Just read, this last filing say's it for where this company is headed.
COMC INC (CINJ.OB)
Quarterly Report (SEC form 10QSB)
Management Discussion and Analysis of Financial Condition and Results of Operations
This report contains certain statements of a forward-looking nature relating to future performance of the Company. Prospective
investors are cautioned that such statements are only predictions, and actual events or results may differ materially.
Overview
The Company is 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 Communication Solutions, Inc. ("ICF"), which 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 services under contracts with duration of one or more years.
In addition to the services described above, our Recruitment Services division provides 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. In further recognition of this, we have improved our
employee benefits and training programs in the current year. We have recently created an in-house training institute to further
the education and certification of our technical, sales and managerial personnel specific to cable, voice and data systems, time
management, total quality management and leadership.
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. Specifically for data, we support
products designed by Cisco Systems, Inc., Lucent Technologies,
Inc., Bay Networks (a division of NorTel Networks) and 3Com. For voice products, we support products designed by Lucent
Technologies, Inc. and NorTel Networks, Inc.
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.
Results of Operations:
Dollars in Thousands Quarter ended June 30 Six Months ended June 30
--------------------
2000 1999 2000 1999
---- ---- ---- ----
Net Revenues
------------
Data & Voice Services $7,216 $3,569 $12,371 $7,416
Recruitment Services $ 699 $1,229 $ 1,497 $2,497
-------------------- ------ ------ ------- ------
Total Revenues $7,915 $4,799 $13,868 $9,913
Our revenues were $7,915,269 and $4,798,700 for the three months ended June 30, 2000 and 1999, respectively,
representing an increase of 64%. This increase was due primarily to a 102% increase in Data and Voice Services revenue for
the period, offset by a 43% decline in Recruitment Services revenue. Compared with the first quarter ended March 31, 2000
revenue of $5,952,742, our second quarter revenue increased 32%. Data and Voice Services continued to benefit from a
number of new client project billings, as well as significant period project work relating to one of our larger existing clients.
Recruitment Services revenue continued to decline due to a tightening of the labor market, which has effected our ability to
identify qualified professionals for our clients in the period.
For the six months ended June 30, 2000 and 1999, our revenues were $13,868,011 and $9,913,000, respectively,
representing a 39% increase. This increase was due primarily to a 66% increase in Data and Voice Services revenue for the
period, offset by a 40% decline in Recruitment Services revenue.
Dollars in Thousands Quarter ended June 30 Six Months ended June 30
--------------------
Gross Gross Gross Gross
Profit Profit Profit Profit
2000 Margin 1999 Margin 2000 Margin 1999 Margin
---- ------ ---- ------ ---- ------ ---- ------
Gross Profits
-------------
Data & Voice Services $ 3,017 41.8% $1,257 35.2% $5,566 44.9% $2,399 32.2%
Recruitment Services $ 261 37.3% $ 333 27.1% $ 530 35.4% $ 656 26.2%
--------------------- ------- ------ ------ ------
Total Gross Profits $3,278 41.4% $1,590 33.1% $6,096 43.9% $3,055 30.8%
Cost of revenues was $4,637,500 and $3,207,900 for the three months ended June 30, 2000 and 1999, respectively,
representing an increase of 44%. Conversely, our Gross Profit for the comparable periods was $3,277,800 and $1,590,800,
respectively, representing an increase of 106%. Gross profit and margin for Data and Voice Services were $3,016,600 and
41.8%, respectively, for the three months ended March 31, 2000 as compared with $1,257,600 and 35.2%, 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 $261,200 and 37.1%, respectively for the three months ended March
31, 2000 as compared with $333,200 and 27.1%, 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 had
significantly higher margin.
Selling, general and administrative ("SG&A") expenses increased 39% from $1,271,400 for the three months ended March 31,
1999 to $1,768,30 for the three months ended March 31, 2000 in light of revenue growth of 16%. This compares with
$1,387,600 of similar expense in the previous quarter ended March 31, 2000, or an increase of 27%. The increase was due to
a planned expansion of our sales and
marketing team company-wide, as well as the development of an in-house training institution and staff in the current quarter.
These increases are anticipated to be permanent in nature.
Also included in our SG&A expenses are our holding company expenses, which increased by $116,000 from $112,600 for the
three months ended March 31, 1999 to $228,600 for the three months ended March 31, 2000. Our prior quarter holding
company expenses were $194,900 for the period ended March 31, 2000. SG&A expenses for ICF's operations increased
from $1,158,700 for the three months ended March 31, 1999 to $1,539,700 for the three months ended March 31, 2000.
Depreciation expenses were $57,000 and $52,400 for the three months ended June 30, 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 $13,000 and $139,100 for the three months ended June 30, 2000 and 1999,
respectively. The reduction of goodwill amortization in 2000 was primarily 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. The $13,000 of amortization related to
capitalized expenses associated with the restructuring of notes in 1999.
Dollars in Thousands Quarter ended June 30 Six Months ended June 30
--------------------
2000 1999 2000 1999
---- ---- ---- ----
Earnings Before Interest, Tax,
Depreciation and Amortization $1,510 $319 $2,941 $449
Earnings before interest expense, income tax, depreciation and amortization expenses ("EBITDA") increased by 373% to
$1,509,500 for the three months ended June 30, 2000 from $319,400 for the three months ended June 30, 1999. For the six
months ended June 30, 2000 EBIT increased 550% to $2,940,800 from $449,000 in the comparable six month period ended
June 30, 1999.
Interest Income increased from $2,100 for the three months ended June 30, 1999 to $102,200 for the three months ended
June 30, 2000 due to significantly higher average daily cash balances, with earned interests rates remaining relatively constant
throughout the comparable periods.
Interest Expense increased for the three months ended June 30, 2000 to $115,100 from $103,700 for the three months ended
June 30, 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.
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 an expense of $2,600 for the three months ended June 30, 2000, versus
income of $200 for the three months ended June 30, 1999.
An Income Tax provision of $555,000 was taken for the three months ended June 30, 2000 due to our increase in taxable
income versus a year ago.
Net Income increased to $869,000, or $.042 per share, fully-diluted, for the three months ended June 30, 2000 versus a Net
Loss of $34,700 for the three months ended June 30, 1999. This is a 17% increase over the first quarter ended March 31,
2000 Net Income of $738,200.
Liquidity and Capital Resources
Cash and cash equivalents increased to $7,864,700 at June 30, 2000 compared to $385,100 at December 31, 1999.
Cash Flows From Operating Activities: For the six months ended June 30, 2000, cash provided by operating activities was
$9,002,900 which resulted primarily from our net income for the first six months of $1,607,200, increased by noncash charges
of $163,200, decreased by our growth in operating assets of $3,320,300 and increased by our growth in liabilities, primarily
increases in customer deposits, of $10,552,800.
Accounts receivables increased $3,232,300 due to greater activity in the first six months of 2000 as well as overall growth in
our business. Payables and accruals increased $1,784,600 due to greater purchases and accrued payroll, as well as an increase
in customer deposits of $8,768,200.
Cash Flows From Investing Activities: For the six months ended June 30, 2000, net cash used for investing activities was
$419,100 as a result of $224,200 in new equipment and leasehold improvement purchases, $150,400 in a bridge loan to an
officer, and deposit increases of $45,500, offset by asset sales $1,000.
Cash Flows From Financing Activities: For the six months ended June 30, 2000, net cash used from our financing activities was
$1,104,200, due primarily from the prepayment of Notes to Stockholders in the amount of $2,755,000 in the second quarter,
partially funded with our line of credit of ($330,800) and a private sale of $1,320,000 worth of our common stock.
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 small
acquisitions. Specific uses of the Line of Credit Facility to date includes: (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 include $750,000 in Related Party Notes Payable. In consideration for the sale of ICF to us, the two
principal owners of ICF, William M. Burns and Charles E. 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
on these Notes and is paid monthly. On April 23, 2000, we prepaid the promissory notes due to Mr. Lincoln in full, amounting
to $1,750,000 plus accrued interest, in connection with the termination of Mr. Lincoln's employment. On May 10, 2000, we
partially prepaid the promissory notes due to Mr. Burns in the amount of $1,000,000 plus accrued interest, bringing the current
total of Related Party Notes Payable to $750,000.
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 the $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 June 30, 2000, and based upon the above
referenced transactions, we have a total of 20,957,741 shares of common stock issued and outstanding, of which 3,564,987
are held in Treasury.
Our net working capital at June 30, 2000 was a positive $3,010,500, an increase of $92,000 over December 31, 1999. 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 are searching for merger and acquisition candidates that will expand our existing markets in related products and services.
We anticipated funding acquisitions with a combination of additional bank debt, the issuance of promissory notes to the sellers
of the companies we acquire, 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.
Year 2000 Compliance
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.
AI
