**================================================================================**
 
 **THE
        SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 [X] 
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
 OF
        SECURITIES EXCHANGE ACT OF 1934
 
 FOR
        THE
        QUARTERLY PERIOD ENDED: March 31, 2005
 
 [  
        ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934
 
 **Commission
        File No. 0-16472**
 
 **COMC,
        INC.**
 (Exact
        Name of Registrant as Specified in its Charter)
   **Delaware**
              **95-4628378**(State
                  or other jurisdiction
                  of
              (I.R.S.
                  Employer Identification
                  No.)incorporation
                  or
                  organization)
   4030
        Pike
        Lane, Suite C
 Concord,
        California 94520
 ----------------------------------------
 (Address
        of principal executive offices)
 
 (925)
        849-1400
 ---------------------------
 (Issuer's
        telephone number)
 
 Check
        whether the issuer filed all reports required
 to
        be
        filed by Section 13 or 15(d) of the Securities Exchange
 Act
        of
        1934 during the past 12 months (or for such shorter Period
 that
        the
        registrant was required to file such reports), and has been
 subject
        to such filing requirements for the past 90 days.
 
 Yes
        [X]    No [   ]
 
 As
        of
        March 31, 2005 a total of 36,272,897 shares of COMC's common
        stock
 were
        issued; 31,638,327 shares of COMC's common stock were outstanding,
        and
 4,634,570 shares
        of COMC's common stock are held in treasury.
 Transitional
        Small Business Disclosure Format. Yes [  ] No [X]
 
 
 **================================================================================**
 
 
 
 
 
 **COMC
        Inc., and Subsidiary**
 
 Table
        of
        Contents
 
 10QSB
 
 **PART
                  I. Financial Information**Item
                1. Financial Statements.Condensed
                  Consolidated Balance
                  Sheets
              3Condensed
                  Consolidated Statements of
                  Operations
              4Condensed
                  Consolidated Statements of Cash
                  Flows
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              6Item
                2. Management Discussion and Analysis of Financial
                Condition and Results of Operations
              15Item
                3. Controls and Procedures
              18**PART
                II.  Other Information**
              18Item
                1. Legal Proceedings
              19Item
                2. Changes in Securities
              19Item
                3. Defaults Upon Senior Securities
              19Item
                4. Submission of Matters to a Vote of Security
                Holders
              19Item
                5. Other Information
              19Item
                6. Exhibits and Reports on Form 8-K
              19
 
 Signatures
 
 Exhibit
        Index
 Exhibits
 
 
  PART
        I. FINANCIAL INFORMATION
 ITEM
        1. Financial Statements
 **COMC,
        Inc. and Subsidiary**
 **Condensed
        Consolidated Balance Sheets**
  **Pro
                    forma at****December
                    31,**
                
                **March
                    31,**
                
                **March
                    31,****2004**
                
                **2005**
                
                **2005****(unaudited)**
                
                **(unaudited)**Assets
                
                
                
                
                
                **Note
                    1**Current
                    assets:Cash
                    and cash equivalents
                
                $
                287,400
                
                $
                143,300
                
                $
                143,300Accounts
                    receivable, less allowance for doubtful accounts of $100,700
                    and $100,700
                    and $100,700
                
                
                1,906,500
                
                
                2,067,600
                
                
                2,067,600Unbilled
                    receivables
                
                
                409,100
                
                
                434,900
                
                
                434,900Inventories
                
                
                605,800
                
                
                652,500
                
                
                652,500Prepaid
                    expenses and other current assets
                
                
                263,900
                
                
                344,000
                
                
                344,000Total
                    current assets
                
                
                3,472,700
                
                
                3,642,300
                
                
                3,642,300Property
                    and equipment, net
                
                
                724,200
                
                
                685,400
                
                
                685,400Long-term
                    deferred financing charges, net
                
                
                3,469,000
                
                
                3,258,100
                
                
                3,258,100Goodwill
                
                
                371,800
                
                
                371,800
                
                
                371,800Other
                    assets
                
                
                68,700
                
                
                55,200
                
                
                55,200$
                8,106,400
                
                $
                8,012,800
                
                $
                8,012,800
 
 Liabilities,
                    convertible redeemable preferred stock and shareholders'
                    deficiency:Current
                    liabilities:Accounts
                    payable
                
                $
                1,121,500
                
                $
                1,555,600
                
                $
                1,555,600Accrued
                    expenses
                
                
                811,800
                
                
                863,600
                
                
                863,600Current
                    portion of capital lease obligations
                
                
                31,700
                
                
                32,400
                
                
                32,400Customer
                    deposits
                
                
                258,900
                
                
                179,200
                
                
                179,200Accrued
                    interest and dividends
                
                
                163,400
                
                
                178,400
                
                
                39,400Secured
                    convertible notes payable
                
                
                3,000,000
                
                
                3,348,900
                
                
                3,348,900Convertible
                    notes payable due related parties
                
                
                396,500
                
                
                396,500
                
                
                —Warrant
                    and option liability
                
                
                6,994,200
                
                
                5,653,000
                
                
                5,653,000Total
                    current liabilities
                
                
                12,778,000
                
                
                12,207,600
                
                
                11,672,100Capital
                    lease obligations, net of current portion
                
                
                23,800
                
                
                15,400
                
                
                15,400Notes
                    payable shareholders
                
                
                950,000
                
                
                950,000
                
                
                950,000Convertible
                    redeemable preferred stock:Series
                    A, $.01 par value; 2,000,000 shares authorized; 1,205,216 and
                    1,205,216
                    shares issued and outstanding, respectively
                
                
                165,200
                
                
                165,200
                
                
                —Series
                    B, $.01 par value; 4,000,000 shares authorized; 1,816,219 and
                    1,816,219
                    shares issued and outstanding, respectively
                
                
                830,200
                
                
                830,200
                
                
                —Total
                    liabilities
                
                
                14,747,200
                
                
                14,168,400
                
                
                12,637,500Shareholders'
                    deficiency:Common
                    stock, $.01 par value; 40,000,000 shares authorized; 31,747,064
                    and 36,272,897 shares issued; 27,112,494 and 31,638,327
                    shares
                    outstanding, respectively; 8,460,7931.shares
                    outstanding pro forma
                
                
                317,400
                
                
                362,700
                
                
                84,600Additional
                    paid-in capital
                
                
                18,037,300
                
                
                19,774,000
                
                
                21,583,000Accumulated
                    deficit
                
                
                (22,601,500
                )
                
                (23,898,300
                )
                
                (23,898,300
                )Treasury
                    stock at cost: 4,634,570 and 4,634,570 shares,
                    respectively
                
                
                (2,394,000
                )
                
                (2,394,000
                )
                
                (2,394,000
                )Total
                    shareholders' deficiency
                
                
                (6,640,800
                )
                
                (6,155,600
                )
                
                (4,624,700
                )$
                8,106,400
                
                $
                8,012,800
                
                $
                8,012,800
  ______________________
 1 After
          giving
          effect to a 10 for 1 reverse stock split authorized at a Special Shareholders’
          meeting on March 28, 2005 (See Note 1)
   3
  **COMC,
          Inc. and Subsidiary**
 **Condensed
          Consolidated Statements of
          Operations**
 **Three
          Months Ended March 31,**
 
 **2004**
              
              **2005****(unaudited)**
              
              **(unaudited)****(As
                  restated)**Revenues
              
              $
              3,380,500
              
              $
              3,192,300Cost
                  of revenues
              
              
              1,961,700
              
              
              2,028,800Gross
                  Profit
              
              
              1,418,800
              
              
              1,163,500Operating
                  expenses:Selling,
                  general and administrative
              
              
              1,355,300
              
              
              1,789,600Depreciation
                  and amortization
              
              
              60,500
              
              
              57,7001,415,800
              
              
              1,847,300Income
                  (loss) from operations
              
              
              3,000
              
              
              (683,800
              )Other
                  income (expense):Interest
                  expense
              
              
              (99,800
              )
              
              (81,400
              )Interest
                  expense - related party
              
              
              (16,700
              )
              
              (11,800
              )Remeasurement
                  of warrants and options
              
              
              65,000
              
              
              (308,900
              )Imputed
                  interest expense
              
              
              (700
              )
              
              —Amortization
                  of imputed beneficial conversion discount upon issuance of convertible
                  debt
              
              
              (47,100
              )
              
              —Financing
                  fees and charges
              
              
              —
              
              
              (210,900
              )Total
                  other expense
              
              
              (99,300
              )
              
              (613,000
              )Loss
                  before provision for income taxes
              
              
              (96,300
              )
              
              (1,296,800
              )Income
                  tax provision
              
              
              1,600
              
              
              —Net
                  loss
              
              
              (97,900
              )
              
              (1,296,800
              )Preferred
                  stock dividend
              
              
              (36,100
              )
              
              —Net
                  loss attributable to common shareholders
              
              $
              (134,000
              )
              $
              (1,296,800
              )Basic
                  and diluted loss per common share
              
              $
              (0.01
              )
              $
              (0.05
              )Basic
                  and diluted weighted-average common shares outstanding
              
              
              26,717,992
              
              
              28,604,245
 
 See
        accompanying notes to condensed consolidated financial statements
 
 
 4
  **COMC,
        Inc. and Subsidiary**
 **Condensed
        Consolidated Statements of Cash
        Flows**
 **Three
        Months Ended March 31,**
 
 **2004**
              
              **2005******
              
              **(unaudited)**
              
              **(unaudited)****(As
                  restated)**Cash
                  flows from operating activities:Net
                  Loss
              
              $
              (97,900
              )
              $
              (1,296,800
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              60,500
              
              
              57,700Change
                  in fair value of warrants and options
              
              
              (65,000
              )
              
              308,900Imputed
                  interest expense
              
              
              700
              
              
              —Amortization
                  of imputed beneficial conversion discount upon issuance of convertible
                  debt
              
              
              47,100
              
              
              —Provision
                  for doubtful accounts
              
              
              (5,000
              )
              
              —Issuance
                  of common stock for services
              
              
              17,700
              
              
              131,900Amortization
                  of deferred financing charges
              
              
              —
              
              
              210,900Changes
                  in operating assets and liabilities:Accounts
                  and unbilled receivables
              
              
              706,400
              
              
              (186,900
              )Inventories
              
              
              (256,900
              )
              
              (46,700
              )Prepaid
                  expenses and other current assets
              
              
              (196,100
              )
              
              (80,100
              )Accounts
                  payable
              
              
              143,300
              
              
              434,100Accrued
                  expenses
              
              
              (4,500
              )
              
              51,800Customer
                  deposits
              
              
              (170,400
              )
              
              (79,700
              )Accrued
                  interest
              
              
              13,800
              
              
              15,000Net
                  cash provided by (used in) operating activities:
              
              
              193,700
              
              
              (479,900
              )Cash
                  flows from investing activities:Deposits
                  and Other assets
              
              
              (2,100
              )
              
              13,500Purchases
                  of property and equipment
              
              
              (6,300
              )
              
              (18,900
              )Net
                  cash used in investing activities
              
              
              (8,400
              )
              
              (5,400
              )Cash
                  flows from financing activitiesRepayment
                  of related party subordinated notes payable
              
              
              162,400
              
              
              —Proceeds
                  from convertible notes payable
              
              
              —
              
              
              409,500Payments
                  on convertible notes payable
              
              
              —
              
              
              (60,600
              )Advances
                  from bank loans
              
              
              3,494,400
              
              
              —Repayments
                  of bank loans
              
              
              (3,956,100
              )
              
              —Payments
                  on capital lease obligations
              
              
              (7,100
              )
              
              (7,700
              )Net
                  cash (used in) provided by financing activities
              
              
              (306,400
              )
              
              341,200Net
                  decrease in cash and cash equivalents
              
              
              (121,100
              )
              
              (144,100
              )Cash
                  and cash equivalents, beginning of period
              
              
              384,300
              
              
              287,400Cash
                  and cash equivalents, end of period
              
              $
              263,200
              
              $
              143,300Cash
                  paid for:Interest
              
              $
              116,500
              
              $
              79,900Income
                  taxes
              
              $
              1,600
              
              $
              —Non
                  cash financing activities:Accrued
                  dividend for Series A and B convertible redeemable preferredStock
              
              $
              36,100
              
              $
              —
    See
        accompanying notes to condensed consolidated financial statements.
 
  5
  **COMC
        Inc., and Subsidiary**
 **Notes
        to Condensed Consolidated Financial
        Statements**
 
 1.
        Summary of Significant Accounting Policies
 
 The
        Company and Principles of Consolidation
 
 COMC,
        Inc. and Subsidiary (the “Company”) is a technology service company in the
        telecommunications industry with a regional 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. The Company began
        redirecting its business focus away from the recruitment and placement services
        in 2003 and is not actively seeking new customers in this area.
  The
        accompanying consolidated financial statements include the accounts of the
        Company and its wholly owned subsidiary, ICF Communication Solutions, Inc.
        (ICF). All significant intercompany accounts and transactions have been
        eliminated.
 
 Basis
        of
        Presentation
 
 The
        interim consolidated financial statements presented have been prepared by
        COMC,
        Inc. without audit and, in the opinion of the management, reflect all
        adjustments of a normal recurring nature (except as discussed below) necessary
        for a fair statement of (a) the results of operations for the three months
        ended
        March 31, 2004 and 2005, (b) the Company's financial position at March 31,
        2005
        and (c) the cash flows for the three months ended March 31, 2004 and 2005.
        Interim results are not necessarily indicative of results for a full
        year.
 
 The
        condensed consolidated balance sheet presented as of December 31, 2004 has
        been
        derived from the consolidated financial statements that have been audited
        by the
        Company's independent public accountant. The consolidated financial statements
        and notes are condensed as permitted by Form 10-QSB and do not contain certain
        information included in the annual financial statements and notes of the
        Company. The consolidated financial statements and notes included herein
        should
        be read in conjunction with the financial statements and notes included in
        the
        Company's 2004 Annual Report on Form 10-KSB filed on June 17, 2005.
  Restatement
 
 The
        accompanying consolidated financial statements as of and for the three months
        ended March 31, 2004 have been restated to correct errors pertaining to the
        accounting for certain debt and equity instruments issued by the Company
        during
        2003. Specifically, the Company has adjusted its consolidated financial
        statements for the three months ended March 31, 2004 in order (i) to properly
        account for certain beneficial conversion features imbedded in its convertible
        redeemable preferred stock and convertible debt instruments in accordance
        with
        EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial
        Conversion Features or Contingently Adjustable Conversion Ratios and EITF
        Issue
        No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments,
        which had the effect of increasing the net loss attributable to common
        shareholders by $50,200 and reducing shareholders deficiency by
        $826,800; (ii) to properly account for the issuance of convertible
        preferred stock issued in exchange for the settlement of certain borrowings,
        which had the effect of increasing the net loss attributable to common
        shareholders and increasing shareholders’ deficiency by $17,800; and (iii) to
        correct a computational error made in determining the liability attributable
        to
        a derivative financial instrument, which had the effect of increasing the
        net
        loss attributable to common shareholders and increasing shareholders’ deficiency
        by $25,000.
 
 The
        aggregate effect of the foregoing matters on the reported net loss for the
        three
        months ended March 31, 2004 is as follows:
 
 **As
                  Previously**
                **Reported**
              
              **As
                  Restated**Net
                  loss
              
              $
              (75,100
              )
              $
              (97,900
              )Net
                  loss attributable to common shareholders
              
              $
              (83,800
              )
              $
              (134,000
              )Basic
                  and diluted net loss per common share attributable to common
                  shareholders
              
              $
              (0.00
              )
              $
              (0.01
              )
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America 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 materially from
        those
        estimates.
  Unaudited
        Pro Forma Information
  In
        connection with the Laurus Financing (See Note 4), the holders of the 18%
        and
        24% convertible notes payable and of each of the outstanding shares of Series
        A
        and B Convertible Redeemable Preferred Stock signed irrevocable elections
        to
        convert their securities into common stock at the applicable conversion ratios.
        Each share of Series A Convertible Redeemable Preferred Stock, including
        accrued
        dividends of which there were approximately 13,287,510 shares outstanding,
        was
        convertible into 10 shares of common stock and each share of Series B
        Convertible Redeemable Preferred Stock, including accrued dividends of which
        there were approximately 40,047,651 shares outstanding, was convertible into
        20
        shares of common stock. The 18% and 24% convertible notes payable including
        accrued interest are convertible into 3,043,356 and 1,116,923 shares of common
        stock, respectively. In order to facilitate the conversion of the preferred
        stock and notes payable it was necessary to complete a one-for-ten reverse
        stock
        split (the “Reverse Split”).
  6
 On
        March
        28, 2005, a Special Meeting of Shareholders was held and the Board of Directors
        received enough votes and was authorized on behalf of the Company to amend
        the
        Certificate of Incorporation**to effect the Reverse
        Split in order to allow the conversion of the convertible securities.
        The
        Company expects the the Reverse Split to be effective
        on June 27, 2005 and has filed a Certificate of Amendment to the Company's
        Certificate of Incorporation with the Delaware Secretary of State effecting
        these transactions. Such Certificate of Amendment will be effective on June
        27,
        2005. Except as noted to the contrary, all share data disclosed in these
        financial statements are presented on a pre-split basis.
  The
        unaudited pro forma balance sheet at March 31, 2005, as presented in the
        accompanying Condensed Consolidated Balance Sheets assumes the conversion
        of all
        Series A and Series B Convertible Redeemable Preferred Stock, including accrued
        dividends and the 18% and 24% convertible notes payable, including accrued
        interest.
 
 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
        are valued at the lower of cost or market value. Cost is substantially
        determined by the first-in, first-out method, including parts and equipment.
        The
        Company records adjustments to its inventory for estimated obsolescence or
        diminution in market value equal to the difference between the cost of the
        inventory and the estimated market value, based on market conditions from
        time
        to time. These adjustments are estimates, which could vary significantly,
        either
        favorable or unfavorably, from actual experience if future economic conditions,
        levels of consumer demand, customer inventory levels or competitive conditions
        differ from expectations.
  Property
        and Equipment
 
 Property
        and equipment are stated at cost. Additions, improvements and major renewals
        are
        capitalized. Maintenance, repairs and minor renewals are expensed as incurred.
        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.
  Impairment
        of Long-Lived Assets
 
 Purchased
        intangible assets with finite lives are amortized using the straight-line
        method
        over the estimated economic lives of the assets, currently ranging from three
        to
        fifteen years. Long-lived assets, such as property and equipment and purchased
        intangible assets with finite lives, are evaluated for impairment whenever
        events or changes in circumstances indicate the carrying value of an asset
        may
        not be recoverable in accordance with SFAS No. 144, “Accounting for the
        Impairment or Disposal of Long-Lived Assets.” The Company assesses the fair
        value of the assets based on the undiscounted future cash flow the assets
        are
        expected to generate and recognizes an impairment loss when estimated
        undiscounted future cash flow expected to result from the use of the asset
        plus
        net proceeds expected from disposition of the asset, if any, are less than
        the
        carrying value of the asset. When an impairment is identified, the Company
        reduces the carrying amount of the asset to its estimated fair value based
        on a
        discounted cash flow approach or, when available and appropriate, to comparable
        market values.
 
 Goodwill
        and Indefinite-Lived Intangible Purchased Assets
 
 The
        Company reviews goodwill and purchased intangible assets with indefinite
        lives
        for impairment quarterly and whenever events or changes in circumstances
        indicate the carrying value of an asset may not be recoverable. The Company
        performs a two-step impairment test. In the first step, the Company compares
        the
        fair value of each reporting unit to its carrying value. The Company determines
        the fair value of its reporting units based on a weighting of income and
        market
        approaches. Under the income approach, the Company calculates the fair value
        of
        a reporting unit based on the present value of the estimated future cash
        flows.
        Under the market approach, the Company estimates the fair value based on
        market
        multiples of revenue or earnings for comparable companies. If the fair value
        of
        the reporting unit exceeds the carrying value of the net assets assigned
        to that
        unit, goodwill is not impaired and no further testing is performed. If the
        carrying value of the net assets assigned to the reporting unit exceeds the
        fair
        value of the reporting unit, then the Company must perform the second step
        impairment test in order to determine the implied fair value of the reporting
        unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds
        its implied value, then the Company records an impairment loss equal to the
        difference. For indefinite-lived intangibles, the Company compares the fair
        value of the indefinite-lived purchased intangible assets to the carrying
        value.
        The Company estimates the fair value if these intangible assets using the
        income
        approach. The Company recognizes an impairment loss when the estimated fair
        value of the indefinite-lived purchased intangible assets is less that the
        carrying value.
 
 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 contracts of longer duration (typically covering periods of two-to-three
        months) are recognized principally on the percentage-of-completion method
        in the
        ratio that cost incurred bears to estimated cost at completion. Project costs
        are comprised of time and materials. Out-of-pockets costs are not billed
        separately; rather, such costs are included in the contract price. Profit
        estimates are revised periodically based on changes in facts and circumstances;
        any losses on contracts are recognized immediately.
  Advertising
        Costs
 
 The
        cost
        of advertising is expensed as incurred. Advertising costs for the three months
        ended March 31, 2004 and 2005, were approximately $1,700 and $1,400,
        respectively.
 
 7
 
 Income
        Taxes
 
 Income
        taxes are calculated using the liability method of accounting for income
        taxes
        specified by Statement of Financial Accounting Standards (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
 
 The
        fair
        value of short-term debt is estimated based on current interest rates available
        to the Company for debt instruments with similar terms and
        maturities.
 
 Long-Term
        Debt and Related Party Notes Payable
 
 The
        fair
        value of long-term debt and related party notes payable are estimated based
        on
        current interest rates available to the Company for debt instruments with
        similar terms and maturities.
 
 As
        of
        March 31, 2005 and December 31, 2004, the fair values of the Company's financial
        instruments approximate their historical carrying amounts.
 
 Allowance
        for doubtful accounts
 
 The
        Company establishes an allowance for doubtful accounts to ensure trade
        receivables are not overstated due to collectibility. Bad debt reserves are
        maintained based on a variety of factors, including length of time receivables
        are past due, macroeconomic events, significant one-time events and historical
        experience. A specific reserve for individual accounts is recorded when the
        Company becomes aware of a customer’s inability to meet its financial
        obligations, such as in the case of bankruptcy filings or deterioration in
        the
        customer’s operating results or financial position. If circumstances related to
        customers change, estimates of the recoverability of receivables would be
        further adjusted.
 
 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. For
        stock options and certain warrants issued to nonemployees, the Company applies
        SFAS No. 123, using the Black-Scholes option-pricing model.
 
 SFAS
        No.
        123, Accounting for Stock-Based Compensation, requires the Company to provide
        pro forma information regarding net income (loss) and earnings (loss) 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.
        There
        were no options granted in the first quarter of 2005 and 2004. Under the
        accounting provisions of SFAS No. 123. The Company’s pro forma net loss and the
        basic and diluted net loss per share attributable to common shareholders
        would
        have been adjusted to the pro forma amounts below.
 
 **For
                  the Three Months Ended**
                **March
                  31,****2005**
              
              **2004****(unaudited)**
              
              **(unaudited)****(As
                  restated)**Net
                  loss attributable to common shareholders:As
                  reported
              
              $
              (1,296,800
              )
              $
              (134,000
              )Add:
                  Stock-based employee compensation expense included in net loss,
                  net of
                  related tax effects
              
              
              —
              
              
              —Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax effects
              
              
              (700
              )
              
              (700
              )Pro
                  forma net loss attributable to common shareholders
              
              $
              (1,297,500
              )
              $
              (134,700
              )Basic
                  and diluted loss per share attributable to common shareholdersAs
                  reported
              
              $
              (0.05
              )
              $
              (0.01
              )Pro
                  forma
              
              $
              (0.05
              )
              $
              (0.01
              )
 
 Earnings
        Per Share
 
 The
        Company applies the provisons of SFAS No. 128, “Earnings Per Share”. SFAS No.
        128 provides for the calculation of basic and diluted earnings per share.
        Basic
        earnings per share includes no dilution and is computed by dividing income
        attributable to common shareholders by the weighted average number of common
        shares outstanding for the period. Diluted earnings per share reflect the
        potential dilution of securities that could share in the earning of an entity.
        Anti-dilution provisions of SFAS No. 128 require consistency between diluted
        per-common-share amounts and basic per-common-share amounts in loss periods.
        Had
        the Company recognized net income in the first quarter of 2005, incremental
        shares attributable to the assumed exercise of 12,331,478 outstanding options
        and warrants would have increased diluted shares outstanding by 10,795,135
        shares. Options to purchase 421,000 shares of common stock at prices between
        $0.30 per share and $1.00 per share were not included in the computation
        of
        diluted earnings per share because the exercise prices were greater than
        the
        average market price of the common stock.
  8
  Recent
        Accounting Pronouncements
 
 In
        November 2003, the Emerging Issues Task Force ("EITF") issued EITF No. 03-6
        "Participating Securities and the Two-Class Method under FASB Statement No.
        128", which provides for a two-class method of calculating earnings per share
        computations that relate to certain securities that would be considered to
        be
        participating in conjunction with certain common stock rights. This guidance
        is
        applicable to the Company starting with the third quarter beginning July
        1,
        2004. The Company believes that the adoption of this pronouncement does not
        impact the Company's earnings per share calculations for the year ended December
        31, 2004.
  In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
        (“SFAS 123R”), which replaces SFAS No. 123, Accounting for Stock-Based
        Compensation, (“SFAS 123”) and supercedes APB Opinion No. 25, Accounting for
        Stock Issued to Employees. SFAS 123R requires all share-based payments to
        employees, including grants of employee stock options, to be recognized in
        the
        financial statements based on their fair values beginning with the first
        interim
        or annual period after June 15, 2005, with early adoption encouraged. The
        pro
        forma disclosures previously permitted under SFAS 123 will no longer be an
        alternative to financial statement recognition. Under SFAS 123R, the Company
        must determine the appropriate fair value model to be used for valuing
        share-based payments, the amortization method for compensation cost and the
        transition method to be used at date of adoption. The transition methods
        include
        prospective and retroactive adoption options. Under the retroactive option,
        prior periods may be restated either as of the beginning of the year of adoption
        or for all periods presented. The prospective method requires that compensation
        expense be recorded for all unvested stock options and restricted stock at
        the
        beginning of the first quarter of adoption of SFAS 123R, while the retroactive
        methods would record compensation expense for all unvested stock options
        and
        restricted stock beginning in the first period restated. The Company is
        evaluating the requirements of SFAS 123R and expects that the adoption of
        SFAS
        123R will have a material impact on the Company’s results of operations and
        earnings per share. The Company has not yet determined the method of adoption
        or
        the effect of adopting SFAS 123R, and it has not determined whether the adoption
        will result in amounts that are similar to the current pro forma disclosures
        under SFAS 123.
 
 In
        November 2004, the FASB issued Statement No. 151, “Inventory Costs, an amendment
        of ARB No.43, Chapter 4”. Statement 151 clarifies abnormal amounts of idle
        facility expense, freight, handling costs, and wasted material be accounted
        for
        as a current period expense. Statement 151 is effective for fiscal years
        beginning after June 15, 2005. The Company does not believe that the adoption
        of
        SFAS 151 will have a material effect on its financial position, results of
        operations or cash flows.
 
 2.**Acquisition
        of the Assets of Southwest Century Communications, Inc.
 
 Effective
        November 30, 2004, the Company completed the acquisition of substantially
        all of
        the assets of Southwest Century Communications, Inc. (“Southwest Century”), a
        Houston, Texas based voice and data company, for total consideration
        of
        $1.3 million, $1,050,000 of which was paid in cash financed through the Laurus
        transaction and $250,000 of which was paid in the form of a promissory
        note. One of the principal owners of Southwest Century received a
        two-year
        employment contract at an annual salary of $125,000 and became the Regional
        Manager of ICF’s Texas operations. ICF has already moved several of its Houston,
        Texas based employees to Southwest Century’s premises and has agreed to a
        month-to-month facility rental charge that ICF will pay Southwest Century.
        In
        connection with the acquisition, the Company also agreed to issue 50,000
        shares
        of common stock valued at $8,500.
 
 3.
        Future
        Prospects
 
 The
        Company had an operating loss in the first quarter of 2005 after incurring
        operating and net losses in 2004 and 2003, and has a capital deficiency at
        March
        31, 2005 and December 31, 2004. The Company has limited additional financing
        available under its current accounts receivable financing facility in order
        to
        fund any additional cash required for its operations or otherwise. These
        matters
        raise substantial doubt about the Company’s ability to continue as a going
        concern. Pisenti and Brinker LLP, and BDO Seidman LLP, the Company’s current and
        predecessor independent registered public accounting firms, respectively,
        each
        issued a going concern uncertainty opinion in their respective reports for
        the
        fiscal years ended December 31, 2004 and 2003.
  Management
        took steps during 2004 to improve the situation, including replacing a $2.75
        million accounts receivable financing facility from Pacific Business Funding,
        a
        division of Greater Bay Bancorp, with a $5.5 million convertible note financing
        arrangement with Laurus Master Fund, Ltd., acquiring substantially all of
        the
        operating assets of Southwest Century Communications, Inc., a Houston, Texas
        based data and voice service provider, making further cuts in overhead costs,
        downsizing the Company’s Houston operations, and making changes in the Company’s
        management.
  Any
        temporary lack of available financing could have a materially unfavorable
        effect
        on the Company’s financial position. The Company’s long-term prospects are
        dependent upon a return to profitability and/or the ability to raise additional
        capital as necessary to finance operations.  The condensed consolidated
        financial statements included herein do not include any adjustments that
        might
        result from the outcome of this uncertainty.
 
 4.
          Financings
 
 5.5
        Million Dollar Convertible Note Financing
  On November
          30, 2004, the Company entered into a series of agreements (the “Laurus
          Agreements”) with Laurus Master Fund, Ltd. (“Laurus”) whereby the Company agreed
          to issue to Laurus: (i) a secured convertible term note (the “Term Note”) in the
          amount of $2 million, (ii) a secured convertible revolving note in the
          amount of
          $2.5 million (the “Revolving Note”), (iii) a secured convertible minimum
          borrowing note in the amount of $1 million (the “Minimum Borrowing Note”; the
          Minimum Borrowing Note, the Term Note and the Revolving Note being referred
          to
          collectively as the “Notes”), (iv) a related option to purchase up to 8,865,337
          shares of common stock at a price of $0.01 per share (the “Option”), and (v) a
          seven year warrant to purchase up to 19,250,000 shares of common stock
          at a
          price of $0.23 per share (the “Warrant”). The transactions contemplated by the
          Laurus Agreements (the “Laurus Financing”) closed on December 3, 2004, with an
          effective date of November 30, 2004. The loan evidenced by the Notes is
          secured
          by all of the assets of the Company and ICF.
 
 In
          accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
          Indexed to, and Potentially Settled in, a Company’s Own Stock,” the option to
          purchase up to 8,865,337 shares of common stock and the warrant to purchase
          up
          to 19,250,000 shares of common stock have been classified as a short-term
          liability (with a corresponding entry to long-term deferred financing costs)
          and
          were originally valued at fair value on the date of issuance ($2,197,900
          at
          November 30, 2004). The Company estimated the fair value of the
          warrant by
          using the Black-Scholes valuation model with the following assumptions:
          dividend
          yield of 0%; expected volatility of 198%; risk free interest rate of 4.88%;
          and
          the contractual life of the warrant. At December 31, 2004, the Company
          marked-to-market the warrant and option liability and took a remeasurement
          charge of $3,392,000. On December 31, 2004 and November 30, 2004, the Company’s
          common stock was trading at $0.20 and $0.08 per share, respectively. The
          long-term deferred financing cost is being amortized to expense over three
          years, the term of the financing arrangements. At March 31, 2005, the Company
          marked-to-market the warrant and option liability and took a remeasurement
          charge of $(17,200). The Company estimated the fair value of the
          warrant by
          using the Black-Scholes valuation model with the following assumptions:
          dividend
          yield of 0%; expected volatility of 190%; risk free interest rate of 4.88%;
          and
          the contractual life of the warrant. On March 31, 2005 the Company’s stock was
          trading at $0.20.
  9
 Each
          of
          the Notes matures on November 30, 2007 (the “Maturity Date”). The principal
          amount of each of the Notes bears interest at the prime rate plus two percent
          with a minimum rate of 6.75%. The minimum monthly payment on the Term Note
          is
          $60,606, plus the monthly interest payment, and may be paid in cash, common
          stock or a combination thereof, dependent upon the occurrence of certain
          criteria. Prior to March 2005, the Company is only obligated to pay interest
          on
          this indebtedness, which is payable from November 30, 2004. Laurus has
          the
          option to convert the entire amount of the obligations with respect to
          each of
          the Notes into shares of common stock at a conversion price of $0.17 per
          share,
          provided that, subject to certain exceptions, such conversion does not
          result in
          Laurus beneficially owning more than 4.99% of the Company’s outstanding shares
          of common stock.
  The
          Security Agreement provides for the acceleration of the due date of the
          Laurus
          debt upon the occurrence of certain events of default including, without
          limitation, failure to make debt service payments or a material breach
          of any of
          the Laurus financing documents. In connection with the Laurus financing
          the
          Company entered into a Registration Rights Agreement (“RRA”). The Company agreed
          to file a registration statement to register the shares of common stock
          issued
          upon the conversion of any of the Laurus notes, or the exercise of any
          options
          and/or warrants within sixty days after the close of the financing to be
          effective no later than 120 days after the close of the financing. The
          Company
          failed to cause the registration statement to be filed timely and to be
          declared
          effective within the 120-day period resulting in the Company owing Laurus
          certain liquated damages pursuant to the RRA. On April 26, 2005, Laurus
          agreed
          to waive the terms and conditions of the default in exchange for a seven-year
          warrant to purchase 1,000,000 shares of the Company’s common stock at $0.23 per
          share.
  In
          connection with the Laurus Financing the Company issued a $350,000 convertible
          note payable and a five-year warrant to purchase up to 6,744,520 shares
          of
          common stock at a price of $0.17 per share to Burnham Securities, Inc.
          (“Burnham”) and a Burnham employee as consideration for services rendered.
          Principal and interest on the $350,000 owed to Burnham and its employee
          is
          convertible into common stock at the option of the noteholders at a fixed
          conversion price of $0.17 per share.
  In
          accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
          Indexed to, and Potentially Settled in, a Company’s Own Stock,” the warrants
          have been classified as a short-term liability (with a corresponding entry
          to
          long-term deferred financing costs) and were originally valued at fair
          value on
          the date of issuance ($508,900 at November 30, 2004). The Company
          estimated
          the fair value of the warrant using the Black-Scholes valuation model with
          the
          following assumptions: dividend yield of 0%; expected volatility of 198%;
          risk
          free interest rate of 4.88%; and the contractual life of the warrant. At
          December 31, 2004, the Company marked-to-market the warrant liability and
          took a
          remeasurement charge of $815,000. On December 31, 2004 and November 30,
          2004 the
          Company’s stock was trading at $0.20 and $0.08 per share, respectively. The
          long-term deferred financing cost is being amortized to expense over three
          years, the term of the financing arrangement.
  On
          March
          2, 2005, Burnham exercised the warrant in a cashless transaction whereby
          the
          Company issued 3,776,931 shares of its common stock valued at $1,650,100.
          The
          Company recorded the transaction by reducing it’s warrant and option liability
          by $1,650,100 and recording equity accordingly.
  On
          March
          21, 2005, the Company marked-to-market the warrant and option liability
          and took
          a remeasurement charge of $326,200. The Company estimated the fair
          value of
          the warrant using the Black-Scholes valuation model with the following
          assumptions: dividend yield of 0%; expected volatility of 190%; risk free
          interest rate of 4.88%; and the contractual life of the warrant. On March
          31,
          2005 the Company’s stock was trading at $0.20 per share.
  As
          of
          March 31, 2005 and December 31, 2004, the Company incurred indebtedness
          in the
          amount of $3,348,900 and $3,000,000, respectively, under the Laurus
          Financing.
  Additional
          $950,000 Idebtedness
  Concurrently
          with the Laurus Financing, in November of 2004, the Company incurred
          indebtedness to certain shareholders and financial advisors in the aggregate
          amount of $950,000 at 6.75% interest. Of this indebtedness, $200,000 represents
          an additional debt investment by existing shareholders, $250,000 is owed
          to
          Frances R. Campbell in connection with the acquisition of the operating
          assets
          of Southwest Century Communications, Inc. and $350,000 is owed to Burnham
          Securities, Inc. (“Burnham”) and a Burnham employee as consideration for
          services rendered in connection with the Laurus Financing. Interest on
          the
          $250,000 owed to Frances R. Campbell is payable monthly beginning in December
          2004. Interest on the remainder of the indebtedness accrues monthly and
          is
          payable on the due date of November 30, 2007. Principal and interest on
          the
          $350,000 owed to Burnham and its employee is convertible into common stock
          at
          the option of the noteholders at a fixed conversion price of $0.17 per
          share.
          None of the remaining 6.75% notes are convertible.
 
 The
          Company was indebted to a stockholder pursuant to a $162,500 promissory
          note due
          in January 2005 with an interest rate of 6% per annum. In connection with
          the
          Laurus Financing, $37,500 of the principal balance due under the note was
          exchanged for a 6.75% promissory note in the principal amount of $25,000,
          with
          interest accruing monthly and payable on November 30, 2007. Also in connection
          with the Laurus Financing, the interest rate on the $125,000 remaining
          principal
          balance was raised to 6.75% per annum and the maturity date was extended
          to
          November 30, 2007, with interest accruing monthly and payable on November
          30,
          2007.
  In
          the
          first quarter of 2004, the Company's largest supplier increased the Company's
          line of credit to $500,000. This supplier has a second lien on all of the
          Company's assets.
  Line
          of
          Credit
  In
          February 2003, the Company entered into a one-year accounts receivable
          financing
          facility with Pacific Business Funding, a division of Cupertino National
          Bank,
          which is part of Greater Bay Bancorp, to replace its facility with Comerica.
          The
          Agreement with Greater Bay Bancorp provides, among its terms, a $1,000,000
          financing facility with a borrowing formula of 80% of eligible receivables,
          collateralized with a first lien on all assets. The finance fees on this
          Greater
          Bay Bancorp facility are 1.5% per month (18% annual rate) on average daily
          cash
          balances with an additional administrative fee and an annual commitment
          fee.
          There are no financial covenants under this facility. On October 10, 2003,
          the
          maximum commitment under this financing facility was increased to $1,500,000.
          In
          connection with this increase, the Company executed a warrant agreement
          with
          Pacific Business Funding for 277,777 shares of the Company's common stock
          at an
          exercise price of $0.09 per share and an expiration date of October 14,
          2013.
          The warrant also provides Pacific Business Funding a $25,000 put in lieu
          of
          exercising the warrant. As the puttable warrant may require cash settlement,
          the
          Company has classified the instrument as a liability in accordance with
          SFAS No.
          150. The Company has in the accompanying consolidated statements of operations
          recognized $(100) and $65,000 in other (income) expenses for the warrant
          based
          on the estimated fair value of the warrant as of March 31, 2005 and 2004,
          respectively. At March 31, 2005 the Company estimated the fair value of
          the
          warrant by using the Black-Scholes valuation model with the following
          assumptions: dividend yield of 0%; expected volatility of 190% , risk free
          interest rate of 4.88%; and the contractual life of the warrant.
 10
 In
          connection with the Laurus Financing, the Company replaced a factoring
          arrangement with Pacific Business Funding, which had been in place since
          February 12, 2003 and was subsequently amended on October 1, 2004. This
          factoring arrangement provided, among other things, for a maximum commitment
          of
          $2,750,000, interest of 12% per annum and a term extending through October
          31,
          2005. Upon the closing of the Laurus Financing, all amounts owed by the
          Company
          to Pacific Business Funding pursuant to the factoring arrangement were
          paid off,
          and the Pacific Business Funding line of credit was terminated (the “PBF
          Payoff”).
  Capital
        Leases
  From
        1998
        through 2002, the Company acquired twelve vehicles for a total purchase price
        of
        $216,000 under capital lease arrangements with the vehicles as security.
        The
        loans bear interest at rates ranging from 0.9% to 9.7%. No vehicles have
        been
        acquired since 2003.
 
 As
        of
        March 31, 2005, the annual maturities of the financings discussed above for
        years ending December 31, are as follows:
 
 Years
                  Ending December 31,2005
                  (nine months)
              
              $
              3,769,4002006
              
              
              18,9002007
              
              
              954,900$
              4,743,200
 
 5.
          Commitments and Contingencies
 
 Operating
        Leases
 
 The
        Company leases certain offices under operating leases expiring on various
        dates
        through 2007. Total rent expense charged to operations, net of sublease income
        was $57,600 and $55,600 for the three months ended March 31, 2005 and 2004,
        respectively. As of March 31, 2005, the minimum future rental commitments
        under
        non-cancelable operating leases payable over the remaining terms of the
        operating leases are:
 
 Years
                  Ending December 31,2005
                  (nine months)
              
              $
              174,9002006
              
              
              155,8002007
              
              
              147,8002008
              
              
              66,0002009
              
              
              27,700$
              572,200
 
 Legal
        Matters
  On
        September 10, 2003, the Company filed a lawsuit in Contra Costa County Superior
        Court in California against several former employees of the Company, and
        their
        related business entities for misappropriation of trade secrets, breach of
        contract and various business torts. On July 1, 2004, the Company entered
        into a
        contingency fee agreement with its outside counsel that all fees in the Lincoln
        case after that date were to be recovered from the defendants. Any amounts
        recovered in excess of legal bills were to be divided equally between the
        Company and its outside counsel.
 
 On
        October 31, 2003, the Company filed another lawsuit in California bearing
        Case
        No.C03-02803 naming as defendants former employees of the Company and their
        related business entities. The Complaint contained causes of action for
        misappropriation of trade secrets, breach of contract and business torts.
        One
        group of defendants filed a Cross-Complaint against the Company and its Chief
        Operating Officer. The Company believes that there is no basis for the
        Cross-Complaint. A settlement was reached with the group of defendants that
        filed the Cross-Complaint. The settlement requires the Company’s insurer to pay
        the sum of $7,500 and the Company will pay $2,500 towards that defendants’ share
        of discovery referee fees. This group of defendants will be dismissed from
        the
        Complaint with prejudice and dismiss their Cross-Complaint with prejudice.
        Each
        party will bear their own attorney’s fees and costs. With respect to the
        remaining defendants, negotiations have been ongoing whereby a dismissal
        with
        prejudice for a waiver of attorney’s fees and costs may occur. Currently a trial
        date is set for August 1, 2005. It is anticipated that this matter may be
        fully
        settled as stated herein within the next 30-45 days.


On
      November 9, 2004, the Company and ICF entered into a Settlement Agreement,
      Mutual Release of All Claims and Covenant Not to Sue (the “Settlement
      Agreement”) with certain parties. The Settlement Agreement, among other things,
      called for a dismissal of the case, a mutual release of claims by the parties,
      a
      cash payment to the Company of $125,000 and the transfer to the Company of
      833,333 shares of common stock. Pursuant to the contingency fee agreement
      referenced above, this cash payment and an equal amount of shares of common
      stock has been transferred to the Company's outside counsel. The 833,333
      shares of common stock issued to outside counsel has been included in the
      caption “Issuance of common stock for services” in the Company’s Consolidated
      Statements of Shareholders’ Equity (Deficit).”




11




On
      or
      about April 8, 2005, Bowles & Verna, former counsel for ICF, filed an action
      seeking to recover prior attorney’s fees and costs in the amount of $28,730.52.
      Service of the Complaint was effectuated on or about May 2, 2005. The fees
      and
      costs relate to services rendered by Bowles & Verna in the Bingham and
      Metropolitan Agency v. ICF matters. The Company estimates that its total
      potential exposure in the matter is less than $40,000, including advanced
      charges.





On
      April
      18, 2005, COMC/ICF filed a Complaint for Rent and Damages based upon breach
      of
      contract and breach of covenant of good faith and fair dealing arising from
      unpaid utility costs accrued and due from their sub-tenant, Home Lending, Inc.,
      a California Corporation. These unpaid costs arose from a Standard
      Industrial/Commercial Single-Tenant lease (Gross) entered into between ICF
      and
      Home Lending dated May 16, 2000 regarding premises located at 1700
      West
      Burbank Blvd., Burbank, California. COMC/ICF alleges that its sub-tenant under
      this sub-lease failed to tender payment of such utility costs when due and
      after
      written demand was made. The sum at issue is $25,133.66, plus reimbursement
      of
      the Company’s attorney’s fees and costs. The Company is not aware of any
      potential or actual claim against COMC/ICF or potential unfavorable exposure
      arising from this action.





6. Transactions
      With Related Parties





In
      December 2002, subordinated related party notes in the principal amount of
      $250,000 were modified by which the interest rate on the remaining $250,000
      principal balance was reduced from 8% to 4%, and the due date on the notes
      were
      changed so that $25,000 became due by June 30, 2003 and the balance of $225,000
      became due on January 30, 2004. In March 2003, the Company paid down $25,000
      of
      the notes. In June 2003, 250,000 shares of Series B Convertible Redeemable
      Preferred Stock were issued in exchange for $62,500 of Related Party Note
      Payable. In December 2003, the balance of the Note in the principal amount
      of
      $162,500 was extended to January 2005 and the interest rate was raised to 6%
      per
      annum effective January 1, 2004.





The
      Company was indebted to a stockholder pursuant to a $162,500 promissory note
      due
      in January 2005 with an interest rate of 6% per annum. In connection with the
      Laurus Financing, $37,500 of the principal balance due under the note was
      exchanged for a 6.75% promissory note in the principal amount of $25,000, with
      interest accruing monthly and payable on November 30, 2007. Also in connection
      with the Laurus Financing, the interest rate on the $125,000 remaining principal
      balance was raised to 6.75% per annum and the maturity date was extended to
      November 30, 2007, with interest accruing monthly and payable on November 30,
      2007.




In
      September 2004, the CEO was awarded 38,444 shares of Series B Convertible
      Redeemable Preferred Stock, valued at $115,300, as compensation. In November
      2004, the CEO, COO and Principal Accounting Officer were award 222,219 shares
      of
      Series B Convertible Redeemable Preferred Stock valued in the aggregate at
      $355,600 as compensation.





In
      the
      fourth quarter of 2003, certain Series A and B preferred shareholders lent
      ICF
      $208,900 at 18% interest, convertible into common stock of the Company at $.08
      per share of common stock, at the Noteholder's option. Interest is payable
      on
      the due date of January 2, 2005 with interest also convertible into common
      stock
      on the same basis as the principal. Interest expense associated with the above
      Loans from shareholders was accrued and aggregated during the years ended
      December 31, 2003 and 2004 in the amount  of
      $4,700
      and $26,500, respectively. The fair value of the Company’s common stock on the
      measurement date exceeded the conversion price applicable to the convertible
      notes; accordingly, the convertible notes were deemed to contain an imbedded
      beneficial conversion feature (“BCF”). The BCF was calculated to be
      approximately $730,000, however, the BCF is limited to the $208,900 net proceeds
      received upon issuance of the convertible debt. This $208,900 has been reflected
      as a discount against the carrying value of the convertible notes, which is
      being amortized as imputed interest expense on a straight-line basis over the
      remaining term of the convertible notes. At March 31, 2005 and December 31,
      2004, the carrying value of the convertible notes amounted to $208,900 and
      $208,900, respectively. The amount of the BCF discount that was amortized during
      the three months ended March 31, 2004 and 2005 amounted to $47,100 and $0,
      respectively. At March 31, 2005, the convertible notes were convertible
      into 4,160,279 shares of common stock.




During
      the year ended December 31, 2004, certain Series A and B preferred shareholders
      lent ICF $187,600 at 24% interest per annum. Interest is payable on the due
      date
      of January 2, 2005. Interest expense associated with these Loans advanced from
      shareholders was accrued and aggregated $8,700 and $0 for the three months
      ended
      March 31, 2004 and 2005, respectively.




Conversion
      of Convertible Securities





Also
      prior to the Laurus Financing, in the fourth quarter of 2003, certain Series
      A
      and B preferred shareholders had lent ICF $208,900 at 18% interest, convertible
      into common stock of the Company at $0.08 per share. During the year
      ended
      December 31, 2004, certain Series A and B preferred shareholders lent ICF
      $187,600 at 24% interest per annum.





In
      connection with the Laurus Financing, the holders of the 18% and 24% convertible
      notes and of each of the outstanding shares of Series A and B Convertible
      Redeemable Preferred Stock described above signed irrevocable elections to
      convert their securities into common stock at the applicable conversion ratios.
      The 18% notes including accrued interest were convertible into an aggregate
      of
      3,043,356 shares of common stock and the 24% notes including accrued interest
      were convertible into an aggregate of 1,116,923 shares of common
      stock.





Concurrently
      with the Laurus Financing, in November of 2004, the Company incurred
      indebtedness to certain shareholders and financial advisors in the aggregate
      amount of $950,000 at 6.75% interest. Of this indebtedness, $200,000 represents
      an additional debt investment by existing shareholders, $250,000 is owed to
      Frances R. Campbell in connection with the acquisition of the operating assets
      of Southwest Century and $350,000 is owed to Burnham Securities, Inc.
      (“Burnham”) and a Burnham employee as consideration for services rendered in
      connection with the Laurus Financing. Interest on the $250,000 owed to Frances
      R. Campbell is payable monthly beginning in December 2004. Interest on the
      remainder of the indebtedness accrues monthly and is payable on the due date
      of
      November 30, 2007. Principal and interest on the $350,000 owed to Burnham and
      its employee is convertible into common stock at the option of the noteholders
      at a fixed conversion price of $0.17 per share. None of the remaining 6.75%
      notes are convertible.




12




7. Convertible
      Redeemable Preferred Stock





In
      March
      2003, the Company raised $312,500 through a private placement of 1,092,657
      shares of Series A Convertible Redeemable Preferred Stock ("Series A") for
      $.286
      per share with various accredited investors (the "Investors"). In March and
      June
      2003, an additional 55,944.06 and 56,614.93 shares of Series A Convertible
      Redeemable Preferred Stock were issued, valued at $16,000 and $34,000,
      respectively, for services rendered and reimbursement for expenses in the first
      and second quarter of 2003. With respect to the 56,614 shares issued in June
      2003, as the deemed fair value of the shares issued exceeded the expenses to
      be
      reimbursed, the Company recognized a noncash charge of $17,800 in connection
      with the stock issuance.





In
      June
      2003, the Company raised $215,000 through a private placement of 1,075,000
      shares of Series B Convertible Redeemable Preferred Stock ("Series B") for
      $.20
      per share with various accredited investors. In addition, 250,000 shares of
      Series B Convertible Redeemable Preferred Stock were issued in exchange for
      $62,500 of Related Party Note Payable. In addition, the CEO received 75,000
      shares of Series B convertible redeemable preferred stock, valued at $15,000,
      as
      compensation for services rendered in connection with the restructuring. In
      September 2003, an additional 154,000 shares of Series B Convertible Redeemable
      Preferred Stock were issued, valued at $246,400 for reimbursement of expenses
      in
      the third quarter of 2003. As the deemed fair value of the 154,000 shares of
      Series B Convertible Redeemable Preferred Stock issued in September exceeded
      the
      expenses to be reimbursed, the Company recognized a non-cash charge of $215,600
      in connection with the stock issuance. In December 2003, the CEO was awarded
      667
      shares of Series B Convertible Redeemable Preferred Stock, valued at $6,000,
      as
      compensation. In December 2003, the COO was awarded 667 shares of Series B
      Convertible Redeemable Preferred Stock, valued at $6,000, as compensation.
      In
      December 2003, the Controller and Principal Accounting Officer was awarded
      222
      shares of Series B Convertible Redeemable Preferred Stock, valued at $2,000,
      as
      compensation.





In
      September 2004, the CEO was awarded 38,444 shares of Series B Convertible
      Redeemable Preferred Stock, valued at $115,300, as compensation. In November
      2004, the CEO, COO and Principal Accounting Officer were award 222,219 shares
      of
      Series B Convertible Redeemable Preferred Stock valued in the aggregate at
      $355,600 as compensation.





The
      Series A and Series B Convertible Redeemable Preferred Stock provides for two
      years of guaranteed dividends at a rate of 5% per annum; accordingly, the
      Company allocated approximately $64,900 of the net proceeds from the offering
      of
      the preferred stock to accrued dividends payable, which represents the present
      value of the two-year dividends (discounted at 6%). This dividend is being
      accreted as a preferred dividend on a straight-line basis (which approximates
      the effective interest method) over the two-year guaranteed dividend period.
      During the three months ended March 31, 2004 and 2005, the combined accretion
      of
      the guaranteed dividends with respect to the Series A and Series B Convertible
      Redeemable Preferred Stock amounted to $700 and $0, respectively.





The
      Series A and Series B Convertible Redeemable Preferred Stock include common
      stock conversion features whereby, on the measurement date (which approximates
      the issuance date), the fair value of the Company’s common stock on an as-if
      converted basis exceeded the amount of the net proceeds received from the
      offering; accordingly, the Series A and Series B Convertible Redeemable
      Preferred Stock were deemed to contain an imbedded beneficial conversion feature
      (“BCF”). The BCF with respect to the Series A Convertible Redeemable Preferred
      Stock was calculated to be approximately $390,000 and the BCF with respect
      to
      the Series B Convertible Preferred Stock was calculated to be approximately
      $1.4
      million. However, the amount of the BCF to be recognized is limited to the
      net
      proceeds received from the offerings, which, with respect to the Series A
      Convertible Redeemable Preferred Stock amounted to $298,400 and with respect
      to
      the Series B Convertible Redeemable Preferred Stock amounted to $266,800 (for
      an
      aggregate BCF of $565,200). The $298,400 and $266,800 have been reflected as
      a
      discount against the carrying value of the Series A and Series B Convertible
      Redeemable Preferred Stock, respectively, and this discount is being accreted
      as
      a preferred dividend on a straight-line basis over the remaining term
      (redemption date) of the preferred stock.





At
      March
      31, 2005, the carrying value of the Series A and Series B Convertible Redeemable
      Preferred Stock amounted to $165,200 and $830,200, respectively. During the
      three months ended March 31, 2004 and 2005, the combined accretion of the BCF
      discount with respect to the Series A and Series B Convertible Redeemable
      Preferred Stock amounted to  $36,100
      and $0, respectively.





The
      rights, preferences and privileges of the Series A and B Preferred stockholders
      are as follows:





Series
                A
            Series
                BTerm
            TermThe
                Series A Convertible Redeemable Preferred Stock has a term of five
                years
                from the date of issuance. Mandatorily redeemable in March 2008.
            The
              Series B Convertible Redeemable Preferred Stock has a term of four
              years
              and nine months from the date of issuance. Mandatorily redeemable in
              March
              2008.Dividends
            DividendsThe
                holders of Series A Convertible Redeemable Preferred Stock are entitled
                to
                receive a 5% cumulative dividend, payable in stock. The Series A
                Preferred
                stockholders are entitled to receive a minimum of two-year dividends
                regardless if they are forced to convert or voluntarily convert.
            The
              holders of Series B Convertible Redeemable Preferred Stock are entitled
              to
              receive a 5% cumulative dividend, payable in stock. The Series B Preferred
              stockholders are entitled to receive a minimum of two-year dividends
              regardless if they are forced to convert or voluntarily convert.Liquidation
                Preference
            Liquidation
              PreferenceIn
                the event the Company is liquidated or sold, the Series A Preferred
                stockholders will be entitled to receive the par value of their shares
                plus any accumulated dividends prior to any distribution to the holders
                of
                common stock. Pari passu with Series B.
            In
              the event the Company is liquidated or sold, the Series B Preferred
              stockholders will be entitled to receive the par value of their shares
              plus any accumulated dividends prior to any distribution to the holders
              of
              common stock. Pari passu with Series A.Voting
                Rights
            Voting
              RightsEach
                share of Series A Convertible Redeemable Preferred Stock shall have
                the
                equivalent voting rights of 20 shares of common stock.
            Each
              share of Series B Convertible Redeemable Preferred Stock shall have
              the
              equivalent voting rights of 20 shares of common stock.Conversion
            ConversionThe
                Series A Preferred stockholders have the right, at any time, to convert
                their shares into common stock.  Each share of Series A Convertible
                Redeemable Preferred Stock is convertible into 10 shares of common
                stock.
            The
              Series B Preferred stockholders have the right, at any time, to convert
              their shares into common stock. Each share of Series B Convertible
              Redeemable Preferred Stock is convertible into 20 shares of common
              stock.





Redemption
            RedemptionThe
                Series A Convertible Redeemable Preferred Stock becomes due and payable
                on
                March 20, 2008.  After a two-year period, the Company has
                the right,
                at any time, without penalty, to redeem the Series A Convertible
                Redeemable Preferred Stock.  If the Company exercises its
                right, the
                Series A Preferred stockholders will have 10 business days to make
                a
                decision to either convert their Series A Convertible Redeemable
                Preferred
                Stock into common stock or have their shares redeemed.
            The
              Series B Convertible Redeemable Preferred Stock becomes due and payable
              on
              March 20, 2008. After a two-year period, the Company has the right,
              at any
              time, without penalty, to redeem the Series B Convertible Redeemable
              Preferred Stock. If the Company exercises its right, the Series B
              Preferred stockholders will have 10 business days to make a decision
              to
              either convert their Series B Convertible Redeemable Preferred Stock
              into
              common stock or have their shares redeemed.





As
      of
      March 31, 2005, the Series A and B Convertible Redeemable Preferred Stock,
      including accrued dividends would be convertible into 13,287,510 and 40,047,651
      shares of common stock, respectively. Conversion is subject to limitations
      to
      the extent shares are not available for conversion as set forth in the Preferred
      Stock Purchase Agreements.




13





Conversion
      of Convertible Securities





Prior
      to
      the Laurus Financing, in March and June 2003, the Company had made private
      placements of shares of Series A Convertible Redeemable Preferred Stock with
      various accredited investors. Between June 2003 and September 2003 the Company
      had also made private placements of certain shares of Series B Convertible
      Redeemable Preferred Stock with various accredited investors.





Each
      share of Series A Convertible Redeemable Preferred Stock, including accrued
      dividends of which there were approximately 1,328,751 shares outstanding, was
      convertible into 10 shares of common stock and each share of Series B
      Convertible Redeemable Preferred Stock, including accrued dividends of which
      there were approximately 2,002,382 shares outstanding, was convertible into
      20
      shares of common stock. In addition, in connection with the Laurus Financing,
      the holders of such securities agreed with Laurus not to sell the shares of
      common stock issued upon the conversion of such securities for a period of
      one
      year, and not to sell any additional shares of common stock held by the holders
      of such securities which were not issued upon the conversion of such securities
      for a period of six months, without Laurus’ consent. On March 28, 2005, the
      Board of Director’s authorized the 10 for 1 reverse stock split.




At
      March
      31, 2005, the Company’s authorized common stock was inadequate to accommodate
      the conversions described above.





8.
      Shareholders’ Common Stock Equity





In
      March
      2003, the Company issued 2,100,000 shares of common stock for services to the
      Chairman, President and CEO of the Company, and 735,000 shares of common stock
      to a financial advisor for services rendered in connection with assistance
      in
      financial restructuring provided in the quarter ended September 30, 2003 and
      additional services to be provided over the next year. These shares have certain
      service milestones that provide for a clawback of shares if services are
      terminated. Of these shares, 708,750 vested immediately with a remaining balance
      of 2,126,250, of which 50% vested on October 1, 2003 and 50% vested on March
      31,
      2004, respectively. The 2,835,000 shares were valued at $.02 per share, or
      $56,700. See Note 4.





In
      December 2003, four employees received a stock award of, in total, 50,000 shares
      of common stock valued at $22,500. 25,000 of these shares vested in December
      2003 and the remaining 25,000 shares vested in December 2004.




During
      the three months ended March 31, 2005, the Company issued 748,901 shares of
      common stock in exchange for services valued at $131,900.





9.
       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 principally derived from one industry and two
      customers, which represents a substantial risk.





In
      the
      first three months of 2004, revenues from the Company's two largest customers
      accounted for approximately 60%, and 18%, respectively, of total revenues.
      In
      the first three months of 2005, revenues from the Company's three largest
      customers accounted for approximately 38%, 12% and 11%, respectively,
      of
      total revenues. Accounts receivable balances at March 31, 2005 from
      these three customers represented approximately 34%, 17% and
      6%,
      respectively, of net accounts receivable. No other customer accounted for more
      than 10% of total revenue in the three months ended March 31, 2004 and 2005,
      respectively.





The
      concentrations of revenues and related receivables as of and for the three
      months ended March 31, 2005 as described above expose the Company to a
      relatively greater degree of risk of loss than would be the case with greater
      customer diversification.




10.
      Subsequent Events 
 On
          April
          26, 2005, the Company and Laurus entered into an Amendment and Waiver (the
          “Amendment and Waiver”) in connection with the Registration Rights Agreement
          incorporated into this Report as Exhibit 10.21 (the “Registration Rights
          Agreement”). A copy of the Amendment and Waiver is incorporated into this Report
          as Exhibit 10.31.
  The
          Registration Rights Agreement called for the Company to cause a registration
          statement covering certain securities held by Laurus (the “Registration
          Statement”) to be declared effective by the Commission within 120 days of the
          execution of the Registration Rights Agreement. The Company was unable
          to cause
          the Registration Statement to be declared effective within this time frame
          and
          as a result became obligated to pay to Laurus certain liquidated damages
          (the
“Liquidated Damages”) pursuant to the terms of the Registration Rights
          Agreement.
  Pursuant
          to the Amendment and Waiver, Laurus agreed to extend the date by which
          registration must be effective to May 30, 2005 (the “New Effectiveness Date”)
          and to waive any Liquidated Damages which may have become due prior to
          the New
          Effectiveness Date.
  In
          connection with the Amendment and Waiver, the Company issued to Laurus
          a seven
          year warrant to purchase up to 1,000,000 shares of the Company’s common stock at
          an exercise price of $0.23 per share (the “Warrant”). A copy of the Warrant is
          incorporated into this Report as Exhibit 10.32. Pursuant to the Amendment
          and
          Waiver, the Company agreed to register the shares issuable upon the exercise
          of
          the Warrant within six months of the date of issuance. In issuing the Warrant,
          the Company relied upon the exemptions from registration provided by Section
          4(2) of the Securities Act and Rule 506 of Regulation D thereunder, as
          Laurus is
          an “accredited investor” as defined in Rule 501(a) of Regulation D.
  The
          Company was unable to cause the Registration Statement to be declared effective
          prior to the New Effectiveness Date and as a result is in breach of the
          Registration Rights Agreement, as amended, and has become obligated to
          pay to
          Laurus additional liquidated damages. The Company’s breach of the Registration
          Rights Agreement, if not waived by Laurus, could result in the acceleration
          of
          the maturity of the Laurus debt. At the date of this Report, the Company
          and
          Laurus are engaged in discussions regarding (a) a waiver by Laurus of the
          Company’s breach and (b) a further extension of the date by which registration
          must be effective.




14





Item
      2.
      Management Discussion and Analysis of Financial Condition and Results ofOperations





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 regional service coverage area. We design, implement, and support 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”), 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
      longer terms.





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., Avaya, Inc., Bay Networks
      (a division of NorTel Networks) and 3Com. For voice products, we support
      products designed by Avaya, Inc. and NorTel Networks Inc.





Recent
      Events





The
      Company had an operating loss in the first quarter of 2005 and incurred
      operating and net losses in 2004 and 2003, and has a capital deficiency at
      December 31, 2004 and March 31, 2005. The Company has limited additional
      financing available under its current accounts receivable financing facility
      in
      order to fund any additional cash required for its operations or otherwise.
      These matters raise substantial doubt about the Company’s ability to continue as
      a going concern. Management took steps during 2004 to improve the situation,
      including replacing a $2.75 million accounts receivable financing facility
      from
      Pacific Business Funding, a division of Greater Bay Bancorp, with a $5.5 million
      convertible note financing arrangement with Laurus Master Fund, Ltd., acquiring
      substantially all of the operating assets of Southwest Century Communications,
      Inc., a Houston, Texas based data and voice service provider, making further
      cuts in overhead costs, downsizing the Company’s Houston operations, and making
      changes in the Company’s management.





Any
      temporary lack of available financing could have a materially unfavorable effect
      on the Company’s financial position.





Critical
      Accounting Policies:





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States requires
      management to make judgments, assumptions and estimates that affect the amounts
      reported in the Condensed Consolidated Financial Statements and accompanying
      Notes. The Summary of Significant Accounting Policies appears in Note 1 to
      the
      Condensed Consolidated Financial Statements and describes the significant
      accounting polices and methods used in the preparation of the Condensed
      Consolidated Financial Statements. Estimates are used for, but are not limited
      to, revenue recognition, the allowance for doubtful accounts, and deferred
      tax
      assets. Actual results could differ materially from these estimates. The
      following critical accounting policies are impacted significantly by judgments,
      assumptions and estimates used in the preparation of the Condensed Consolidated
      Financial Statements.





Revenue
      recognition. The Company derives a significant portion of its revenue from
      short
      and long-term contracts, which require the accurate estimation of the cost,
      scope and duration of each engagement. Revenue and the related costs for these
      projects are recognized on the percentage-of-completion, using the cost incurred
      to the estimated cost at completion. If the Company does not
      accurately estimate the resources required or the scope of work to be
      performed, or does not manage its projects properly under the contracts, then
      future margins may be significantly and negatively affected or losses on
      existing contracts may need to be recognized. Any such resulting reductions
      in
      margins or contract losses could be material to the Company's results of
      operations.





Allowance
      for Doubtful Accounts. We
      perform ongoing credit evaluations of our customers and adjust credit limits
      based upon payment history and the customer’s current credit worthiness, as
      determined by our review of their current credit information. We continuously
      monitor collections and payments from our customers and maintain a provision
      for
      estimated credit losses based upon our historical experience and any specific
      customer collection issues that we have identified. While such credit losses
      have historically been within our expectations and the provisions established,
      we cannot guarantee that we will continue to experience the same credit loss
      rates that we have in the past.




Since
      our
      revenues and accounts receivable are concentrated in Bank of America,
      SBC and Wells Fargo, a significant change in the liquidity or financial
      position of one of these customers could have a material adverse impact on
      the
      collectability of our accounts receivables and our future operating results.
      A
      loss of one of these customers could have a material effect on our business.
      From time to time we may experience delays in the collection of our accounts
      receivable from our major customers, which could result in a cash flow problem
      and effect the viability of the business.





Deferred
      Tax Assets. We evaluate our deferred tax assets for potential recoverability.
      We
      have established a valuation allowance on our deferred tax asset to the extent
      that we determine that it is more likely than not that some portion or all
      of
      the deferred tax asset will not be realized. The ultimate realization of the
      deferred tax asset is dependent upon the generation of future taxable
      income.





Our
      revenues were $3,380,500 and $3,192,300 for the three months ended March
      31, 2004 and 2005, respectively, representing a decrease of 5.6%. This decrease
      was due primarily to a decrease in data and voice services revenue for the
      period related to a decline in project work relating to one of our larger
      existing clients





15





Cost
      of
      revenues was $1,961,700 and $2,028,800 for the three months ended March 31,
      2004
      and 2005 respectively, representing an increase of 3.4%. Our gross profit for
      the comparable periods was $1,418,800 and $1,163,500, respectively, representing
      a decrease of 18.0%. The decrease in margin was due to the increased use of
      labor in Q1 2005 as compared to Q1 2004.





Selling,
      general and administrative ("SG&A") expenses increased 32.0% from $1,355,300
      for the three months ended March 31, 2004 to $1,789,600 for the three months
      ended March 31, 2005. The increase in year over year comparable quarters was
      due
      to increased outside consulting, increased operating expenses related to the
      acquisition of Southwest Century and a non-cash charge for services provided
      in
      exchange for common stock. Also included in our SG&A expenses are our
      holding company expenses, which increased by $218,700 from $115,600 for the
      three months ended March 31, 2004 to $334,300 for the three months ended March
      31, 2005.





Depreciation
      and amortization expenses were $60,500 and $57,700 for the three months ended
      March 31, 2004 and 2005, respectively. This decrease was due to minimal
      purchases of field service and office equipment. We expect that depreciation
      will continue to decrease in dollar terms as a result of a reduction in
      investments in capital equipment required to support the business.





We
      had
      operating income of $3,000 for the three months ended March 31, 2004 compared
      to
      an operating loss of $(683,800) for the three months ended March 31, 2005.
      Interest Expense for our bank borrowings and capital lease financing decreased
      from $99,800 for the three months ended March 31, 2004 to $81,400 for the three
      months ended March 31, 2005 due to decreased utilization on our line of credit
      borrowings plus lower interest rates.  Included in other expense (income)
      for the three months ended March 31, 2004 and 2005 are $(65,000) and $308,900
      of
      non-cash expenses (income), respectively. This represents a mark-to-market
      valuation adjustment for warrants and options to purchase shares of our common
      stock. Included in finance fees and charges in the three-month period ended
      March 31, 2005 is $297,300 of amortization expense related to long-term deferred
      financing costs. Interest Expense - Related Party for the three months ended
      March 31, 2004 was $16,700 compared to $11,800 in three month period ended
      March
      31, 2005. The decrease is due to conversion of certain Series A and B Preferred
      shareholder notes payable to common stock of the Company.





During
      the three months ended March 31, 2004 and 2005, the Company provided a 100%
      valuation allowance in our deferred tax assets as we are unable to conclude
      that
      it is more likely than not that such deferred tax assets will be realized.





During
      the three month period ended March 31, 2004 and March 31, 2005, we accrued
      a
      state tax provision of $1,600 and $0, respectively. In the three month period
      ended March 31, 2004, we incurred an operating loss and, accordingly, there
      was
      no federal provision. We have a tax loss carryforward from prior years and,
      accordingly, did not recorded a federal tax provision for the three months
      ended
      March 31, 2005 as our pre-tax profit fully utilized the carryforward loss.





Net
      loss
      attributable to common shareholders was $(134,000) or $(0.01) per share, after
      providing for a preferred stock dividend accrual of $36,100 for the three month
      period ended March 31, 2004. This compares to a net loss of $(1,296,800) or
      $(0.05) per share, for the three month period ended March 31, 2005.





Liquidity
      and Capital Resources





Cash
      and
      cash equivalents decreased to $143,300 at March 31, 2005 compared to $287,400
      at
      December 31, 2004. The decrease was mainly attributable to increased working
      capital requirements to fund operating activities.





Cash
      Flows From Operating Activities. For the three months ended March 31, 2005,
      cash
      used by operating activities was $(479,900) which resulted primarily from our
      operating net loss for the first three months of $(683,300) resulting from
      an
      increase in operating assets of $313,700, and an increase in liabilities of
      $421,200.





Accounts
      receivable and work in process unbilled increased by $186,900 due to a decline
      in billings from the previous quarter. Net increase in payables and accruals
      amounted to $485,900 primarily due to an increase in accounts
      payable.





Cash
      Flows From Investing Activities. There were no significant investing activities
      during the three months ended March 31, 2005.





Cash
      Flows From Financing Activities. Net cash provided by financing activities
      during the three months ended March 31, 2005 was $341,200. The cash generated
      arose from $409,500 of proceeds from secured convertible loans offset by
      repayments of the secured convertible loans of $60,600 and by $7,700 of debt
      repayment on capital lease obligations.





Our
      long-term liabilities include $950,000 in Notes payable to
      shareholders.





Our
      net
      working capital at March 31, 2005 was a negative $(8,563,300), a decrease of
      $679,800 from December 31, 2004.





The
      Company had an operating loss in the first quarter of 2005 and incurred
      operating and net losses in 2004 and 2003, and has a capital deficiency at
      December 31, 2004 and March 31, 2005. The Company has limited additional
      financing available under its current accounts receivable financing facility
      in
      order to fund any additional cash required for its operations or otherwise.
      These matters raise substantial doubt about the Company’s ability to continue as
      a going concern. Management's plans in regards to the foregoing uncertainty
      are
      described below.





Management
      took steps during 2004 to improve the situation, including replacing a $2.75
      million accounts receivable financing facility from Pacific Business Funding,
      a
      division of Greater Bay Bancorp, with a $5.5 million convertible note financing
      arrangement with Laurus Master Fund, Ltd., acquiring substantially all of the
      operating assets of Southwest Century Communications, Inc., a Houston, Texas
      based data and voice service provider, making further cuts in overhead costs,
      downsizing the Company’s Houston operations, and making changes in the Company’s
      management





In
      the
      future, the Company plans to file for an increase in the number of authorized
      shares of common stock. As of March 31, 2005, Series A and B Preferred Stock
      would be convertible into 13,287,510 and 40,047,651, shares of common stock,
      respectively. Conversion is subject to limitations to the extent shares are
      not
      available for conversion as set forth in the Preferred Stock Purchase Agreements
      before any issuance of common stock pursuant to any outstanding option or
      warrant exercise.





16





On November
        30, 2004, the Company entered into a series of agreements (the “Laurus
        Agreements”) with Laurus Master Fund, Ltd. (“Laurus”) whereby the Company agreed
        to issue to Laurus: (i) a secured convertible term note (the “Term Note”) in the
        amount of $2 million, (ii) a secured convertible revolving note in the amount
        of
        $2.5 million (the “Revolving Note”), (iii) a secured convertible minimum
        borrowing note in the amount of $1 million (the “Minimum Borrowing Note”; the
        Minimum Borrowing Note, the Term Note and the Revolving Note being referred
        to
        collectively as the “Notes”), (iv) a related option to purchase up to 8,865,337
        shares of common stock at a price of $0.01 per share (the “Option”), and (v) a
        seven year warrant to purchase up to 19,250,000 shares of common stock at
        a
        price of $0.23 per share (the “Warrant”). The transactions contemplated by the
        Laurus Agreements (the “Laurus Financing”) closed on December 3, 2004, with an
        effective date of November 30, 2004. The loan evidenced by the Notes is secured
        by all of the assets of the Company and ICF.
 
 In
        accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock,” the option to
        purchase up to 8,865,337 shares of common stock and the warrant to purchase
        up
        to 19,250,000 shares of common stock have been classified as a short-term
        liability (with a corresponding entry to long-term deferred financing costs)
        and
        were originally valued at fair value on the date of issuance ($2,197,900
        at
        November 30, 2004). The Company estimated the fair value of the warrant
        by
        using the Black-Scholes valuation model with the following assumptions: dividend
        yield of 0%; expected volatility of 198%; risk free interest rate of 4.88%;
        and
        the contractual life of the warrant. At December 31, 2004, the Company
        marked-to-market the warrant and option liability and took a remeasurement
        charge of $3,392,000. On December 31, 2004 and November 30, 2004, the Company’s
        common stock was trading at $0.20 and $0.08 per share, respectively. The
        long-term deferred financing cost is being amortized to expense over three
        years, the term of the financing arrangements. At March 31, 2005, the Company
        marked-to-market the warrant and option liability and took a remeasurement
        charge of $(17,200). The Company estimated the fair value of the warrant
        by
        using the Black-Scholes valuation model with the following assumptions: dividend
        yield of 0%; expected volatility of 190%; risk free interest rate of 4.88%;
        and
        the contractual life of the warrant. On March 31, 2005 the Company’s stock was
        trading at $0.20.
  Each
        of
        the Notes matures on November 30, 2007 (the “Maturity Date”). The principal
        amount of each of the Notes bears interest at the prime rate plus two percent
        with a minimum rate of 6.75%. The minimum monthly payment on the Term Note
        is
        $60,606, plus the monthly interest payment, and may be paid in cash, common
        stock or a combination thereof, dependent upon the occurrence of certain
        criteria. Prior to March 2005, the Company is only obligated to pay interest
        on
        this indebtedness, which is payable from November 30, 2004. Laurus has the
        option to convert the entire amount of the obligations with respect to each
        of
        the Notes into shares of common stock at a conversion price of $0.17 per
        share,
        provided that, subject to certain exceptions, such conversion does not result
        in
        Laurus beneficially owning more than 4.99% of the Company’s outstanding shares
        of common stock.
  The
        Security Agreement provides for the acceleration of the due date of the Laurus
        debt upon the occurrence of certain events of default including, without
        limitation, failure to make debt service payments or a material breach of
        any of
        the Laurus financing documents. In connection with the Laurus financing the
        Company entered into a Registration Rights Agreement (“RRA”). The Company agreed
        to file a registration statement to register the shares of common stock issued
        upon the conversion of any of the Laurus notes, or the exercise of any options
        and/or warrants within sixty days after the close of the financing to be
        effective no later than 120 days after the close of the financing. The Company
        failed to cause the registration statement to be filed timely and to be declared
        effective within the 120-day period resulting in the Company owing Laurus
        certain liquated damages pursuant to the RRA. On April 26, 2005, Laurus agreed
        to waive the terms and conditions of the default in exchange for a seven-year
        warrant to purchase 1,000,000 shares of the Company’s common stock at $0.23 per
        share.
  In
        connection with the Laurus Financing the Company issued a $350,000 convertible
        note payable and a five-year warrant to purchase up to 6,744,520 shares of
        common stock at a price of $0.17 per share to Burnham Securities, Inc.
        (“Burnham”) and a Burnham employee as consideration for services rendered.
        Principal and interest on the $350,000 owed to Burnham and its employee is
        convertible into common stock at the option of the noteholders at a fixed
        conversion price of $0.17 per share.
  In
        accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock,” the warrants
        have been classified as a short-term liability (with a corresponding entry
        to
        long-term deferred financing costs) and were originally valued at fair value
        on
        the date of issuance ($508,900 at November 30, 2004). The Company
        estimated
        the fair value of the warrant using the Black-Scholes valuation model with
        the
        following assumptions: dividend yield of 0%; expected volatility of 198%;
        risk
        free interest rate of 4.88%; and the contractual life of the warrant. At
        December 31, 2004, the Company marked-to-market the warrant liability and
        took a
        remeasurement charge of $815,000. On December 31, 2004 and November 30, 2004
        the
        Company’s stock was trading at $0.20 and $0.08 per share, respectively. The
        long-term deferred financing cost is being amortized to expense over three
        years, the term of the financing arrangement.
  On
        March
        2, 2005, Burnham exercised the warrant in a cashless transaction whereby
        the
        Company issued 3,776,931 shares of its common stock valued at $1,650,100.
        The
        Company recorded the transaction by reducing it’s warrant and option liability
        by $1,650,100 and recording equity accordingly.
  On
        March
        2, 2005, the Company marked-to-market the warrant and option liability and
        took
        a remeasurement charge of $326,200. The Company estimated the fair
        value of
        the warrant using the Black-Scholes valuation model with the following
        assumptions: dividend yield of 0%; expected volatility of 190%; risk free
        interest rate of 4.88%; and the contractual life of the warrant. On March
        31,
        2005 the Company’s stock was trading at $0.20 per share.
  17
 As
        of
        March 31, 2005 and December 31, 2004, the Company incurred indebtedness in
        the
        amount of $3,348,900 and $3,000,000, respectively, under the Laurus
        Financing.
  Concurrently
        with the Laurus Financing, in November of 2004, the Company incurred
        indebtedness to certain shareholders and financial advisors in the aggregate
        amount of $950,000 at 6.75% interest. Of this indebtedness, $200,000 represents
        an additional debt investment by existing shareholders, $250,000 is owed
        to
        Frances R. Campbell in connection with the acquisition of the operating assets
        of Southwest Century Communications, Inc. and $350,000 is owed to Burnham
        Securities, Inc. (“Burnham”) and a Burnham employee as consideration for
        services rendered in connection with the Laurus Financing. Interest on the
        $250,000 owed to Frances R. Campbell is payable monthly beginning in December
        2004. Interest on the remainder of the indebtedness accrues monthly and is
        payable on the due date of November 30, 2007. Principal and interest on the
        $350,000 owed to Burnham and its employee is convertible into common stock
        at
        the option of the noteholders at a fixed conversion price of $0.17 per share.
        None of the remaining 6.75% notes are convertible.
 
 The
        Company was indebted to a stockholder pursuant to a $162,500 promissory note
        due
        in January 2005 with an interest rate of 6% per annum. In connection with
        the
        Laurus Financing, $37,500 of the principal balance due under the note was
        exchanged for a 6.75% promissory note in the principal amount of $25,000,
        with
        interest accruing monthly and payable on November 30, 2007. Also in connection
        with the Laurus Financing, the interest rate on the $125,000 remaining principal
        balance was raised to 6.75% per annum and the maturity date was extended
        to
        November 30, 2007, with interest accruing monthly and payable on November
        30,
        2007.
  In
        the
        first quarter of 2004, the Company's largest supplier increased the Company's
        line of credit to $500,000. This supplier has a second lien on all of the
        Company's assets.
 
 In
        February 2003, the Company entered into a one-year accounts receivable financing
        facility with Pacific Business Funding, a division of Cupertino National
        Bank,
        which is part of Greater Bay Bancorp, to replace its facility with Comerica.
        The
        Agreement with Greater Bay Bancorp provides, among its terms, a $1,000,000
        financing facility with a borrowing formula of 80% of eligible receivables,
        collateralized with a first lien on all assets. The finance fees on this
        Greater
        Bay Bancorp facility are 1.5% per month (18% annual rate) on average daily
        cash
        balances with an additional administrative fee and an annual commitment fee.
        There are no financial covenants under this facility. On October 10, 2003,
        the
        maximum commitment under this financing facility was increased to $1,500,000.
        In
        connection with this increase, the Company executed a warrant agreement with
        Pacific Business Funding for 277,777 shares of the Company's common stock
        at an
        exercise price of $0.09 per share and an expiration date of October 14, 2013.
        The warrant also provides Pacific Business Funding a $25,000 put in lieu
        of
        exercising the warrant. As the puttable warrant may require cash settlement,
        the
        Company has classified the instrument as a liability in accordance with SFAS
        No.
        150. The Company has in the accompanying consolidated statements of operations
        recognized $(100) and $65,000 in other (income) expenses for the warrant
        based
        on the estimated fair value of the warrant as of March 31, 2005 and 2004,
        respectively. At March 31, 2005 the Company estimated the fair value of the
        warrant by using the Black-Scholes valuation model with the following
        assumptions: dividend yield of 0%; expected volatility of 190% , risk free
        interest rate of 4.88%; and the contractual life of the
        warrant.




On
      November 20, 2003, Pacific Business Funding had advanced funds in the aggregate
      amount of $1,767,600 under the existing facility and continued to provide
      advances in December 2003 in excess of the $1,500,000 line. A second amendment
      to the factoring agreement was executed on January 2, 2004 and provided, among
      other items, an increase to a maximum commitment of $1,800,000 and extension
      of
      the facility through January 3, 2005. A third amendment to the factoring
      agreement was executed on September 2, 2004 and provided, among other items,
      an
      increase to a maximum commitment of $2,000,000, a reduction in the interest
      to
      1.25% per month (15% annual rate), and extension of the facility through January
      3, 2005. A new factoring agreement was executed effective October 1, 2004,
      and
      provided, among other items, an increase to a maximum commitment of $2,750,000,
      a reduction in the interest to 1.0% per month (12% annual rate), and extension
      of the facility through October 31, 2005.





In
      connection with the Laurus Financing, the Company replaced a factoring
      arrangement with Pacific Business Funding, which had been in place since
      February 12, 2003 and was subsequently amended on October 1, 2004. This
      factoring arrangement provided, among other things, for a maximum commitment
      of
      $2,750,000, interest of 12% per annum and a term extending through October
      31,
      2005. Upon the closing of the Laurus Financing, all amounts owed by the Company
      to Pacific Business Funding pursuant to the factoring arrangement were paid
      off,
      and the Pacific Business Funding line of credit was terminated (the “PBF
      Payoff”).




Any
      temporary lack of available financing could have a materially unfavorable effect
      on the Company’s financial position. The Company’s long-term prospects are
      dependent upon a return to profitability and/or the ability to raise additional
      capital as necessary to finance operations.   The consolidated
      financial statements included in this annual report do not include any
      adjustments that might result from the outcome of this uncertainty.





Since
      our
      revenues and accounts receivable are concentrated in Bank of America, SBC and
      Wells Fargo, a significant change in the liquidity or financial position of
      one
      of these customers could have a material adverse impact on the collectability
      of
      our accounts receivables and our future operating results. A loss of one of
      these customers could have a material effect on our business. From time to
      time
      we may experience delays in the collection of our accounts receivable from
      our
      major customers, which could result in a cash flow problem and effect the
      viability of the business.





The
      following table discloses our contractual commitments (excluding bank loans
      under our bank line of credit), as of March 31, 2005, relating to lease
      obligations and long-term debt and redeemable preferred stock for future
      periods:





Years
                Ending December 31,2005
                (nine months)
            
            $
            3,944,3002006
            
            
            174,7002007
            
            
            1,102,7002008
            
            
            66,0002009
            
            
            27,700$
            5,315,400




18





Item
      3.
      Controls and Procedures




(a)
      Under
      the supervision and with the participation of our management, including
      our
      principal executive officer and principal financial  officer, we conducted
      an evaluation of our disclosure controls and  procedures, as
      such term
      is defined under Rule 13a-14(c) promulgated  under the Securities Exchange
      Act of 1934, as amended (the "Exchange  Act"), within 90 days
      of the
      filing date of this report. Based on   their evaluation, our
      principal
      executive officer and principal financial officer concluded that our
      disclosure controls and procedures are effective. (b) there have been
      no
      significant changes (including corrective actions with regard to significant
      deficiencies or material weaknesses) in our  internal controls or in
      other
      factors that could significantly affect these controls subsequent to the date
      of
      the evaluation referenced in paragraph (a) above.




Part
      II. OTHER INFORMATION




Item
      1. Legal
      proceedings




On
      April
      18, 2005, COMC/ICF filed a Complaint for Rent and Damages based upon breach
      of
      contract and breach of covenant of good faith and fair dealing arising from
      unpaid utility costs accrued and due from their sub-tenant, Home Lending, Inc.,
      a California Corporation. These unpaid costs arose from a Standard
      Industrial/Commercial Single-Tenant lease (Gross) entered into between ICF
      and
      Home Lending dated May 16, 2000 regarding premises located at 1700
      West
      Burbank Blvd., Burbank, California. COMC/ICF alleges that its sub-tenant under
      this sub-lease failed to tender payment of such utility costs when due and
      after
      written demand was made. The sum at issue is $25,133.66, plus reimbursement
      of
      the Company’s attorney’s fees and costs. The Company is not aware of any
      potential or actual claim against COMC/ICF or potential unfavorable exposure
      arising from this action.




On
        or
        about April 8, 2005, Bowles & Verna, former counsel for ICF, filed an action
        seeking to recover prior attorney’s fees and costs in the amount of $28,730.52.
        Service of the Complaint was effectuated on or about May 2, 2005. The fees
        and
        costs relate to services rendered by Bowles & Verna in the Bingham and
        Metropolitan Agency v. ICF matters. The Company estimates that its total
        potential exposure in the matter is less than $40,000, including advanced
        charges.


On
      November 9, 2004, the Company and ICF entered into a Settlement Agreement,
      Mutual Release of All Claims and Covenant Not to Sue (the “Settlement
      Agreement”) with certain parties. The Settlement Agreement, among other things,
      called for a dismissal of the case, a mutual release of claims by the parties,
      a
      cash payment to the Company of $125,000 and the transfer to the Company of
      833,333 shares of common stock. Pursuant to the contingency fee agreement
      referenced above, this cash payment and an equal amount of shares of common
      stock has been transferred to the Company's outside counsel.




On
      August
      8, 2004, the Company, for the sum of $6,300, settled an action brought by the
      trustee in bankruptcy of E-time Capital to settle what the trustee claimed
      was a
      preferential distribution. The amount was a de minimus settlement
      and
      was in the Company's best interest.




On
      October 31, 2003, the Company filed another lawsuit in California bearing Case
      No.C03-02803 naming as defendants former employees of the Company and their
      related business entities. The Complaint contained causes of action for
      misappropriation of trade secrets, breach of contract and business torts. One
      group of defendants filed a Cross-Complaint against the Company and its Chief
      Operating Officer. The Company believes that there is no basis for the
      Cross-Complaint. A settlement was reached with the group of defendants that
      filed the Cross-Complaint. The settlement requires the Company’s insurer to pay
      the sum of $7,500 and the Company will pay $2,500 towards that defendants’ share
      of discovery referee fees. This group of defendants will be dismissed from
      the
      Complaint with prejudice and dismiss their Cross-Complaint with prejudice.
      Each
      party will bear their own attorney’s fees and costs. With respect to the
      remaining defendants, negotiations have been ongoing whereby a dismissal with
      prejudice for a waiver of attorney’s fees and costs may occur. Currently a trial
      date is set for August 1, 2005. It is anticipated that this matter may be fully
      settled as stated herein within the next 30-45 days.




On
      September 10, 2003, the Company filed a lawsuit in Contra Costa County Superior
      Court in California against several former employees of the Company, and their
      related business entities for misappropriation of trade secrets, breach of
      contract and various business torts. On July 1, 2004, the Company entered into
      a
      contingency fee agreement with its outside counsel that all fees in the Lincoln
      case after that date were to be recovered from the defendants. Any amounts
      recovered in excess of legal bills were to be divided equally between the
      Company and its outside counsel.




19




Item
        2. nges
        in
        Securities
  Effective
        June 27, 2005, the Company will effectuate the
        Reverse Split (as defined in Note 1 to the Condensed Consolidated Financial
        Statements of the Company included in this report) to allow for the conversion
        of the Company's preferred sock and certain notes payable to common stock.


Item
      3. Defaults Upon Senior Securities




None




Item
      4.Submission of Matters to a Vote of Security
      Holders




Not
      Applicable




Item
      5. Other Information




Our
      By-laws provide that our Board of Directors shall be composed of five to seven
      members. George Malin resigned from the Board effective November 23,
      2003. During 2004, John Repelti was elected a director of the Company
      to
      fill the vacancy. Each director has been appointed by the other existing
      directors as our By-laws allow the Board to fill vacancies until the next
      meeting of stockholders. Our By-laws permit the Board of Directors to fill
      any
      vacancy and the new director may serve until the next meeting of stockholders
      or
      until his successor is elected and qualified.




Item
      6. Exhibits and Reports on Form 8-K




(a) 
      Exhi bits




(1)
      Certificate of Incorporation, incorporated herein by reference  to the
      Company's definitive proxy statement for the 2000 Annual Meeting of
      Stockholders, filed with the Commission on October 23, 2000, pursuant to
      Regulation 14A of the Securities Exchange Act of 1934, as amended (the
       "Proxy Statement")




(2)
        By-laws, incorporated herein by reference to the Proxy
      Statement




(b) 
      No reports on Form 8-K were filed during the quarter for which this report
      is
      filed.




20





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, Registrant has duly caused this report to be signed on its behalf by
      the
      undersigned hereunto duly authorized.




COMC,
      INC.





By:
      /s/ Janice B. Fuellhart


---------------------------------------


Janice
      B. Fuellhart, Chairman








Dated:
       June 22, 2005




21











EXHIBIT
      INDEX






31.1    
          Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
          Section
          302 of the Sarbanes-Oxley Act of 2002




31.2  
       Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to
      Section 302 of the Sarbanes-Oxley Act of 2002




32.1   
      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002




32.2   
      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002





22