated deficit (10,355,600) (11,093,600)
Treasury stock at cost; 3,564,987 and no shares, respectively (1,779,800) (1,779,800)
-------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 976,700 238,700
-------------------------------------------------------------------------------------------------------------------
$7,963,100 $6,279,000
===================================================================================================================
</TABLE>
64
<PAGE>
F-3
COMC, Inc. and Subsidiaries
Consolidated Unaudited Statements of Operations
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Quarters Ended March 31, 2000 1999
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Data and voice services $5,154,800 $3,846,300
Recruitment services 797,900 1,268,000
-------------------------------------------------------------------------------------------------------------------
5,952,700 5,114,300
Cost of Revenues:
Data and voice services 2,605,300 2,704,900
Recruitment services 528,500 945,000
-------------------------------------------------------------------------------------------------------------------
3,133,800 3,649,900
-------------------------------------------------------------------------------------------------------------------
Gross Profit 2,818,900 1,464,400
-------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling, general, and administrative 1,387,700 1,334,900
Noncash expenses:
Amortization of goodwill - 139,100
Depreciation and amortization 56,000 51,400
-------------------------------------------------------------------------------------------------------------------
1,443,700 1,525,400
-------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations 1,375,200 (61,000)
-------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest 2,200 1,600
Interest expense (129,600) (11,700)
Interest expense, related party (30,100) (83,500)
Other 300 2,900
-------------------------------------------------------------------------------------------------------------------
(157,200) (90,700)
-------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Provision for Income Taxes 1,218,000 (151,700)
Provision for Income Taxes 480,000 -
-------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $738,000 $(151,700)
===================================================================================================================
Basic and Diluted Income (Loss) per Common Share $0.038 $(0.007)
===================================================================================================================
Basic and Diluted Weighted-Average Common Shares Outstanding 19,401,491 20,054,946
===================================================================================================================
</TABLE>
65
<PAGE>
F-4
COMC, Inc. and Subsidiaries
Consolidated Unaudited Statements of Cash Flows
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Quarters Ended March 31, 2000 1999
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $738,000 $(151,700)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 86,000 190,400
Deferred income taxes 180,000 -
Gain loss on disposition of capital equipment (1,000) -
Changes in operating assets and liabilities:
Accounts receivable (1,592,200) (589,400)
Inventories (31,900) (67,900)
Refundable income taxes (15,700) -
Prepaid expenses and other current assets (141,900) (86,600)
Accounts payable and accrued expenses 349,500 858,500
Income taxes payable 292,700 (300,400)
Customer's deposits 123,800 -
Other current liabilities (19,800) -
-------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (32,500) (147,100)
-------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Sales of property and equipment 1,000 -
Deposits (6,900) (20,900)
Loans receivable from officer - -
Purchase of property and equipment (55,000) (32,600)
-------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (60,900) (53,500)
-------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Bank overdraft - (69,400)
Advances from bank loans and other credit institutions 22,400 -
Payment for long-term debt and short term debts (2,500) (13,800)
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Financing Activities 19,900 (83,200)
-------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (73,500) (283,800)
Cash and Cash Equivalents, beginning of period 385,100 1,018,500
-------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period 311,600 734,700
-------------------------------------------------------------------------------------------------------------------
Cash Paid For:
Interest $129,600 $95,200
===================================================================================================================
</TABLE>
66
<PAGE>
F-5
COMC, Inc. and Subsidiaries
Consolidated Audited Balance Sheets
<TABLE>
<CAPTION>
===================================================================================================================
December 31, 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents (Note 11) $ 385,100 $ 1,018,500
Accounts receivable, less allowance for doubtful
accounts of $273,100 and $276,900, respectively
(Notes 4, 11, and 12) 4,521,400 3,387,100
Inventories (Note 4) 194,000 124,200
Loans receivable from officer - 114,300
Prepaid expenses and other current assets 34,900 195,200
Deferred income taxes (Note 9) 213,500 152,600
-------------------------------------------------------------------------------------------------------------------
Total Current Assets 5,348,900 4,991,900
Property and Equipment, net (Notes 3 and 4) 561,200 715,800
Goodwill, net (Note 2) - 10,938,500
Other Assets (Note 7) 368,900 35,900
-------------------------------------------------------------------------------------------------------------------
$ 6,279,000 $ 16,682,100
===================================================================================================================
December 31, 1999 1998
-------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities:
Bank borrowings (Note 4) $ 879,200 $ 367,200
Accounts payable 648,000 676,100
Accrued expenses (Note 5) 572,800 378,800
Current portion of long-term debt (Note 4) 10,500 60,500
Notes payable to shareholders (Notes 2 and 7) - 3,500,000
Accrued interest due related party 30,100 77,400
Income taxes payable (Note 9) 270,000 1,045,300
Other current liabilities 19,800 171,000
-------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,430,400 6,276,300
Long-term Debt, less current portion (Note 4) 20,400 -
Related Party Notes Payable (Note 7) 3,500,000 96,300
Deferred Income Taxes (Note 9) 89,500 73,900
-------------------------------------------------------------------------------------------------------------------
Total Liabilities 6,040,300 6,446,500
-------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 4, 6, 8, and 10)
Shareholders' Equity (Notes 10 and 11):
Common stock, $.01 par value; 40,000,000 shares authorized; 19,401,491
shares and 20,054,946 issued and outstanding,
respectively 194,000 200,500
Additional paid-in capital 12,918,100 10,558,500
Accumulated deficit (11,093,600) (523,400)
Treasury stock at cost; 3,564,987 and no shares, respectively (1,779,800) -
-------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 238,700 10,235,600
-------------------------------------------------------------------------------------------------------------------
$ 6,279,000 $ 16,682,100
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
F-6
COMC, Inc. and Subsidiaries
Consolidated Audited Statements of Operations
<TABLE>
<CAPTION>
===================================================================================================================
Years Ended December 31, 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues (Note 12):
Data and voice services $ 16,266,500 $ 6,037,200
Recruitment services 4,829,000 1,890,000
----------------------------------------------------------------------------------------------
21,095,500 7,927,200
Cost of Revenues:
Data and voice services 10,533,700 3,695,000
Recruitment services 3,456,400 1,316,500
----------------------------------------------------------------------------------------------
13,990,100 5,011,500
----------------------------------------------------------------------------------------------
Gross Profit 7,105,400 2,915,700
----------------------------------------------------------------------------------------------
Operating Expenses:
Selling, general, and administrative 5,676,400 2,644,300
Noncash expenses:
Impairment of long-term asset (Note 2) 10,382,300 -
Amortization of goodwill 556,200 185,300
Depreciation and amortization 207,500 95,900
----------------------------------------------------------------------------------------------
16,822,400 2,925,500
----------------------------------------------------------------------------------------------
Loss From Operations (9,717,000) (9,800)
----------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 9,000 9,400
Interest expense (Note 7) (221,900) -
Interest expense, related party (397,400) (165,600)
Other (18,200) (47,700)
----------------------------------------------------------------------------------------------
(628,500) (203,900)
----------------------------------------------------------------------------------------------
Loss Before Provision for Income Taxes (10,345,500) (213,700)
Provision for Income Taxes (Note 9) (224,700) (117,200)
----------------------------------------------------------------------------------------------
Net Loss $ (10,570,200) $ (330,900)
==============================================================================================
Basic and Diluted Loss per Common Share $(0.55) $(.02)
==============================================================================================
Basic and Diluted Weighted-Average Common Shares
Outstanding 19,153,992 15,011,800
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
F-7
COMC, Inc. and Subsidiaries
Consolidated Audited Statements of Shareholders' Equity
<TABLE>
<CAPTION>
===================================================================================================================
Common Stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 12,498,107 125,000 210,000 (192,500)
Common stock issued in purchase
business combination (Note 2) 6,493,506 64,900 8,935,100 -
Issuance of common stock 1,063,333 10,600 1,413,400 -
Net loss - - - (330,900)
-------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 20,054,946 200,500 10,558,500 (523,400)
Treasury stock - - 1,826,000 -
Proceeds from exercise of stock
options - - (38,800) -
Compensation expense related to options
granted - - 204,400 -
Interest related to options granted - - 361,500 -
Cancellation of shares outstanding (653,455) (6,500) 6,500 -
Net loss - - - (10,570,200)
-------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 19,401,491 $ 194,000 $ 12,918,100 $ (11,093,600)
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-------------------------------------
Shares Amount Total
---------------------------------------------------------
<S> <C> <C> <C>
Balances, December 31, 1997 - - 142,500
Common stock issued in purchase
business combination (Note 2) - - 9,000,000
Issuance of common stock - - 1,424,000
Net loss - - (330,900)
---------------------------------------------------------------------------------------------------
Balances, December 31, 1998 - - 10,235,600
Treasury stock (3,651,948) (1,826,000) -
Proceeds from exercise of stock
options 86,961 46,200 7,400
Compensation expense related to options
granted - - 204,400
Interest related to options granted - - 361,500
Cancellation of shares outstanding - - -
Net loss - - (10,570,200)
---------------------------------------------------------------------------------------------------
Balances, December 31, 1999 (3,564,987) $ (1,779,800) 238,700
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
F-8
COMC, Inc. and Subsidiaries
Consolidated Audited Statements of Cash Flows (Note 13)
<TABLE>
<CAPTION>
===================================================================================================================
Years Ended December 31, 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (10,570,200) $ (330,900)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Impairment of long-term assets 10,382,300 -
Stock-based compensation 204,400 -
Amortization of deferred finance charge 28,500 -
Amortization of goodwill 556,200 185,300
Depreciation 183,200 95,900
Allowance for doubtful accounts (3,800) -
Loss on disposition of capital equipment - 6,100
Deferred income tax (45,300) 57,600
Changes in operating assets and liabilities,
net of business acquisition:
Accounts receivable (1,130,500) 348,300
Other receivable - -
Inventories (69,800) 118,400
Refundable income tax - (41,600)
Prepaid expenses and other current assets 160,300 58,200
Accounts payable (28,100) (306,000)
Accrued expenses 194,000 -
Income taxes payable (775,300) (193,200)
Customer's deposits - (207,900)
Other current liabilities (151,200) -
Accrued interest due related party (47,300) -
---------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Operating Activities (1,112,600) (209,800)
Cash Flows From Investing Activities:
Cash acquired from purchase business combination - 1,149,300
Cash paid to selling stockholders of ICF - (1,500,000)
Expenses related to purchase of ICF - (183,600)
Repayment of loan receivable from shareholder 114,300 -
Deposits - 18,000
Loans receivable from officer - (69,000)
Purchase of property and equipment (28,600) (52,800)
---------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities 85,700 (638,100)
---------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Sale of common stock, net of offering costs 7,400 1,424,000
Bank overdraft (69,400) 69,400
Advances from bank loans and other credit
institutions 6,713,500 339,800
Repayments on bank loans and other credit
institutions (6,132,100) (51,900)
Payment for long-term debt (125,900) -
---------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Financing Activities 393,500 1,781,300
---------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (633,400) 933,400
Cash and Cash Equivalents, beginning of period 1,018,500 85,100
---------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period 385,100 1,018,500
---------------------------------------------------------------------------------------------
Cash Paid For:
Interest $ 397,300 $ 88,500
Income taxes $ 1,004,100 $ 334,300
Non-Cash Investing and Financing Activities:
Common stock and notes payable issued in purchase
of ICF $ 361,500 $ 12,500,000
Options issued for debt fees $ 1,826,000 $ -
Common stock contributed to the Company $ - $ -
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
F-9
COMC, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Summary Accounting Policies of The Company
COMC, Inc. and Subsidiaries (the Company) is a technology service company in the
telecommunications industry with a rapidly expanding national geographic service
coverage area. The Company designs, implements, supports, and manages LAN/WAN
computer network systems voice communication network systems, and premise wiring
for both data and voice. In addition, the Company provides customers with
permanent and temporary technical professional recruitment and placement
services to fill their internal staffing needs.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Complete Communications, Inc. (CCI)
and ICF Communication Solutions, Inc. (ICF). All significant intercompany
accounts and transactions have been eliminated.
Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and 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
lower of costs (determined on a first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets, which range
from five to seven years. Leasehold improvements are amortized on the
straight-line method over the term of the lease or the useful life of the asset,
whichever is shorter.
71
<PAGE>
Long-Live Assets
Long-lived assets are assessed for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, comparable
sales value, and undiscounted future cash flows as appropriate. Assets to be
held and used affected by such impairment loss are depreciated or amortized at
their new carrying amount over the remaining estimated life; assets to be sold
or otherwise disposed of are not subject to further depreciation or
amortization.
Revenue Recognition
Revenues and related costs for short-term projects (i.e. projects with duration
of less than one month) are recognized as the projects are completed. Revenues
generated by certain long-term contracts are recognized principally on the
percentage-of-completion method in the ratio that cost incurred bears to
estimated cost at completion. As of December 31, 1999, all such contracts were
short-term.
Advertising Costs
The cost of advertising is expensed as incurred. Advertising costs for the years
ended December 31, 1999, 1998, and 1997, were approximately $24,300, $39,800,
and $26,900, respectively.
Income Taxes
Income taxes are calculated using the liability method of accounting for income
taxes specified by SFAS No. 109, Accounting for Income Taxes. Deferred income
taxes are recognized for the tax consequences of temporary differences between
the financial statements and income tax bases of assets, liabilities and
carryforwards using enacted tax rates. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Realization is dependent upon future pre-tax earnings, the reversal of temporary
differences between book and tax income, and the expected tax rates in effect in
future periods.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amount reported on the balance sheet for cash and cash equivalents
approximates fair value.
Short-Term Debt
72
<PAGE>
The fair value of short-term debt is estimated based on current interest notes
available to the Company for debt instruments with similar terms and maturities.
Long-Term Debt
As of December 31, 1999 and 1998, the fair values of the Company's financial
instruments approximate their historical carrying amounts.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages entities to
recognize compensation costs for stock-based employee compensation plans using
the fair value-based method of accounting defined in SFAS No. 123, but allows
for the continued use of the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) opinion No. 25, Accounting for
Stock Issued to Employees. The Company continues to use the accounting
prescribed by APB Opinion No. 25 and as such is required to disclose pro forma
net income and earnings per share as if the fair value-based method of
accounting had been applied.
Earnings Per Common Share
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which became
effective December 28, 1997. Conforming to SFAS No. 128, the Company changed its
method of computing earnings per share and restated all prior periods included
in the financial statements. Under SFAS No. 128, the dilutive effect of stock
options is excluded from the calculation of basic earnings per share. The number
of potential common shares not included in diluted earning per share, due to
their being antidilutive was 3,564,987 for the year ended December 31, 1999.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during the period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and
unrealizable gain/loss of available-for-sate securities. The individual
components of comprehensive income (loss) are reflected in the statements of
shareholders' equity. As of December 31, 1999, the Company did not have any
accumulated other comprehensive income loss.
Adoption of New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize
all derivatives contracts as either assets or liabilities on the balance sheet
and to measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to
73
<PAGE>
match the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either to
hedge existing risk or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to have a material impact on the
Company's results from operations, financial position or cash flows.
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform with the 1999 presentation.
2. Acquisition
August 17, 1998, the Company consummated the acquisition of ICF Communication
Systems, Inc. (ICF). Under the terms of the Agreement and Plan of Merger dated
July 24, 1998, ICF merged with and into a wholly owned subsidiary of the Company
that had been especially organized for purposes of this transaction (the
Merger). In connection with the Merger, ICF's name was changed to ICF
Communication Solutions, Inc. In consideration for the Merger, the two
principals of ICF received an aggregate payment valued at approximately
$14,000,000, as follows: $1,500,000 in cash at the closing of the transaction;
$3,500,000 in promissory notes due and payable throughout 1999, and 6,493,506
shares of the Company's common stock valued at $9,000,000 or $1.386 per share.
The Company agreed to use its best efforts to register the shares of common
stock issued in connection with the Merger. The Company defaulted on various
payments of the promissory notes in 1999, and restructured the notes (see Note
7).
The above merger was accounted for using the purchase method of accounting. The
new balance sheet of ICF as of August 31, 1998 was as follows:
74
<PAGE>
--------------------------------------------------------------------------------
Cash acquired $ 1,149,300
Current assets other than cash 3,823,700
Property and equipment 655,000
Other assets 130,000
Current liabilities (2,624,200)
--------------------------------------------------------------------------------
Net asset acquired 3,133,800
Goodwill 11,123,800
Total consideration $ 14,257,600
================================================================================
Unaudited pro forma consolidated results of operations of the Company as if the
purchase had occurred as of January 1, 1998 is as follows. The unaudited pro
forma results are not necessarily indicative of the results which would have
been obtained had the acquisition actually occurred as of the date indicated nor
are they indicative of future results.
1998
--------------------------------------------------------------------------------
Revenues $ 19,702,100
Net (loss) income (470,800)
Basic and diluted (loss) income per
share $ (0.02)
-----------------------------------------------------------------
Weighted-average number of common
shares outstanding 19,340,800
================================================================================
Goodwill was being amortized on a straight-line basis over a twenty-year period,
with the Company periodically reviewing goodwill to assess its recoverability.
As required by Statement of Financial Accounting Standards (SFAS) No. 121, the
Company recorded in December 1999 a loss on the long-lived asset of goodwill
when the events and circumstances indicated the asset was impaired. The Company
estimated the fair value of this asset based on comparable assets within the
industry, the Company's economic outlook and discounted future cash flows. The
impairment resulted in a charge to earnings of $10,382,300 in 1999.
3. Property and Equipment
Property and equipment consisted of the following as of December 31, 1999 and
1998:
1999 1998
--------------------------------------------------------------------------------
Furniture and office equipment $ 445,800 409,700
Vehicles 331,700 359,800
Computer equipment 285,500 274,900
Software 53,000 52,900
Leasehold improvements 44,800 36,400
Other 8,300 6,800
--------------------------------------------------------------------------------
1,169,100 1,140,500
Less accumulated depreciation and
amortization 607,900 424,700
--------------------------------------------------------------------------------
$ 561,200 $ 715,800
================================================================================
4. Financings
Line of Credit
75
<PAGE>
The Company has a $3,000,000 revolving line of credit with a bank that expires
in September 2001. The borrowings under the line of credit bear interest at the
bank's prime rate plus 2% (10.5% as of December 31, 1999) and is secured by the
Company's accounts receivable, inventories, and property and equipment. As of
December 31, 1999, there was $2,120,800 available under the line of credit.
Debt Financing
During 1998, the Company acquired three vehicles for a total purchase price of
$44,000 under a financing arrangement with the vehicles as security. The loans
bear interest at 9.7% and require monthly payments of $1,100 for 48 months.
Annual maturities of the debt financing discussed above for years ending
December 31, are as follows:
2000 $ 10,500
2001 11,200
2002 9,200
---------------------------------------------------
$ 30,900
===================================================
5. Accrued Expenses
Accrued expenses consisted of the following as of December 31, 1999 and 1998:
1999 1998
--------------------------------------------------------------------------------
Accrued payroll and related expenses $ 317,800 253,200
Accrued vacation 137,600 81,700
Accrued commissions 49,000 43,900
Other 68,400 -
--------------------------------------------------------------------------------
$ 572,800 $ 378,800
================================================================================
6. Commitments and Contingencies
Operating Leases
The Company leases certain offices under operating leases expiring on various
dates through 2002. Total rent expense charged to operations was $255,800,
$247,700, and $45,600 in 1999, 1998, and 1997, respectively. As of December 31,
1999, the minimum future rental commitments under non-cancelable operating
leases payable over the remaining terms of the operating leases are:
Year ending December 31, Amount
--------------------------------------------------------------------------------
2000 $ 159,700
2001 133,300
2002 116,800
2003 12,700
--------------------------------------------------------------------------------
$ 422,500
================================================================================
76
<PAGE>
Employment Agreements
In 1998, the Company entered into two-year employment agreements with two
employees providing, among other things, for annual salaries of $135,000 as well
as annual bonuses at the discretion of the Company's Board of Directors.
In 1999, the Company entered into a two-year employment agreement with its Chief
Financial Officer, providing among other things, an annual salary of $135,000,
2,463,896 options to purchase common stock (Note 9), as well as annual bonuses
at the discretion of the Company's Board of Directors.
7. Transactions With Related Parties
In August 1998, the Company entered into a series of six notes aggregating
$3,500,000 with the Company's President and the Company's Chief Operating
Officer as part of the Merger discussed in Note 2. These notes bore interest at
10%, and had original maturity dates of either January 1999 or August 1999. In
1999, the Company canceled the aforementioned notes and issued two unsecured 10%
notes payable for $1,750,000 each to the President and the Chief Operating
Officer. Under the new notes, the term of the notes was extended for two
additional years (due August 2002), payable in a lump-sum amount at the end,
with interest payable monthly. Should the Company default on the new notes or
their interest payments, the noteholders have the right to convert the notes to
common stock of the Company at $0.50 per share.
Interest expense associated with the above notes aggregated $347,159 and
$147,390, 1999 and 1998, respectively. As of December 31, 1999 and 1998, accrued
interest on these notes aggregated $30,138 and $16,474, respectively.
In connection with the restructuring of the notes, the noteholders received
753,246 options (Note 9) to purchase common stock. These options were issued at
below fair market value resulting in a deferred finance charge of approximately
$361,600, which is included in other assets. The deferred finance charge is
being amortized as interest expense overthree years, with amortization expense
for 1999 being $50,200.
8. Defined Contribution Plan
In April 1997, the Company amended its defined contribution plan (the Plan) such
that all employees were eligible to participate in the Plan after completing
three months of service and attaining the age of 21. To be entitled to an
allocation of employer contributions, a participant must complete 1,000 hours of
service during the Plan year and must be employed by the Company on the last day
of the Plan year. Employees electing to participate in the Plan may contribute
up to 20% of their annual compensation. Contributions to the Plan are limited to
the maximum amount allowable under the provisions of the Internal Revenue Code.
The Company may choose to make contributions to the Plan at its discretion. No
discretionary contributions were made for the years ended December 31, 1999,
1998, and 1997.
9. Income Taxes
77
<PAGE>
During 1998, CCI changed its accounting method for income tax purposes for the
years ended December 31, 1996 and 1997, which resulted in income tax expense
totaling $41,200.
This was included in the 1998 current income tax expense.
The components of income taxes were as follows for the years ended December 31,
1999:
1999 Current Deferred Total
-------------------------------------------------------------------------------
State $ 56,000 $ (3,000) $ 53,000
Federal 214,000 (42,300) 171,700
-------------------------------------------------------------------------------
$ 270,000 $ (45,300) $ 224,700
===============================================================================
1998 Current Deferred Total
-------------------------------------------------------------------------------
State $ 29,000 $ (1,100) $ 27,900
Federal 30,600 58,700 89,300
-------------------------------------------------------------------------------
$ 59,600 $ 57,600 $ 117,200
===============================================================================
The components of deferred tax assets and liabilities were as follows at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ - $ 20,900
State income taxes 19,000 6,300
Allowance for uncollectable accounts 109,000 108,800
Accrued vacation 66,000 14,200
Others 19,000 2,400
---------------------------------------------------------------------------------------------------------
Gross deferred tax asset 213,000 152,600
Deferred tax liability:
Depreciation 89,000 73,900
---------------------------------------------------------------------------------------------------------
$ 124,000 $ 78,700
=========================================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and prior taxes paid in making this assessment.
The actual tax expense differs from the expected tax expense, computed by
applying the Federal corporate tax rate of 34% to income before income taxes, as
follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Expected statutory tax expense $ (3,517,500) $ (72,600)
Net tax effect of permanent
differences 4,347,800 95,600
State income taxes, net of federal
tax effect (620,800) 18,400
Additional CCI's income tax expense
due to change in accounting
method for income tax purposes - 87,600
Valuation allowance - -
Others 15,200 (11,800)
--------------------------------------------------------------------------------
Income taxes $ 224,700 $ 117,200
================================================================================
</TABLE>
78
<PAGE>
In June 1998, ICF, the Company's wholly owned subsidiary, agreed to certain
Income Tax Examination Changes by the Internal Revenue Service (IRS) which
resulted in additional income tax liabilities to the IRS for years 1995, 1996
and 1997 of $1,114,000. At December 31, 1997, ICF had income tax liabilities for
those years of $1,410,032 to the IRS and $376,500 to the State. At December 31,
1998, ICF had income tax liabilities for those years of $786,400 to the IRS and
$217,700 to the State, which were paid in 1999.
10. Shareholders' Common Stock Equity
In August 1999, the Company's Chairman of the Board and principal stockholder
contributed back to the Company 3,651,948 shares of his common stock holdings.
These shares are to be reserved for issuance to key employees under the Company'
stock option plan. At the time of their contribution to the Company, the shares
had a fair market value of $0.50 per share. In the accompanying consolidated
financial statements, these shares have been reflected as treasury stock. In
1999, 86,961 of these shares were issued from the exercise of vested stock
options.
In 1996, the Company verbally granted a consultant approximately 625,000 shares
of common stock, at the then fair market value of $0.01 per share, for services
rendered. Though recorded on the Company's books of record, these shares were
never issued. As the statute of limitations for a verbal commitment has run on
the issuance of these shares, and no claim has been made for such shares, the
Company reflected the cancellation of these shares on its books of record as of
December 1999.
During 1998, the Company sold 103,333 Units in a private placement. Each Unit
consisted of 10 shares of common stock and 2 warrants to purchase common stock
at $2.00 per share. The Company issued a total of 1,063,333 common shares,
including 30,000 common shares issued as partial payment of offering costs, and
206,666 warrants, for total cash proceeds of $1,550,000 less cash offering costs
of $126,000. The Company also agreed to file a registration statement with
respect to the shares included in the Units. The Company also issued to the
placement agent warrants to purchase 100,000 common stock at $1.50 per share.
In addition in 1998, the Company issued 6,493,506 common shares valued at
$9,000,000 to the selling stockholders of ICF (Note 2).
In 1997, the Company's Chairman of the Board and principal stockholder, agreed
to transfer 5% of the stock to which he was entitled to receive from the
acquisition discussed in Note 2 to a former employee in settlement of an
employment dispute between the Company and the former employee. The 500,000
shares of common stock were valued at $0.01 per share, its fair value at that
time. The shares were transferred in October 1998. There was no financial impact
recorded with this transaction.
Pursuant to agreements entered into in 1998, the Company's Chairman of the Board
and principal stockholder transferred 1,000,000 shares of his common stock to a
former director of the Company and 500,000 shares of his common stock to the
Company's former Chief Financial Officer. The Audit Committee of the Board of
Directors has put a value of $0.01 per share on these transactions, representing
the then fair value of the shares.
Stock Purchase Warrants
79
<PAGE>
As of December 31, 1999, the following common stock warrants were issued and
outstanding:
Shares Subject Exercise Expiration
Issued with respect to: to Warrant Price Date
------------------------------------------------------------------
Financing 206,666 $ 2.00 2003
Financing 100,000 $ 1.50 2003
Stock Option Plan
In November 1999, the Company adopted a Stock Option Plan (The Plan). The Plan
is restricted to employees, officers, and consultants of the Company. Options
granted under the Plan vest over five years and are exercisable over ten years.
Non-statutory options are granted at prices not less than 85% of the estimated
fair value of the stock on the date of grant as determined by the Board of
Directors. Incentive options are granted at prices not less than 100% of the
estimated fair value of stock on the date of grant. However, options granted to
shareholders who own greater than 10% of the outstanding stock are established
at no less than 110% of the estimated fair value of the stock on the date of
grant.
A summary of the status of the Company's outstanding stock options as of
December 31, 1999, and changes during the year then ended is presented in the
following table:
Options Outstanding
------------------------------------------
Shares Under Wtd. Avg.
Shares the Plan Ex. Price
------------------------------------------
Beginning balances - - $ -
Granted - 240,000 0.08
Granted 3,651,948 - 0.50
Exercised (86,961) - 0.08
-------------------------------------------------------------------
Ending balances 3,564,987 240,000 0.10
===================================================================
Exercisable at year-end 3,564,987
===================================================================
Weighted-average fair
value of options granted
during the period: 0.48
==========
Options granted under the Plan were for employees the Company, whereas, the
balance of the options granted were pre-plan and issued to officers and
directors of the Company.
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -------------------------------
Wtd. Avg.
Number Remaining Wtd. Avg. Number
Range of Outstanding at Contractual Exercise Exercisable Wtd. Avg.
Exercise Prices 12/31/99 Life Price at 12/31/99 Exercise Price
-------------- -------------- -------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01-0.10 240,000 9.8 years $ 0.08 - $ 0.08
$ 0.11-0.50 3,564,987 9.9 years $ 0.50 3,564,987 $ 0.50
-------------- --------------------------
3,804,987 $ 0.10 3,564,987 $ 0.50
============== ==========================
</TABLE>
80
<PAGE>
In connection with the grant of certain warrants and stock options in 1999, the
Company recorded consulting expense of $204,400, representing the difference
between the deemed fair market value and the exercise price of the stock options
as determined by the Board of Directors on the date of grant. The deferred
interest is being amortized three years, and in 1999, the Company recognized
$50,200 of interest expense associated with these options.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company to
provide pro forma information regarding net (loss) income and (loss) earnings
per share as if compensation cost for the Company's stock option plan had been
determined in accordance with the fair value based method prescribed in SFAS
No.123. The Company estimates the fair value of stock options at the grant date
by using the Black-Scholes option pricing-model with the following weighted
average assumptions used for grants in 1999: dividend yield of 0; expected
volatility of 130%; risk-free interest rate of 5.6%; and expected lives of years
for all plan options. The Company adopted its Stock Option Plan in 1999 and
consequently had no stock options granted in 1998 or 1997. Under the accounting
provisions of SFAS No. 123, the Company's pro forma net loss and the basic and
diluted net loss per common share would have been adjusted to the pro forma
amounts below.
1999
--------------------------------
Net loss:
As reported $ (10,570,200)
Pro forma $ (10,811,500)
Basic and diluted earnings (loss) per share:
As reported $ (0.55)
Pro forma $ (0.56)
11. Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and cash equivalents, and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions and, by policy, limits the amounts of credit exposure to
any one financial institution.
The Company's accounts receivable are derived from many customers in various
industries. The Company believes any risk of accounting loss is significantly
reduced due to the diversity of its end-customers and geographic sales areas.
The Company performs credit evaluation of its customers' financial condition
whenever necessary, and generally does not require cash collateral or other
security to support customer receivables.
12. Major Customers
For the ended December 31, 1999, two customers accounted for approximately 33%
and 26% of total revenues, respectively, with related accounts receivable as of
December 31, 1999 of $2,105,600 and $451,900, respectively.
For the year ended December 31, 1998, four customers accounted for approximately
38%, 22%, 11%, and 11% of total revenues, respectively.
81
<PAGE>
<TABLE>
<CAPTION>
=================== =====================
<S> <C>
------------------
No dealer, salesman or any other person has been 17,386,456 Shares of Common Stock
authorized to give any information or to make any
representations other than those contained in this
Prospectus, and, if given or made, such information
or representation must not be relied upon as having
been authorized by the Company or by the Underwriter.
Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create any
implication that there had been no change in the affairs
of the Company since the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to
do so or to anyone to whom it is unlawful to make such
offer or solicitation.
COMC, INC.
TABLE OF CONTENTS
Page
No.
1. Prospectus Summary ............................................... 4
2. Risk Factors ..................................................... 11
3. Forward Looking Statements ....................................... 19
4. Registering Shareholders ......................................... 20
5. Use of Proceeds .................................................. 22
6. Plan of Distribution ............................................. 22
7. Description of Our Business ...................................... 24
8. Description of Property .......................................... 35
9. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 36
10. Financial Statements ............................................. 46
11. Certain Relationships and Related Transactions ................... 46
12. Market For Common Equity & Related Stockholders Matters .......... 49
13. Legal Proceedings ................................................ 51
14. Description of Securities ........................................ 51
15. Directors, Executive Officers, Promoters & Control Persons ....... 52
16. Executive Compensation ........................................... 56
17. Changes In and Disagreements with Accountants on Accounting
& Financial Disclosure ......................................... 58
18. Experts .......................................................... 59
19. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ................................. 59
20. Where You Can Get More Information ............................... 60
21. Index to Consolidated Financial Statements ....................... 61
22. Independent Auditors' Reports .................................... F-1
23. Consolidated Financial Statements
March 31, 2000 (unaudited) &
December 31, 1999 (audited) .................................... F-2
24. Consolidated Unaudited Statements of Operations Quarters
Ended March 31, 2000 & 1999 .................................... F-3
25. Consolidated Unaudited Statements of Cash Flows Quarter
Ended March 31, 2000 & 1999 .................................... F-4
26. Consolidated Audited Balance Sheets Years Ended
December 31, 1999 & 1998 ....................................... F-5
27. Consolidated Audited Statements of Operations Years Ended
December 31, 1999 & 1998 ....................................... F-6
28. Consolidated Audited Statements of Shareholders Equity
Years Ended December 31, 1999 & 1998 ........................... F-7
29. Consolidated Audited Statements of Cash Flows Years Ended
December 31, 1999 & 1998 ....................................... F-8
30. Notes to Consolidated Financial Statements ....................... F-9
</TABLE>
<PAGE>
Until July 5, 2000 (25 days after the date of this Prospectus) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
=================
June 9, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article VIII of the Company's Bylaws entitled "Indemnification
of Directors, Officers and Employees" is set forth below in its entirety:
Section 1. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in
the right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amount paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed the best
interest of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
Section 2. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys'
<PAGE>
fees, actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, but no indemnification shall be
made in respect of any claim, issue or matter as to which such person
has been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the
extent that the court in which such action or suit was brought
determined upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses as the court
deems proper.
Section 3. To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in subsection
1 and 2, or in defense of any claim, issue or matter therein, he shall
be indemnified by the corporation against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with such defense.
Section 4. Any indemnification under subsections 1 and 2,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections 1 and 2. Such determination shall be
made:
(a) By the stockholders.
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to such act, suit or
proceeding:
(c) If such a quorum of disinterested directors so orders, by
independent legal counsel in a written opinion; or
(d) If such a quorum of disinterested directors independent
legal counsel in a written opinion.
Section 5. Expenses incurred in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding as
authorized by the board of directors in the specific case upon receipt
of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it is ultimately determined that he
is entitled to be indemnified by the corporation as authorized in this
section.
Section 6. The indemnification provided by this article:
(a) Does not exclude any other rights to which a person
seeking indemnification may be entitled under any by law, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity
while holding such office; and
<PAGE>
(b) Shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
Section 7. The corporation may, at the direction of the board
of directors, purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this section.
Item 25. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, all of which will be
borne by the Registrant.
Securities and Exchange Commission Fee .......... $ 6,150.63
----------
Accountants' Fees................................ $ 1,000
----------
Legal Fees....................................... 40,000
----------
Company's Administrative Expenses................ $ 5,000
Printing and engraving .......................... $ 1,000
Miscellaneous.................................... $ 10,000
TOTAL $ 63,150.63
==========
Item 26. Recent Sales of Unregistered Securities
In July 1998, pursuant to a private placement, Registrant issued to a
number of foreign financial institutions units consisting of an aggregate of
1,000,000 shares of Common Stock and warrants to purchase 200,000 shares of
Common Stock for $2.00 per share until July 31, 2000. These issuances were
exempt from registration under Rule 506 promulgated under the Securities Act.
Total gross cash proceeds of this offering were $1,500,000.
In connection with the aforementioned private placement, the Company
issued 30,000 shares of Common Stock and 100,000 warrants to purchase Common
Stock at 1.50 per share until July 31, 2000 to nominees of an overseas entity in
connection with its assistance in the completion of the offering. These
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act.
In August 1998, we issued an aggregate of 6,493,506 shares of Common
Stock to Messrs. Lincoln and Burns, our President and Chief Operations Officer,
respectively, in connection with the acquisition by Registrant of ICF
Communication Solutions, Inc. These issuances were exempt from registration
pursuant to Section 4(2) of the Securities Act.
In July 1998, pursuant to a private placement, we issued a number of
foreign financial institutions units consisting of an aggregate of 1,000,000
shares of Common Stock and warrants to purchase 200,000 shares of our Common
Stock at $2.00 per share until July 31, 2000. These issuance's were exempt from
registration under Rule 506 promulgated under the Securities Act. The total
gross cash proceeds of this offering were $1,500,000. In the same month, an
additional 33,334 shares of our Common Stock and 6,666 warrants were sold to a
single U.S. investor on the same terms.
In connection with the aforementioned private placement, we issued
30,000 shares of Common Stock and 100,000 warrants to purchase Common Stock at
$1.50 per share until July 31, 2000 to nominees of an overseas entity that
provided assistance with the completion of this offering. These issuance's were
exempt from registration pursuant to Section 4(2) of the Securities Act.
In August 1998, we issued an aggregate of 6,493,506 shares of Common
Stock to Messrs. Lincoln and Burns in connection with our acquisition of ICF.
These issuance's were exempt from registration pursuant to Section 4(2) of the
Securities Act.
In August of 1999, we issued options to acquire a total of 3,651,948
shares of Common Stock in connection with the restructuring of certain debt
obligations to Messrs. Burns and Lincoln and in connection with the hiring of
Mr. Smith. Specifically, Messrs. Burns and Lincoln received options to acquire a
total of 376,623 shares of our Common Stock each, Mr. Smith received options to
acquire a total of 2,463,896 shares of our Common Stock, and Gramercy National
Partners, for its assistance in connection with the aforementioned debt
restructuring and the hiring of Mr. Smith, received options to acquire a total
of 434,806 shares of our Common Stock. These issuances were exempt from
registration pursuant to Section 4(2) of the Securities Act. Simultaneous with
these option grants, Mr. Ackerman contributed into our treasury 3,651,948 shares
of Common Stock from his personal holdings in order to fund these grants.
Subsequently, in October of 1999, an option for 86,961 shares of Common Stock
was exercised and 86,961 shares of Common Stock were issued from our treasury.
As of December 31, 1999 we had reserved 3,564,987 shares of Common Stock for
issuance upon exercise of issued and outstanding options.
In November 1999, our Board of Directors determined that it was in our
best interests to adopt the COMC, Inc. 1999 Stock Option Plan (the "1999 Plan")
for the benefit of certain of our key employees. The 1999 Plan was adopted by
our Board of Directors on November 30,1999, and 240,000 shares of our common
stock were reserved for issuance under the 1999 Plan. Our Board of Directors
plans to present the 1999 Plan for approval to our stockholders at their 2000
annual meeting. Subject to the approval of our stockholders, in November, 1999,
we granted incentive stock options to our employees to acquire shares of our
common stock at an exercise price of $.50 per share, with the right to exercise
such options vesting over a five year period.
From April 17, 2000, through May 15, 2000, we raised approximately
$1,320,000 through a private placement of 1,320,000 shares of our common stock
and options to purchase 660,000 shares of our common stock for $1.00 per share
with various accredited investors (the "Investors"). The options are exercisable
at any time within the next five years. On April 26, 2000, some of the Investors
exercised options and purchased 472,500 shares of common stock under their
option agreements. In connection therewith, 236,250 shares of our common stock
were surrendered to us at the April 26, 2000 OTCBB closing price of $2.00 per
share in a "cashless" transaction and in full payment of $472,500 due from
exercise. Consequently, only 236,250 shares of common stock were issued as a
result of this exercise of options. As of May 10, 2000, and based upon the above
referenced transactions, we have a total of 20,947,741 shares of common stock
issued and outstanding, of which 3,564,987 are held in Treasury.
<PAGE>
Item 27. Exhibits and Financial Statements Schedules.
EXHIBITS
Exhibit No. Description
2.01 Letter Agreement with Complete Communications, Inc. dated as of June 3,
1996(1)
2.02 Agreement of Merger dated July 19, 1996 between the Company and ICF(2)
3.01 Certificate of Incorporation(3)
3.02 By-laws(4)
5.01 Opinion of McCutchen, Doyle, Brown & Enersen, LLP regarding the
legality of the securities being registered
10.01 Loan Agreement between COMC and Mr. Burns dated August 10, 1999.(5)
10.02 Loan Agreement between COMC and Mr. Lincoln dated August 10, 1999.(5)
10.03 Stock Purchase Agreement by and among COMC, Mr. Ackerman and Mr. Smith
dated August 10, 1999.(5)
10.04 Contributing Agreement by and between COMC and Mr. Ackerman dated
August 10, 1999.(5)
10.05 Stock Option Agreement by and between COMC and Mr. Burns dated August
10, 1999.(5)
10.06 Stock Option Agreement by and between COMC and Mr. Lincoln dated August
10, 1999.(5)
10.07 Stock Option Agreement by and between COMC and Mr. Smith dated August
10, 1999.(5)
10.08 Stock Option Agreement by and between COMC and Gramercy dated August
10, 1999.(5)
10.09 Registration Rights Agreement by and between COMC, Messrs. Burns,
Lincoln and Smith dated August 10, 1999.(5)
10.10 Stockholders Agreement by and between COMC, the Burns Trust, the
Lincoln Trust and Messrs. Ackerman and Smith dated August 10, 1999.(5)
10.11 COMC 1999 Stock Option Plan and form of Incentive Stock Option
Agreement.
10.12 Stock Purchase Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.13 Stock Options Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.14 Registration Rights Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.15 Settlement and Release Agreement by and between COMC, ICF and Charles
E. Lincoln dated May 1, 2000.(6)
16.01 Letter dated February 23, 2000 from Hollander, Lumer and Co. LLP to
the office of the Chief Accountant, Division of Corporation Finance.(7)
16.02 Letter dated February 21, 2000 from Deloitte and Touche LLP to the
Commission.(7)
23.01 Consent by McCutchen Doyle Brown & Enersen, LLP 98)
23.02 Consent by Hollander, Lumer and Co. LLP
23.03 Consent by BDO Seidman, LLP
----------------------------
(1) Incorporated by reference to the Company's Information Statement dated
September 15, 1996
(2) Incorporated by reference to the Company's Form 8-K filed August 31,
1998.
(3) Incorporated by reference to the Company's Registration Statement
declared effective March 25, 1987.
(4) Incorporated by reference to the Current Report on Form 8-K dated
January 9, 1997.
(5) Incorporation by reference to the Current Report on Form 8-K dated
October 15, 1999.
(6) Incorporated by reference to the Company's 10-QSB dated May 15, 2000.
(7) Incorporation by reference to the Current Report on Form 8-K dated
February 25, 2000.
(8) See Exhibit 5.01
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in he maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) Include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement provided, however,
that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 1 5(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the
registration statement.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
(3) File a post-effective amendment to remove from registration by
means of a post-effective amendment any of the securities that remain unsold at
the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
The Company will provide to the Underwriter at the closing specified in
the Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has authorized this registration
statement or amendments to be signed on its behalf by the undersigned, in the
City of Burbank, State of California on the 9th day of June, 2000.
COMC, INC.
By: /s/
------------------------
John Ackerman, Chairman,
Director
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
Signature Title Date
--------- ----- ----
/s/ Chairman, Director June 9, 2000
--------------------------
John J. Ackerman
/s/ Chief Executive Officer, June 9, 2000
-------------------------- President, Chief Financial
Christopher R. Smith Officer, Director
/s/ Chief Operations Officer, June 9, 2000
-------------------------- Director
William M. Burns
/s/ Director June 9, 2000
--------------------------
Donald Baker
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.01 Letter Agreement with Complete Communications, Inc. dated as of June 3,
1996(1)
2.02 Agreement of Merger dated July 19, 1996 between the Company and ICF(2)
3.01 Certificate of Incorporation(3)
3.02 By-laws(4)
5.01 Opinion of McCutchen, Doyle, Brown & Enersen, LLP regarding the
legality of the securities being registered
10.01 Loan Agreement between COMC and Mr. Burns dated August 10, 1999.(5)
10.02 Loan Agreement between COMC and Mr. Lincoln dated August 10, 1999.(5)
10.03 Stock Purchase Agreement by and among COMC, Mr. Ackerman and Mr. Smith
dated August 10, 1999.(5)
10.04 Contributing Agreement by and between COMC and Mr. Ackerman dated
August 10, 1999.(5)
10.05 Stock Option Agreement by and between COMC and Mr. Burns dated August
10, 1999.(5)
10.06 Stock Option Agreement by and between COMC and Mr. Lincoln dated August
10, 1999.(5)
10.07 Stock Option Agreement by and between COMC and Mr. Smith dated August
10, 1999.(5)
10.08 Stock Option Agreement by and between COMC and Gramercy dated August
10, 1999.(5)
10.09 Registration Rights Agreement by and between COMC, Messrs. Burns,
Lincoln and Smith dated August 10, 1999.(5)
10.10 Stockholders Agreement by and between COMC, the Burns Trust, the
Lincoln Trust and Messrs. Ackerman and Smith dated August 10, 1999.(5)
10.11 COMC 1999 Stock Option Plan and form of Incentive Stock Option
Agreement.
10.12 Stock Purchase Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.13 Stock Options Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.14 Registration Rights Agreement by and between COMC and various Investors
(Form used in connection with April/May 2000 private sales).(6)
10.15 Settlement and Release Agreement by and between COMC, ICF and Charles
E. Lincoln dated May 1, 2000.(6)
16.01 Letter dated February 23, 2000 from Hollander, Lumer and Co. LLP to
the office of the Chief Accountant, Division of Corporation Finance.(7)
16.02 Letter dated February 21, 2000 from Deloitte and Touche LLP to the
Commission.(7)
23.01 Consent by McCutchen Doyle Brown & Enersen, LLP 98)
23.02 Consent by Hollander, Lumer and Co. LLP
23.03 Consent by BDO Seidman, LLP
----------------------------
(1) Incorporated by reference to the Company's Information Statement dated
September 15, 1996
(2) Incorporated by reference to the Company's Form 8-K filed August 31,
1998.
(3) Incorporated by reference to the Company's Registration Statement
declared effective March 25, 1987.
(4) Incorporated by reference to the Current Report on Form 8-K dated
January 9, 1997.
(5) Incorporation by reference to the Current Report on Form 8-K dated
October 15, 1999.
(6) Incorporated by reference to the Company's 10-QSB dated May 15, 2000.
(7) Incorporation by reference to the Current Report on Form 8-K dated
February 25, 2000.
(8) See Exhibit 5.01
