PROSPECTUS
COMMERCE DEVELOPMENT CORPORATION, LTD.
Selling shareholders are offering up to 350,500 shares of common stock. These shareholders will offer their shares at $.05 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. We will not receive proceeds from the sale of shares from these shareholders.
Prior to this offering, there has been no market for our securities. Our common stock is not now listed on any national securities exchange, the NASDAQ stock market, or the OTC Bulletin Board. There is no guarantee that our securities will ever trade on the OTC Bulletin Board or other exchange.
There are no underwriting commissions involved in this offering. We have agreed to pay all the costs of this offering. Selling shareholders will pay no offering expenses.
This offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. There is substantial doubt about our ability to continue as a going concern. See “Risk Factors” beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is November 12, 2004.
1
TABLE OF CONTENTS
SUMMARY INFORMATION AND RISK FACTORS | 3 |
RISK FACTORS | 5 |
Our poor financial condition raises substantial doubt about our ability to continue as a going concern. You will be unable to | |
determine whether we will ever become profitable | 5 |
Our management decisions are made by our CEO and President, Mr. Mercer and our CFO, Mr. Medina; if we lose their services, our | |
ability to generate revenues may be reduced | 5 |
Insiders control our activities and may cause us to act in a manner that is most beneficial to such insiders and not to outside | |
shareholders | 6 |
Because there is not now and may never be a public market for our common stock, investors may have difficulty in reselling their | |
shares | 6 |
Sales of our common stock under Rule 144 could reduce the price of our stock | 6 |
Certain Maryland corporation law provisions could prevent a potential takeover of us that could adversely affect the price of our | |
common stock or deprive you of a premium over the price | 6 |
Because we do not have an audit or compensation committee, shareholders will have to rely on the entire board of directors, some | |
members of which are not independent, to perform these functions | 6 |
USE OF PROCEEDS | 7 |
DETERMINATION OF OFFERING PRICE | 7 |
DILUTION | 7 |
SELLING SHAREHOLDERS | 8 |
PLAN OF DISTRIBUTION | 9 |
LEGAL PROCEEDINGS | 11 |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS | 11 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 12 |
DESCRIPTION OF SECURITIES | 13 |
INTEREST OF NAMED EXPERTS | 14 |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES | 14 |
DESCRIPTION OF BUSINESS | 14 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19 |
DESCRIPTION OF PROPERTY | 22 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 22 |
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | 25 |
EXECUTIVE COMPENSATION | 27 |
FINANCIAL STATEMENTS | F-1 |
2
SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
The prospectus summary contains a summary of all material terms of the prospectus. You should carefully read all information in the prospectus, including the financial statements and their explanatory notes, under the Financial Statements section beginning on page F-1 prior to making an investment decision.
Organization
We were incorporated as a Maryland corporation on May 13, 1998 with the name of Majestic Financial, Ltd. On April 29, 2002, we changed our name to Commerce Development Corporation, Ltd.
We are a development stage company. From our inception on May 13, 1998 to June 30, 2004, we have used $64,850 in operating activities and $242,634 in investing activities.
To finance these uses we received $ 175,250 through the sale of common stock, $ 26,500 of advances from shareholders, and $107,419 from the Company's former owner through June 30, 2004. As a result, at June 30, 2004 we had an accumulated deficit of $ 558,456.
As of June 30, 2004, we had cash on hand of approximately $1,685. This amount will not be sufficient to satisfy our operating requirements through the next 12 months as we will have expenses such as those related to this offering and to office rent. Our president, Mr. Andrew Mercer, has orally agreed to fund these expenses as a loan with no interest or due date, although he is under no obligation to do so. If he does not fund these expenses, we will be unable to implement our business plan. Further, to satisfy our operating requirements through June 30, 2005, we estimate that we will need an additional $680,000. If we do not secure this additional debt or equity financing, we will be unable to develop our business plan. We currently have no clients and have no commitment for additional debt or equity financing. We have no plan in place that will eliminate this risk. If we do not raise this entire amount, we would cease our attempts to implement our business plan, go out of business and not become a shell company to be used as a vehicle for a reverse acquisition.
Since Mr. Mercer acquired control of our company, he has undertaken the following actions to implement our business plan:
o | Coordinating the services of attorneys, accountants and other professionals in connection with the preparation of this registration statement. Mr. Mercer has coordinated providing all required information to our accountants, Russell Bedford Stefanou Mirchandani LLP, responding to numerous requests for information and executing all required representation letters. He initially provided all information to our original attorneys Glast, Phillips & Murray, P.C., Houston, Texas in connection with original filing of this registration statement. He has provided all information to our current attorneys, Williams Law Group, P.A., Tampa Florida in connection with the preparation of all amendments to this registration statement, including flying from California to Florida earlier this year to work with Mr. Williams on the preparation of amendments. |
o | Phased out all consulting operations of the Mercer and all consulting will now be handled by us. This is consistent with our plan that all services previously provided by the Mercer Group will now be provided by us. In this connection, Mr. Mercer has not accepted any new clients for the Mercer Group since 2002. |
o | Held discussions on an exploratory basis with four potential clients. These discussions concerned our providing services to them. The four companies include: American Eagle Manufacturing, Ultimate Security Systems, Comport Insurance Services and MBH Holdings. There are no written contracts in place. |
o | Developed our network of business development specialists by holding discussions with attorneys, accountants, and financial and business advisors who previously provided strategic business planning services to clients of Mercer Group or are well known to our president, Mr. Mercer, about providing similar services to our potential clients after our securities are qualified for quotation on the over the counter bulletin board. There is no assurance that we can secure any or all required consultants for any particular engagement. |
These activities are currently on hold pending our attempt to have this registration statement declared effective. We believe it is essential to our business plan that we become a public company. We do not believe we can attract the number and quality of clients and the amount of funding we desire unless we are a public company. We do not anticipate undertaking any activities other than those necessary to have this registration statement declared effective until it is declared effective. Thereafter, when we take on consulting clients and implement marketing efforts, we believe we will have commenced significant operations.
3
Business
Our goal is to offer assistance to pre-initial public offering companies seeking to develop their businesses to the point where a realistic exit strategy of merger, acquisition or an initial public offering can be achieved. Our overall objective is to become a highly focused and successful leading business consulting firm specializing in high quality small to mid-cap companies and privately-held pre-initial public offering clients that serve large unmet market demands.
Corporate Information
Our principal executive offices are located at 8880 Rio San Diego Drive, 8th Floor, San Diego, California 92108. Our telephone number is (619) 209-6035 and fax number is (619) 209-6078.
The Offering by Selling Stockholders
As of the date of this prospectus, we had 21,365,500 shares of common stock issued and outstanding, giving effect to a 1 share for 10 share reverse split in August 2002.
Selling shareholders are offering up to 350,500 shares of common stock. The selling shareholders will offer their shares at $.05 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. We will pay all expenses of registering the securities, estimated at approximately $30,000. We will not receive any proceeds of the sale of these securities.
FINANCIAL SUMMARY INFORMATION
The following table sets forth selected financial information, which should be read in conjunction with the information set forth under “Management Discussion and Analysis” and the accompanying consolidated Financial Statements of the Company and related notes includes elsewhere in this prospectus.
Income Statement Data
Six months ended June 30, 2004 (unaudited) | Year ended December 31, 2003 (audited) | Year ended December 31, 2002 (Audited) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Revenue | $ | -- | $ | -- | $ | -- | |||||
Expenses | 9,603 | 131,520 | 245,857 | ||||||||
Net Profits (Losses) | 9,603 | (131,520 | ) | (126,042 | ) | ||||||
Loss per Share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||
4
Balance Sheet Data
Six months ended June 30, 2004 (unaudited) | Year ended December 31, 2003 (audited) December 31, 2003 | Year ended December 31, 2002 (Audited) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Total Assets | 6,208 | 6,960 | 15,915 | ||||||||
Total Liabilities | 62,282 | 48,496 | 13,931 | ||||||||
Shareholder's Equity (Deficit) | (56,074 | ) | (41,536 | ) | 1,984 | ||||||
Our auditors have expressed substantial doubt regarding our ability to continue as a going concern.
RISK FACTORS
In addition to the other information provided in this prospectus, you should carefully consider the following risk factors in evaluating our business before purchasing any of our common stock.
Our poor financial condition raises substantial doubt about our ability to continue as a going concern. You will be unable to determine whether we will ever become profitable.
We are a development stage company. From our inception on May 13, 1998 to June 30, 2004, we have used $ 64,850 in operating activities and $ 242,634 in investing activities.
To finance these uses we received $ 175,250 through the sale of common stock, $ 26,500 of advances from shareholders, and $107,419 from the Company's former owner through June 30, 2004. As a result, at June 30, 2004 we had an accumulated deficit of $ 558,456 .
As of June 30, 2004, we had cash on hand of approximately $1,685. This amount will not be sufficient to satisfy our operating requirements through the next 12 months as we will have expenses such as those related to this offering and to office rent. Our president, Mr. Andrew Mercer, has orally agreed to fund these expenses as a loan with no interest or due date, although he is under no obligation to do so. If he does not fund these expenses, we will be unable to implement our business plan. Further, to satisfy our operating requirements through June 30, 2005, we estimate that we will need an additional $680,000. If we do not secure this additional debt or equity financing, we will be unable to develop our business plan. We currently have no clients and have no commitment for additional debt or equity financing. We have no plan in place that will eliminate this risk. If we do not raise this entire amount, we would cease our attempts to implement our business plan, go out of business and not become a shell company to be used as a vehicle for a reverse acquisition.
If we do not raise this entire amount, we would cease our attempts to implement our business plan, go out of business and not become a shell company to be used as a vehicle for a reverse acquisition.
We intend to raise additional funds from an offering of our stock in the future. We have not taken any steps to effect this offering. The offering may not occur, or if it occurs, may not generate the required funding. We may also consider securing debt financing. We may not generate operating cash flow or raise other equity or debt financing sufficient to fund this amount. If we don’t raise or generate these funds, the implementation of our short-term business plan will be delayed or eliminated.
Our ability to continue as a going concern is dependent on our ability to raise funds to implement our planned development; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Our poor financial condition could inhibit our ability to achieve our business plan. Because we are currently operating at a substantial loss with no operating history and very limited revenues, an investor cannot determine if we will ever become profitable.
Our management decisions are made by our CEO and President, Mr. Mercer and our CFO, Mr. Medina; if we lose their services, our ability to generate revenues may be reduced.
Our success is dependent on the efforts of Andrew Mercer who serves as our CEO and President and Hector Medina who serves as our CFO. We do not maintain key person life insurance on Mr. Mercer or Mr. Medina. Because they are currently essential to our operations, you must rely on their management decisions. Our CEO and CFO will continue to control our business affairs in the future. We have an employment agreement with Mr. Mercer only. If we lose their services, we may not be able to hire and retain another CEO or CFO with comparable experience.
5
Insiders control our activities and may cause us to act in a manner that is most beneficial to such insiders and not to outside shareholders.
Our officers and directors and their affiliates currently control at least 85% of our common stock and will control approximately 82.7% of our common stock after issuance of additional stock to our attorney, Michael T. Williams, Esq. As a result, these insiders effectively control all matters requiring director and stockholder approval, including the election of directors, the approval of significant corporate transactions, such as mergers and related party transaction. Our insiders also have the ability to block, by their ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect of delaying, deterring or preventing a change in control of our company that you might view favorably.
Because there is not now and may never be a public market for our common stock, investors may have difficulty in reselling their shares.
Our common stock is currently not quoted on any market. No market may ever develop for our common stock, or if developed, may not be sustained in the future. Accordingly, our shares should be considered totally illiquid, which inhibits investors’ ability to resell their shares.
Sales of our common stock under Rule 144 could reduce the price of our stock.
As of June 30, 2004, there are 3,165,500 shares of our common stock held by non-affiliates and 18,000,000 shares of our common stock held by affiliates that Rule 144 of the Securities Act of 1933 defines as restricted securities. We are registering 350,500 of these shares in this registration statement. No Shares have been sold pursuant to Rule 144 of the Securities Act of 1933; and as of June 30, 2004, there are no shares held by affiliates eligible for resale under 144.
Once this registration statement is effective, the shares of our common stock being offered by our selling shareholders will be freely tradable without restrictions under the Securities Act of 1933, except for any shares held by our “affiliates,” which will be restricted by the resale limitations of Rule 144 under the Securities Act of 1933.
In addition to the shares available for resale under this registration statement, as a result of the provisions of Rule 144, all restricted securities could be available for sale in a public market, if developed, beginning 90 days from the effective date of this registration statement. These share would have to be sold under the volume and transaction limitations of Rule 144, however. The availability for sale of substantial amounts of common stock under Rule 144 could reduce prevailing prices for our securities.
Certain Maryland corporation law provisions could prevent a potential takeover of us that could adversely affect the price of our common stock or deprive you of a premium over the price.
We are incorporated in the State of Maryland. Certain provisions of Maryland corporation law could adversely affect the price of our common stock. Because Maryland law governing control-share acquisitions requires board approval of a transaction involving a change in our control; it would be more difficult for someone to acquire control of us. Neither our Articles nor our Bylaws contain any similar provisions.
Because we do not have an audit or compensation committee, shareholders will have to rely on the entire board of directors, some members of which are not independent, to perform these functions.
We do not have an audit or compensation committee comprised of independent directors. Indeed, we do not have any audit or compensation committee. These functions are performed by the board of directors as a whole. Some members of the board of directors are independent directors. Thus, there is a potential conflict in that board members who are management will participate in discussions concerning management compensation and audit issues that may affect management decisions.
6
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth above under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a non-reporting issuer. Further, Section 27A(b)(1)(C) of the Securities Act and Section 21E(b)(1)(C) of the Securities Exchange Act provide that the safe harbor for forward looking statements does not apply to statements made by companies such as ours that issue penny stock.
USE OF PROCEEDS
Not applicable. We will not receive any proceeds from the sale of shares offered by the selling shareholders.
DETERMINATION OF OFFERING PRICE
Our management has determined the offering price for the selling shareholders’ shares. The offering price has been arbitrarily determined and does not bear any relationship to our assets, results of operations, or book value, or to any other generally accepted criteria of valuation. Prior to this offering, there has been no market for our securities.
DILUTION
Not applicable. We are not offering any shares in this registration statement. All shares are being registered on behalf of our selling shareholders.
SELLING SHAREHOLDERS
The selling shareholders named below are selling the securities. These selling shareholders acquired their shares by purchase or for services rendered in assisting us in developing our business plan, exempt from registration under section 4(2) of the Securities Act of 1933. We believe that the selling shareholders listed in the table have sole voting and investment powers with respect to the securities indicated. We will not receive any proceeds from the sale of the securities by the selling shareholders. No selling shareholders are broker-dealers or affiliates of broker-dealers.
7
Selling Shareholders
Sales by the Selling Stockholders
Stockholder | Shares Owned Before Sale | Percentage Before Sale (1) | Amount Offered | Shares Beneficially Owned After Sale | Percentage After Sale (1) (2) (3) |
---|---|---|---|---|---|
Daniel Beresford | 50,000 | * | 50,000 | -- | -- |
Borrelli, Peter and Lorretta, as | * | -- | -- | ||
joint tenants with rights of | |||||
survivorship [meaning if one dies, | |||||
the other becomes the sole owner of | |||||
the shares by operation of law] | 30,000 | 30,000 | |||
John Haley | 1,500 | * | 1,500 | -- | -- |
Betty Jean Cowan | 2,000 | * | 2,000 | -- | -- |
Hart, Stanford L., Trustee | 2,000 | * | 2,000 | -- | -- |
Ed Heimrich | 10,000 | * | 10,000 | -- | -- |
John Jason | 28,000 | * | 28,000 | -- | -- |
Lane Family Trust, The | 16,000 | * | 16,000 | -- | -- |
Carl Ludwig | 10,000 | * | 10,000 | -- | -- |
Stephen Noel | 10,000 | * | 10,000 | -- | -- |
Kevin Palumbos | 10,000 | * | 10,000 | -- | -- |
John M. Rosick, Jr | 10,000 | * | 10,000 | -- | -- |
Victor Salvo | 35,000 | * | 35,000 | -- | -- |
June M. Swanson | 25,000 | * | 25,000 | -- | -- |
Joseph F. Thorne, Sr | 6,000 | * | 6,000 | -- | -- |
Michael T. Williams, Esq. (3) | 200,000 | 100,000 | 100,000 | * | |
David Weinberg | 5,000 | 5,000 | -- | -- | |
Total | 350,500 | 2 | 350,500 | 100,000 | * |
* Less than one percent
(1) Based on 21,365,500 shares of our common stock outstanding on the date of this prospectus.
(2) For purposes of calculation of the percentage in this column of this table, and not as a general assumption about the results of this offering, we assume all of the securities will be sold in this offering. However, any or all of the securities listed below may be retained by any of the selling shareholders, and therefore, no accurate forecast can be made as to the number of securities that will be held by the selling shareholders upon termination of this offering.
(3) Michael T. Williams is the principal of Williams Law Group, P.A., Tampa FL our special securities counsel. We have also agreed to issue Mr. Williams an additional 400,000 shares of common stock for representation on 1934 Act and general securities issues for a period of one year following the effective date of this registration statement. Following this issuance, and assuming Mr. Williams sells only and all those shares registered in this offering, Mr. Williams would own 500,000 shares, or approximately 2.3%, of our common stock.
We are not aware of any relationship, agreement or arrangement among the persons listed above.
8
PLAN OF DISTRIBUTION
Selling shareholders are offering up to 350,500 shares of common stock. The selling shareholders will offer their shares at $.05 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. We will not receive proceeds from the sale of shares from the selling shareholders. We will pay all expenses of registering the securities. Expenses paid to date are as follows:
Accounting - $17,125
SEC filing fee - $189.12
Miscellaneous [Edgarization, postage, phone, etc.] - $5,000
These expenses have all been paid by our president as a loan to us, which bears no interest and has no due date.
Estimated future expenses are as follows:
Edgarization - $2,500
Accounting - $5,000
Our president has orally agreed to fund these remaining expenses as an additional loan to us , which bears no interest and has no due date.
The securities offered by this prospectus will be sold by the selling shareholders without underwriters and without commissions. The distribution of the securities by the selling shareholders may be effected in one or more transactions that may take place in the over-the-counter market or privately negotiated transactions.
Any of the selling shareholders, acting alone or in concert with one another, may be considered statutory underwriters under the Securities Act of 1933, if they are directly or indirectly conducting an illegal distribution of the securities on behalf of our corporation. For instance, an illegal distribution may occur if any of the selling shareholders were to provide us with cash proceeds from their sales of the securities. If any of the selling shareholders are determined to be underwriters, they may be liable for securities violations in connection with any material misrepresentations or omissions made in this prospectus. In addition, the selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933.
The selling shareholders may pledge all or a portion of the securities owned as collateral for margin accounts or in loan transactions, and the securities may be resold pursuant to the terms of such pledges, margin accounts or loan transactions. Upon default by such selling shareholders, the pledge in such loan transaction would have the same rights of sale as the selling shareholders under this prospectus. The selling shareholders may also enter into exchange traded listed option transactions, which require the delivery of the securities listed under this prospectus. After our securities are qualified for quotation on the OTC Bulletin Board, the selling shareholders may also transfer securities owned in other ways not involving market makers or established trading markets, including directly by gift, distribution, or other transfer without consideration, and upon any such transfer the transferee would have the same rights of sale as such selling shareholders under this prospectus.
In addition to the above, each of the selling shareholders will be affected by the applicable provisions of the Securities Exchange Act of 1934, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the selling shareholders or any such other person.
9
Upon this registration statement being declared effective, the selling shareholders may offer and sell their shares from time to time until all of the shares registered are sold; however, this offering may not extend beyond two years from the initial effective date of this registration statement.
There can be no assurances that the selling shareholders will sell any or all of the securities. In various states, the securities may not be sold unless these securities have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
All of the foregoing may affect the marketability of our securities. Pursuant to the various agreements we have with the selling shareholders, we will pay all the fees and expenses incident to the registration of the securities.
Should any substantial change occur regarding the status or other matters concerning the selling shareholders, or us we will file an amendment to this registration statement disclosing such matters.
Blue Sky
Thirty-five states have what is commonly referred to as a “manual exemption” for secondary trading of securities such as those to be resold by selling stockholders under this registration statement. In these states, so long as we obtain and maintain a listing in Standard and Poor’s Corporate Manual, secondary trading can occur without any filing, review or approval by state regulatory authorities in these states. These states are: Alaska, Arizona, Arkansas, Colorado, Connecticut, Maryland, District of Columbia, Maryland, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Texas, Utah, Washington, West Virginia, and Wyoming. We cannot secure this listing and thus this qualification until after this registration statement is declared effective. Once we secure this listing, secondary trading can occur in these states without further action.
We have been advised by the state of Pennsylvania that our securities will be automatically qualified for secondary trading in Pennsylvania without any filing, review or approval after this registration statement is declared effective.
We will need to secure a qualification or exemption for secondary trading in the following additional states: Alabama, California, Florida, Illinois, Minnesota, New York, Virginia and Wisconsin. We are in the process of contacting these states and will make all necessary filings prior to the effective date of this registration statement.
All our shareholders currently reside in the states listed in the three paragraphs above or outside the U.S.
We currently do not intend to and may not be able to qualify securities for resale in other states which require shares to be qualified before they can be resold by our shareholders.
10
LEGAL PROCEEDINGS
There are no pending or threatened lawsuits against us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The Board of Directors elects our executive officers annually. A majority vote of the directors who are in office is required to fill vacancies. Each director shall be elected for the term of one year, and until his successor is elected and qualified, or until his earlier resignation, death, or removal. Our directors and executive officers are as follows:
Name | Age | Position | Director Since |
---|---|---|---|
Andrew E. Mercer | 59 | Chairman, President, and Chief Executive Officer | September 2002 |
Hector Medina | 29 | Chief Financial Officer, Chief Accounting Officer, | N/A |
Secretary and Treasurer | |||
Frederick A. Manger | 52 | Director | January 2003 |
Martin J. Capdevilla | 57 | Director | February 2003 |
Andrew E. Mercer became our chairman, president, and chief executive officer in September, 2002. Mr. Mercer has served as chairman, chief executive officer and president of Mercer Group, Inc. since 1997. Mercer Group is a privately held corporation offering business management and consulting services to companies which have not filed registration statements covering the initial public offerings of their securities. Mercer Group specializes in offering consulting for corporate structuring, business plan development, corporate document preparation other similar services. However, the Mercer Group is not accepting new clients. All candidates for the consulting services to be offered by Commerce Development will retain Commerce Development and not Mercer Group in the future. He plans to devote substantially all of his time to our business.
Hector Medina has been our chief financial officer, chief accounting officer, secretary and treasurer since October 2002. Mr. Medina also serves as vice-president of business development for Mercer Group; a position he has occupied since July 2001. Prior to serving in his current capacities with Commerce Development and Mercer Group, Mr. Medina was investor relations coordinator from October 2000 to July, 2001 with The IR Solution, Inc., a San Diego-based company. Mr. Medina attended National University starting September 1997 prior to joining The IR Solution. He plans to devote substantially all of his time to our business.
Frederick A. Manger has been a private investor and independent financial consultant since July, 1998. Consulting projects have included analysis, facilitation of debt repurchases and transactions, and advising the development and manufacture of a patent-pending, energy-efficient commercial lighting fixture. Since September, 2000, Mr. Manger continues in the roles of founder and secretary of a multi-media company, Paradox Entertainment, Inc., which specializes in promoting high-quality concerts and pay-for-view events.
11
Martin J. Capdevilla has over 20 years of corporate experience in consumer product advertising and marketing with Pfizer from 1966-1978 as U.S. marketing development director and from 1978-1982 as Pfizer-Mexico commercial director sales and marketing. Mr. Capdevilla worked for General Foods-Mexico from 1982-1986 as marketing director. In 1986, Mr. Capdevilla formed his own U.S. distribution company, Frontier Trading, Inc. located in San Diego, California. He continues to serve as president of Frontier Trading which supplies grocery products to Mexico, Central America and South America through Distriburo MJC, S.A. de C.V. located in Tijuana, Mexico.
Directors serve for a one-year term. Our Bylaws provide that the Board of Directors shall be composed of not less than the minimum number required by Section 2-402 of the Maryland General Corporation Law, which is one, nor more than fifteen members.
Board Committees
Although we have board committee charters, we currently have not undertaken any actions to implement a functioning compensation committee or a functioning audit committee.
A compensation committee, an audit committee and an audit committee financial expert are not required for us to secure a qualification for our securities to be quoted on the over the counter bulletin board. These requirements relate to Section 301 of the Sarbanes-Oxley Act. As stated on the SEC website under Division of Corporation Finance: Sarbanes-Oxley Act of 2002 - Frequently Asked Questions - November 8, 2002 (revised November 14, 2002):
Question 2: Will the rules relating to Section 301 apply to issuers whose securities are traded on the over-the-counter bulletin board market?
Answer: No. Securities traded on the over-the-counter bulletin board market currently are not considered listed securities.
Family Relationships
There are no family relationships among our officers or directors.
Legal Proceedings
We are not aware that any officer, director, or persons nominated for such positions, promoter or significant employee, has been involved in legal proceedings that would be material to an evaluation of our management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of the date of this Supplement, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.
12
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. Unless otherwise indicated, the address for each of these stockholders is c/o Commerce Development Corporation, Ltd., 8880 Rio San Diego Drive, 8th Floor, San Diego, California 92108.
Shareholder | Position with Company | # of Shares | Percentage |
---|---|---|---|
Andrew Mercer [1] | President and CEO | 18,000,000 | 85% |
All directors and named executive | 18,000,000 | 85% | |
officers as a group (2 persons) |
[1] The shares owned by Mr. Mercer include 13,340,000 shares owned by him directly, and 4,660,000 shares owned by Mercer Group, Inc., a company controlled by Mr. Mercer. Mr. Mercer has the sole voting and dispositive power for the shares owned by Mercer Group. We have agreed to issue our securities counsel, Mr. Michael T. Williams, 400,000 shares of common stock for representation on 1934 Act and general securities issues for a period of one year following the effective date of this registration statement, in addition to the 200,000 shares he currently beneficially owns. Following this issuance and assuming that Mr. Williams sells only the 100,000 shares being registered under this registration statement, Mr. Mercer will own approximately 82.7% of our common stock.
This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, it believes that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are based upon 21,365,500 shares of common stock outstanding as of November 1 , 2004.
DESCRIPTION OF SECURITIES
We are authorized to issue 300,000,000 shares of common stock with $.0001 par value per share. The following description as a summary of the material terms of the provisions of our Articles of Incorporation and Bylaws. The Articles of Incorporation and Bylaws have been filed as exhibits to the registration statement of which this prospectus is a part.
Common Stock
As of the date of this registration statement, there were 21,365,500 shares of common stock issued and outstanding, giving effect to a 1 share for 10 share reverse split in August 2002. Our stock is held by 34 shareholders of record.
Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of shareholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the shareholders of our common stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of the such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law.
Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available. We have not paid any dividends since our inception, and we presently anticipate that all earnings, if any, will be retained for development of our business. Any future disposition of dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.
13
Holders of our common stock have no preemptive rights or other subscription rights, conversion rights, redemption or sinking fund provisions. Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all of our debts and other liabilities. There are not any provisions in our Articles of Incorporation or our Bylaws that would prevent or delay change in our control.
INTEREST OF NAMED EXPERTS
Our financial statements for the period from inception through December 31, 2002 included in this prospectus have been so included in reliance on the report of Russell Bedford Stefanou Mirchandani LLP, certified public accountants, given on that firm’s authority as experts in auditing and accounting.
The legality of the shares offered under this registration statement is being passed upon by Williams Law Group, P.A., Tampa, Florida. Michael T. Williams, principal of Williams Law Group, P.A., owns 200,000 shares of our common stock, of which 100,000 shares are being registered for sale under this registration statement. We have also agreed to issue Mr. Williams an additional 400,000 shares of common stock for representation on 1934 Act and general securities issues for a period of one year following the effective date of this registration statement.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES
Our Bylaws, subject to the provisions of Maryland Corporation Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
Business Development
We were incorporated as a Maryland corporation on May 13, 1998 as a wholly-owned subsidiary of The Majestic Companies, Ltd., a publicly-held company, with the name of Majestic Financial, Ltd. On March 31, 2002, The Majestic Companies, Ltd. sold 17,500,000 shares, or 87.5 percent, of our stock to Alexander & Wade, Inc., a San Diego, California investment service firm controlled by Mr. Francis A. Zubrowski, our former chairman and president from 1998 until 2002. Mr. Zubrowski was our sole officer and director from the time of our incorporation until September 1, 2002.
As originally planned, Majestic Financial, Ltd. expected to engage in the business of financing leases. We only engaged in limited number of transactions during the period of 1998 to 2000, after which our operations became dormant. We were acquired by Alexander & Wade who desired to have us acquire a going business and thereafter spin-off our shares to the stockholders of The Majestic Companies, Ltd., and thereby become a publicly-held company. Subsequent to our acquisition by Alexander & Wade, the planned spin-off to the stockholders of The Majestic Companies, Ltd. was cancelled due to changes in market conditions. While we were controlled by Alexander & Wade we did not engage in any business.
14
On April 29, 2002, we changed our name to Commerce Development Corporation, Ltd. to reflect the change in the Company's planned operations On August 31, 2002, our stockholders effected a one for ten reverse split of our common stock, leaving 2,715,000 shares issued and outstanding. On September 1, 2002, Andrew E. Mercer, chairman and president of Mercer Group, Inc., entered into a 16 month employment agreement to act as our president and chief executive officer and a related non-competition agreement for a period of 16 months after termination of his employment, in return for 13,340,000 shares of our stock, which constituted approximately 69% of our issued and outstanding shares taking into account the prior reverse split and additional stock issuances on that date. The stock was valued at $0.006 per share, then book value, for an aggregate of $80,040. The employment agreement provides that Mr. Mercer shall perform all duties and services regularly incident to the position of President and Chief Executive Officer and such other duties and services as may be prescribed by the Board of Directors of the Company from time to time. Mr. Mercer further agrees to serve without additional compensation as a director of and in such executive positions with any subsidiaries as the Board of Directors may designate and to fulfill the responsibilities incident to such positions. If Mr. Mercer shall (a) be convicted of a felony, or (b) engage in conduct as defined under cause, all as set out the agreement, we have the right to terminate the contract and employment.
During the times discussed above, there has been no change in the control of Alexander & Wade or Mercer Group. As for The Majestic Companies, Mr. Zubrowski resigned as its chairman and president on July 12, 2003. He had served in those capacities since 1998. Its remaining officer and director, Paul S. Hewitt, resigned on July 12, 2002. Mr. Hewitt had served in those capacities since December 23, 1998 As of the date of this prospectus, The Majestic Companies does not conduct any operations and has no officers or directors other than Lyle J. Mortensen, its corporate secretary, who does not own any shares of The Majestic Companies. The offices of The Majestic Companies are located at 1340 S. Main Street, Suite 190, Grapevine, Texas 76051. There is no one who owns five percent or more of the issued and outstanding stock of The Majestic Companies.
Neither Mr. Zubrowski, Mr. Mortensen, nor Mr. Mercer. have previous involvement with blank check companies.
Since our formation, we have generated only minimal revenues, have had only minimal liquid assets, have incurred losses, and have had no operations. Consequently, we are a development stage company.
Since Mr. Mercer acquired control of our company, he has undertaken the following actions to implement our business plan:
o | Coordinating the services of attorneys, accountants and other professionals in connection with the preparation of this registration statement. Mr. Mercer has coordinated providing all required information to our accountants, Russell Bedford Stefanou Mirchandani LLP, responding to numerous requests for information and executing all required representation letters. He initially provided all information to our original attorneys Glast, Phillips & Murray, P.C., Houston, Texas in connection with original filing of this registration statement. He has provided all information to our current attorneys, Williams Law Group, P.A., Tampa Florida in connection with the preparation of all amendments to this registration statement, including flying from California to Florida earlier this year to work with Mr. Williams on the preparation of amendments. |
o | Phased out all consulting operations of the Mercer and all consulting will now be handled by us. This is consistent with our plan that all services previously provided by the Mercer Group will now be provided by us. In this connection, Mr. Mercer has not accepted any new clients for the Mercer Group since 2002. |
o | Held discussions on an exploratory basis with four potential clients. These discussions concerned our providing services to them. The four companies include: American Eagle Manufacturing, Ultimate Security Systems, Comport Insurance Services and MBH Holdings. There are no written contracts in place. |
o | Developed our network of business development specialists by holding discussions with attorneys, accountants, and financial and business advisors who previously provided strategic business planning services to clients of Mercer Group or are well known to our president, Mr. Mercer, about providing similar services to our potential clients after our securities are qualified for quotation on the over the counter bulletin board. There is no assurance that we can secure any or all required consultants for any particular engagement. |
The number of consultants we retain will depend upon the number of contracts we secure. The skills required of the consultants will depend upon the nature of the engagement. However, all consultants must have substantial experience and expertise in any one or all of the services we are providing, such as legal, accounting, CFO/financial, marketing, operational and management. We do not anticipate any cost in hiring these consultants as we anticipate all consultants will be independent contractors rather than employees. All consultants will be paid from fees we receive from our clients under our agreements with them. There are currently no written or oral agreements with any consultants.
The above activities are currently on hold pending our attempt to have this registration statement declared effective. We believe it is essential to our business plan that we become a public company. We do not believe we can attract the number and quality of clients and the amount of funding we desire unless we are a public company. We do not anticipate undertaking any activities other than those necessary to have this registration statement declared effective until it is declared effective. Thereafter, when we take on consulting clients and implement marketing efforts, we believe we will have commenced significant operations.
15
Strategic Business Planning
The purpose of Strategic Business Planning is to help businesses and associations improve their prospects for success by enabling them to better target the applications of their scarce resources: time, effort, and money; in other words, accomplishing more with the resources they have.
In general, Strategic Business Planning is a methodical process for:
o | identifying the essential core description of the endeavor, |
o | identifying and documenting underlying assumptions about the elements of operating business environment that directly impact a business operation, but over which the business may have no substantive influence, |
o | selecting, prioritizing, and documenting the principal goals that a business or association wants to achieve, |
o | selecting, prioritizing, and documenting the strategies that a business expect to use in achieving each goal, and |
o | developing detailed integrated action plans that will be used both as a basis to allocate resources to business needs, and also to assess movement your business goals. |
Our activities will encompass management, financial, organizational, and developmental processes, with the idea of enabling our small business clients to maximize their growth and profitability.
o | We have created a four-phase process designed to generate small businesses growth. Under Phase One, we will meet with the management of client and assess the needs and scope of the proposed engagement. Thereafter, we will: Review financials and forecasts, and analyze business strategy, plan and goals. |
o | Appraise organizational needs. |
o | Evaluate assets, intellectual property and good will. |
o | Compile a matrix of company strengths and weaknesses and compare against the client’s competition. |
Under Phase Two, we will outline a plan of action with the client's senior management, and reach agreement on milestones and timeframe. Thereafter, we will
o | Determine optimum vehicle(s) for growth. |
o | Assemble team members for execution of plans. |
o | Deploy resources in the form of technology, consultants, and partners. |
Under Phase Three, we will establish reporting and accountability procedures, and monitor progress weekly with written feedback. Thereafter, we will have bi-weekly meetings with senior management for detailed review and to adjust programs as needed.
16
Under Phase Four, we will provide measurement analysis for key aspects of the programs, create reporting structures for ongoing monitoring of success/impact, and generate detailed programs report for senior management review.
Our goal is to offer assistance to pre-initial public offering companies seeking to develop their businesses to the point where a realistic exit strategy of merger, acquisition or an initial public offering can be achieved.
We will not do any of the following:
o | Accept stock for services |
o | Acquire any businesses |
o | Form, manage or invest in blank check companies |
o | Have any other involvement with blank check companies, except that if a client is approached by a blank check company to be acquired, we may advise our client, the operating company, in the transaction. |
This is a policy adopted by oral agreement by our board of directors. We know of now reasons why this policy can change.
The Majestic Companies, Ltd.
The Majestic Companies, Ltd., which has its shares quoted on the OTC Bulletin Board under the symbol “MJXC,” was incorporated under the laws of the State of Nevada on December 3, 1992 under the name of Rhodes, Wolters & Associates, Inc. In May 1998, the Majestic Companies changed its name to SkyTex International, Inc., and in December 1998, merged with The Majestic Companies, Ltd., a Delaware corporation (“Majestic Delaware”). The Majestic Companies had no material operations during the period prior to this merger. Majestic Delaware had operations and formerly did business as Majestic Motor Car Company, Ltd. and, prior to that, Majestic Minerals, Ltd., which was intended to be a mining company but we believe currently has no active operations. Majestic Motor Car Company, Ltd. was a British Columbia corporation that intended to become involved in automobile manufacturing but we believe currently has no active operations. In March 1998, Majestic Motor Car Company merged with and into Majestic Delaware for the purpose of reincorporating under the laws of the State of Delaware. As a part of the merger of the Majestic Companies and Majestic Delaware, the Majestic Companies’ corporate name was changed to The Majestic Companies, Ltd.
The Majestic Companies, through its below described wholly owned subsidiaries, has conducted the following operations: Majestic Safe-T-Products, Ltd. This company designed and marketed transportation related safety equipment for the school bus market. The Majestic Companies sold 80.3 percent of its ownership in Majestic Safe-T-Products on June 30, 2002. On that date, Majestic Safe-T-Products issued 10,000,000 shares of its common stock to The Majestic Companies, in order to extinguish approximately $817,748 of inter-company debt owing to The Majestic Companies. Additionally, Majestic Safe-T-Products assumed approximately $163,517 in debt from The Majestic Companies owed to the following parties in the amounts indicated:
o | Francis A. Zubrowski, $11,883, which was paid in exchange for 1,188,300 shares of Majestic Safe-T-Products common stock; |
o | Gail Bostwick, the wife of Mr. Zubrowski, $126,634, which continued as an obligation of Majestic Safe-T-Products on its financial statements; |
o | William Woo, $10,000, which was paid in exchange for 1,000,000 shares of Majestic Safe-T-Products common stock; and |
o | A2A Industries Corporation, $15,000, which was paid in exchange for 680,000 shares of Majestic Safe-T-Products common stock. |
17
Majestic Financial, Ltd. On March 31, 2002, The Majestic Companies sold 87.5 percent of our stock to Alexander & Wade, Inc., as discussed above. In September 2002, the 87.5 percent of our stock owned by Alexander & Wade was acquired by Mercer Group, Inc., a California corporation specializing in business development. In November 2002, the remaining 12.5 percent of our stock owned by The Majestic Companies, Ltd. was sold to Mr. Zubrowski.
Majestic Modular Buildings, Ltd. In December 2001, The Majestic Companies completed the sale of its wholly owned modular manufacturing subsidiary to Global Diversified Holdings, Inc. (formerly Global Foods Online, Inc.).
North American Industrial Vehicles, Inc. The Majestic Companies is the sole stockholder of North American Industrial Vehicles, Inc., a Delaware corporation. This corporation was incorporated on November 17, 1997 and has never been active or provided operations of any kind.
None of the former or current subsidiaries of The Majestic Companies is a reporting company.
We are advised that The Majestic Companies is currently inactive and has no operational management. A search of the Nevada Secretary of State website indicates the company is in default and is controlled by the following individuals:
President:J DAVID GOWDY Address: PO BOX 27740 LAS VEGAS NV89126; Secretary:LYLE J MORTENSEN Address: PO BOX 27740 LAS VEGAS NV89126; Treasurer:LYLE J MORTENSEN Address: PO BOX 27740 LAS VEGAS NV89126.Mercer Group, Inc.
Mercer Group, Inc., a California corporation, has been providing to smaller businesses services similar to those we propose to provide since 1997. Mercer Group specializes in offering consulting for corporate structuring, business plan development, corporate document preparation other similar services. However, the Mercer Group is not accepting new clients for the services we offer. Because the Mercer Group was in the same line of business as us, to avoid any potential conflicts concerning accepting new business, both the Mercer Group and we have adopted a written policy that all candidates for the consulting services to be offered by Commerce Development will retain Commerce Development and not Mercer Group in the future. This policy was adopted by the boards of both companies. We are not aware of any circumstances under which this policy can be changed.
Alexander & Wade, Inc.
Alexander & Wade, Inc., a California corporation, was incorporated on Oct. 13, 2000. It is a privately held corporation controlled and managed by Francis A. Zubrowski, our former chairman and chief executive officer. Mr. Zubrowski also formerly held the same positions with The Majestic Companies, Ltd. Alexander & Wade offers business management and financial consulting services.
18
Marketing
We will focus the marketing of our services to private small businesses with yearly revenues between $3,000,000 and $50,000,000. Through a series of seminars, we plan to develop a network within the financial industry from which we hope to derive the significant majority of our referrals. In addition to this ongoing networking strategy, we intend to create recognition by visiting underwriters, attorneys, accounting firms, and by providing presentations about our services. Furthermore, certain members of our management team will attend venture capital seminars to further market our services.
Employees
As of the date of this prospectus, we have three full-time employees, two in management and one in support.
Legal Proceedings
As of the date of this prospectus, we are not involved in any legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this prospectus. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarilycontinue into the future.
We were incorporated as a Maryland corporation on May 13, 1998 as a wholly-owned subsidiary of The Majestic Companies, Ltd., a publicly-held company, with the name of Majestic Financial, Ltd.
On April 29, 2002, we changed our name to Commerce Development Corporation, Ltd. to reflect the change in the Company’s planned operations.
Strategic Business Planning
We are currently focusing on developing a strategic business planning business.
The purpose of Strategic Business Planning is to help businesses and associations improve their prospects for success by enabling them to better target the applications of their scarce resources: time, effort, and money; in other words, accomplishing more with the resources they have.
Results of operations
Fiscal year end December 31, 2002 vs. December 31, 2003
For the twelve month period ending December 31, 2002, we incurred a net loss of ($126,042) compared to a net loss of $(131,520) for the period ending December 31, 2003. Although general and administrative expenses decreased $114,649 from year ended 2002 to year ended 2003, we had no income for the year ended 2003 while we had $119,815 in other income for the year ended 2002.
Net Sales. There were no sales recognized from operations for the years ended December 31, 2002 and 2003.
Cost of Sales. There were no cost of sales from operations for the years ended December 31, 2002 and 2003.
General and Administrative. General and administrative expenses were $245,233 for the 12 month period ending December 31, 2002 compared to $130,584 for the 12 month period ending December 31, 2003, a $114,649 decrease. This is primarily the result of the payment professional fees paid in connection with capital restructure and acquisitions in 2002 which were not incurred in 2003.
Other Expenses. Depreciation and amortization expense for the period ending December 31, 2002 was $624 compared to $936 for the period ending December 31, 2003. The expense was a result of the acquisition of office furniture and equipment in 2002 and continued depreciation in 2003.
Other Income. Other income was $119,815 for the period ending December 31, 2002. We had no other income in 2003. The was largely a result of the recognition of $107,419 of former inter-company debt that was forgiven by The Majestic Companies, Ltd. in 2002.
SIX MONTHS END JUNE 30, 2004 VS. JUNE 30, 2003
For The Six Months Ended June 30, | ||||||||
---|---|---|---|---|---|---|---|---|
2004 | 2003 | |||||||
Operating Expenses: | ||||||||
General and Administrative | ||||||||
Expenses | $ | 19,070 | $ | 93,348 | ||||
Depreciation | 468 | 468 | ||||||
Total Operating Expenses | 19,538 | 93,816 | ||||||
Net (Loss) | $ | (19,538 | ) | $ | (93,816 | ) | ||
For the six month period ending June 30, 2004, we incurred a net loss of ($19,538) compared to a net loss of $(93,816) for the period ending June 30, 2003. This is primarily the result of the payment professional fees paid in connection with capital restructure and acquisitions in 2003 which were not incurred in 2004.Net Sales. There were no sales recognized from operations for the six month periods ended June 30, 2004 and 2003.
Cost of Sales. There were no cost of sales from operations for the six month periods ended June 30, 2004 and 2003.
19
General and Administrative. General and administrative expenses were $19,070 for the six month period ending June 30, 2004 compared to 93,348 for the six month period ending June 30, 2003, a approximately $ 74,278 decrease. This is primarily the result of the payment professional fees paid in connection with capital restructure and acquisitions in 2003 which were not incurred in 2004.
Other Expenses. Depreciation and amortization expense for the period ending June 30, 2004 remained fixed at $468 compared to the period ending June 30, 2003. The expense was a result of the acquisition of office furniture and equipment in 2003 and continued depreciation in 2004.
Liquidity and Capital Resources
We are a development stage company. From our inception on May 13, 1998 to June 30, 2004, we have used $ 64,850 in operating activities and $ 242,634 in investing activities.
To finance these uses we received $ 175,250 through the sale of common stock, $ 26,500 of advances from shareholders, and $107,419 from the Company's former owner through June 30, 2004. As a result, at June 30, 2004 we had an accumulated deficit of $ 558,456.
As of June 30, 2004, we had cash on hand of approximately $1,685. This amount will not be sufficient to satisfy our operating requirements through the next 12 months as we will have expenses such as those related to this offering and to office rent. Our president, Mr. Andrew Mercer, has orally agreed to fund these expenses as a loan with no interest or due date, although he is under no obligation to do so. If he does not fund these expenses, we will be unable to implement our business plan. Further, to satisfy our operating requirements through June 30, 2005, we estimate that we will need an additional $680,000. If we do not secure this additional debt or equity financing, we will be unable to develop our business plan. We currently have no clients and have no commitment for additional debt or equity financing. We have no plan in place that will eliminate this risk.
We intend to raise additional funds from an offering of our stock in the future. We have not taken any steps to effect this offering. The offering may not occur, or if it occurs, may not generate the required funding. We may also consider securing debt financing. We may not generate operating cash flow or raise other equity or debt financing sufficient to fund this amount. If we don't raise or generate these funds, the implementation of our short-term business plan will be delayed or eliminated.
Our ability to continue as a going concern is dependent on our ability to raise funds to implement our planned development; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Our poor financial condition could inhibit our ability to achieve our business plan. Because we are currently operating at a substantial loss with no operating history and very limited revenues, an investor cannot determine if we will ever become profitable.
20
The effect of inflation on our revenue and operating results was not significant. Our operations are located primarily in North America and there are no seasonal aspects that would have a material effect on the Company’s financial condition or results of operations.
Our independent certified public accountants have stated in their report dated January 30, 2004 included herein, that we have had difficulty in generating sufficient cash flow to meet its obligations, and that we are dependent upon management’s ability to develop profitable operations. These factors among others may raise substantial doubt about our ability to continue as a going concern.
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FASB interpretation no. 46 will not have a material impact on the Company’s results of operations or financial position.
In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149,AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires that contracts with similar characteristics be accounted for on a comparable basis. The provisions of SFAS 149 are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 will not have a material impact on the Company’s results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 will not have a material impact on the Company’s results of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS’ DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS — AN AMENDMENT OF FASB STATEMENTS NO. 87, 88, AND 106. This statement retains the disclosure requirements contained in FASB statement no. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The revision applies for the first fiscal or annual interim period ending after December 15, 2003 for domestic pension plans and June 15, 2004 for foreign pension plans and requires certain new disclosures related to such plans. The adoption of this statement will not have a material impact on the Company’s results of operations or financial positions.
21
DESCRIPTION OF PROPERTY
We lease approximately 150 square feet of office space in San Diego, California for an annual rental of approximately $14,544. The is on an oral, month-to-month basis
We believe that our facilities are adequate for our present purposes and that additional facilities, if required, will be available to us on reasonably acceptable terms.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Officers, Directors and Security Holders
On March 31, 2002, The Majestic Companies, Ltd., for a purchase price of $120,490.31, consisting of $10,000, in cash, and the forgiveness of indebtedness owed by us to Francis A. Zubrowski totaling $110,490.31, sold 17,500,000 shares, or 87.5 percent, of our stock to Alexander & Wade, Inc., a firm controlled by Mr. Zubrowski, our former chairman, president, and chief executive officer. Mr. Zubrowski owns or controls 1,360,000 shares of our common stock. All share numbers set forth in this section are after the one for ten shares reverse split we implemented in 2002.
On September 1, 2002, we entered into a client service agreement with The Mercer Group, Inc. Under the terms of the agreement, The Mercer Group provided us with:
o | Financial strategies for mergers, spin-offs, and other related activities; |
o | Business development consulting for private companies seeking additional capital and pre-initial public offering strategic business planning; and |
o | Consulting for management on running a public company. |
Pursuant to the service agreement, we paid The Mercer Group, as compensation, 3,160,000 shares of our common stock, valued at $0.006 per share. The Mercer Group is controlled by Andrew E. Mercer, our current chairman, president and chief executive officer. Mr. Mercer owns or controls 18,000,000 shares of our common stock.
Subsequent to entering this agreement, the Mercer Group determined to wind down its consulting practice. We orally agreed with the Mercer Group that services described in "Business - Business Development," above would be provided by Mr. Mercer.
22
On September 1, 2002, Andrew E. Mercer, chairman and president of Mercer Group, Inc., entered into a 16 month employment agreement to act as our president and chief executive officer and a related non-competition agreement for a period of 16 months after termination of his employment, in return for 13,340,000 shares of our stock, which constituted approximately 69% of our issued and outstanding shares taking into account the prior reverse split and additional stock issuances on that date. The stock was valued at $0.006 per share, then book value, for an aggregate of $80,040. The employment agreement provides that Mr. Mercer shall perform all duties and services regularly incident to the position of President and Chief Executive Officer and such other duties and services as may be prescribed by the Board of Directors of the Company from time to time. Mr. Mercer further agrees to serve without additional compensation as a director of and in such executive positions with any subsidiaries as the Board of Directors may designate and to fulfill the responsibilities incident to such positions. If Mr. Mercer shall (a) be convicted of a felony, or (b) engage in conduct as defined under cause, all as set out the agreement, we have the right to terminate the contract and employment.
During the period May 13, 1998 through March 31, 2002, Majestic advanced funds to us for working capital purposes. The amount due to Majestic was $107,419 at March 31, 2002. No formal repayment terms or arrangements existed. In June 2002, we are advised by our independent accountant, who was our independent accountant in June 2002 that we were legally released by oral agreement from our obligation to Majestic. The accountant made the appropriate entry on our financial statements. We recognized $107,419 of other income in connection with the extinguishment of the debt. Corporate general and administrative expenses incurred by Majestic on behalf of the Company are summarized below:
2003 | 2002 | For the Period May 13, 1998 (Date of Inception) through December 31, 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net transfer from Majestic | $ | 168,632 | $ | 162,041 | $ | -- | |||||
beginning of the period | |||||||||||
Net transactions with Majestic: | |||||||||||
Advertising | -- | 511 | 15,774 | ||||||||
Accounting and legal fees | -- | 2,375 | 64,747 | ||||||||
Rent | -- | 1,500 | 22,375 | ||||||||
Officer salaries | -- | 717 | 44,184 | ||||||||
Office expenses | -- | 1,488 | 21,552 | ||||||||
-- | 6,591 | 168,632 | |||||||||
Net transfer from Majestic | |||||||||||
end of the period | $ | 168,632 | $ | 168,632 | $ | 168,632 | |||||
23
Mr. Mercer has advanced funds to the Company for working capital purposes. The amount of the advances at at June 30, 2004 is $ 26,500. No formal repayment terms or arrangements exist.
Transactions with Promoters
The promoters of Commerce Development are Alexander & Wade, Inc., Francis A. Zubrowski, The Mercer Group, Inc., and Andrew E. Mercer. All of the promoters, with the exception of Mr. Mercer, have received shares of our stock as set forth below. The shares owned by Mr. Mercer include 13,340,000 shares owned by him directly, and the remainder owned by Mercer Group, Inc., a company controlled by Mr. Mercer. Mr. Mercer has the sole voting and dispositive power for the shares owned by Mercer Group.
See “Business.”
Name | Number of Shares Received | Consideration Received by Commerce Development | ||||||
---|---|---|---|---|---|---|---|---|
Alexander & Wade, Inc. [1] | 850,000 | Advice and proceeds for sale of stock | ||||||
Francis A. Zubrowski | 510,000 | Advice and proceeds for sale of stock | ||||||
The Mercer Group, Inc. [2] | 3,160,000 | Advice and purchase of stock | ||||||
Andrew E. Mercer | 13,340,000 | Employment services | ||||||
Total | 18,860,000 | |||||||
[1] | Natural person promoter: Francis A. Zubrowski, our former chairman and chief executive officer. |
[2] | Natural person promoter: Andrew Mercer. |
In addition to the above share ownership of the Mercer Group and Mr. Mercer individually, in or about August 2002, the Mercer Group acquired an additional 1,500,000 shares from one of our other shareholders in a private sale transaction.
Other than the cash consideration for our stock we have not received, and we do not expect to receive, any assets from any of the promoters.
Other than the above transactions, we have not entered into any material transactions with any director, executive officer, and nominee for director, beneficial owner of five percent or more of our common stock, or family members of such persons. Also, we have not had any transactions with any promoter. We are not a subsidiary of any company.
24
We have also agreed to issue our securities counsel Mr. Williams an additional 400,000 shares of common stock for representation on 1934 Act and general securities issues for a period of one year following the effective date of this registration statement. Following this issuance, and assuming Mr. Williams sells all and only those 100,000 shares registered in this offering, Mr. Williams would own 500,000 shares or approximately 2.3% of our common stock.
As of June 30, 2004, we had cash on hand of approximately $1,685. This amount will not be sufficient to satisfy our operating requirements through the next 12 months as we will have expenses such as those related to this offering and to office rent. Our president, Mr. Andrew Mercer, has orally agreed to fund these expenses as a loan with no interest or due date, although he is under no obligation to do so. If he does not fund these expenses, we will be unable to implement our business plan.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public trading market for our securities and a regular trading market may not develop, or if developed, may not be sustained. A shareholder in all likelihood, therefore, will not be able to resell his or her securities should he or she desire to do so when eligible for public resales. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops. We have no plans, proposals, arrangements, or understandings with any person with regard to the development of a trading market in any of our securities.
Options, Warrants, Convertible Securities
There are no options, warrants or convertible securities outstanding.
Penny Stock Considerations
Our shares will be “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $100,000 individually or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
o | Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commissions relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; |
o | Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities; |
o | Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and |
o | Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account. |
25
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.
OTC Bulletin Board Considerations
The OTC Bulletin Board is separate and distinct from the NASDAQ stock market. NASDAQ has no business relationship with issuers of securities quoted on the OTC Bulletin Board. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTC Bulletin Board.
Although the NASDAQ stock market has rigorous listing standards to ensure the high quality of its issuers, and can delist issuers for not meeting those standards, the OTC Bulletin Board has no listing standards. Rather, it is the market maker who chooses to quote a security on the system, files the application, and is obligated to comply with keeping information about the issuer in its files. The NASD cannot deny an application by a market maker to quote the stock of a company. The only requirement for inclusion in the bulletin board is that the issuer be current in its reporting requirements with the SEC.
Investors may have greater difficulty in getting orders filled because it is anticipated that if our stock trades on a public market, it initially will trade on the OTC Bulletin Board rather than on NASDAQ. Investors’ orders may be filled at a price much different than expected when an order is placed. Trading activity in general is not conducted as efficiently and effectively as with NASDAQ-listed securities.
Investors must contact a broker-dealer to trade OTC Bulletin Board securities. Investors do not have direct access to the bulletin board service. For bulletin board securities, there only has to be one market maker.
Bulletin board transactions are conducted almost entirely manually. Because there are no automated systems for negotiating trades on the bulletin board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders — an order to buy or sell a specific number of shares at the current market price — it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and getting execution.
Because bulletin board stocks are usually not followed by analysts, there may be lower trading volume than for NASDAQ-listed securities.
Holders
As of the date of this registration statement, we had 34 shareholders of record of our common stock.
Dividends
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.
26
Reports to Shareholders
As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and will file periodic reports, proxy statements, and other information with the Securities and Exchange Commission. We will voluntarily send an annual report to shareholders containing audited financial statements.
Where You Can Find Additional Information
We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 statement. For further information about us and the shares of common stock to be sold in the offering, please refer to the registration statement and the exhibits and schedules thereto. The registration statement and exhibits may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The registration statement and other information filed with the SEC are also available at the web site maintained by the SEC at http://www.sec.gov.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the compensation received for services rendered to us during the fiscal years ended December 31, 2002 and 2003 by our CEO’s.
Name | Position | Year | Salary | Dollar Value of Stock-Based Compensation | Value of other Compensation |
---|---|---|---|---|---|
Francis Zubrowski | CEO | 2002 | 0 | 0 | 0 |
Andrew Mercer | CEO | 2002 | 0 | $80,040 [1] | 0 |
2003 | 0 | 0 | 0 |
(1) Mr. Mercer has received 13,340,000 shares of our common stock valued at $0.006 per share in payment of his salary and a non competition agreement .
No other annual compensation, including a bonus or other form of compensation; and no long-term compensation, including restricted stock awards, securities underlying options, LTIP payouts, or other form of compensation, was paid to Mr. Zubrowski and Mr. Mercer during these periods.
Compensation Agreements
On September 1, 2002, Andrew E. Mercer, chairman and president of Mercer Group, Inc., entered into a 16 month employment agreement to act as our president and chief executive officer and a related non-competition agreement for a period of 16 months after termination of his employment, in return for 13,340,000 shares of our stock, which constituted approximately 69% of our issued and outstanding shares taking into account the prior reverse split and additional stock issuances on that date. The stock was valued at $0.006 per share, then book value, for an aggregate of $80,040. The employment agreement provides that Mr. Mercer shall perform all duties and services regularly incident to the position of President and Chief Executive Officer and such other duties and services as may be prescribed by the Board of Directors of the Company from time to time. Mr. Mercer further agrees to serve without additional compensation as a director of and in such executive positions with any subsidiaries as the Board of Directors may designate and to fulfill the responsibilities incident to such positions. If Mr. Mercer shall (a) be convicted of a felony, or (b) engage in conduct as defined under cause, all as set out the agreement, we have the right to terminate the contract and employment.
Board Compensation
Members of our Board of Directors do not receive cash compensation for their services as Directors, although some Directors are reimbursed for reasonable expenses incurred in attending Board or committee meetings.
27
FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2003 AND 2002
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
F-1
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
Index to Financial Statements
Page No. | |||||
---|---|---|---|---|---|
Report of Independent Certified Public Accountants | F-3 | ||||
Consolidated Balance Sheets: | |||||
December 31, 2003 and 2002 | F-4 | ||||
Consolidated Statements of Operations: | |||||
For the years ended December 31, 2003 and 2002, and for the period May 13, 1998 (date | |||||
of inception) to December 31, 2003 | F-5 | ||||
Consolidated Statements of (Deficiency in) Stockholders' Equity: | |||||
For the period May 13, 1998 (date of inception) to December 31, 2003 | F-6 ~ F-7 | ||||
Consolidated Statements of Cash Flows: | |||||
For the years ended December 31, 2003 and 2002, and for the period May 13, 1998 (date | |||||
of inception) to December 31, 2003 | F-8 | ||||
Notes to Consolidated Financial Statements | F-9 ~ F-17 |
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Commerce Development Corporation, Ltd.
San Diego, California
We have audited the accompanying consolidated balance sheets of Commerce Development Corporation, Ltd. and its subsidiary (the “Company”), a development stage company, as of December 31, 2003 and 2002 and the related consolidated statements of operations, deficiency in stockholders’ equity, and cash flows for the two years then ended and for the period May 13, 1998 (date of inception) to December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the two years then ended, and from May 13, 1998 (date of inception) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note I, the Company is experiencing difficulty in generating sufficient cash flow to meet it obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note I. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP Certified Public Accountants |
McLean, Virginia
January 30, 2004
F-3
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 and 2002
2003 | 2002 | |||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 1,970 | $ | 9,989 | ||||
Total Current Assets | 1,970 | 9,989 | ||||||
Property, Plant and Equipment | 6,550 | 6,550 | ||||||
Less: Accumulated Depreciation | 1,560 | 624 | ||||||
4,990 | 5,926 | |||||||
$ | 6,960 | $ | 15,915 | |||||
LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' | ||||||||
EQUITY | ||||||||
Current Liabilities: | ||||||||
Cash Disbursed in Excess of Available Fund | -- | $ | 2,493 | |||||
Accounts Payable and Accrued Liabilities | 32,996 | 1,338 | ||||||
Shareholder Advances (Note E) | 15,500 | 10,100 | ||||||
Total Current Liabilities | 48,496 | 13,931 | ||||||
Commitments and Contingencies (Note H) | -- | -- | ||||||
(Deficiency in) Stockholders' Equity: | ||||||||
Common Stock, Par Value $0.001: 300,000,000 shares | ||||||||
authorized; 21,165,500 and 20,815,000 shares | ||||||||
issued and outstanding at December 31, 2003 and | ||||||||
2002, respectively (Note D) | 21,166 | 20,815 | ||||||
Additional-Paid-In Capital | 476,216 | 301,317 | ||||||
Common Stock Subscription | -- | 87,250 | ||||||
Deficit Accumulated During the Development Stage | (538,918 | ) | (407,398 | ) | ||||
Total (Deficiency in) Stockholders' Equity | (41,536 | ) | 1,984 | |||||
$ | 6,960 | $ | 15,915 | |||||
See accompanying notes to consolidated financial statements
F-4
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2003 | For the Year Ended December 31, 2002 | For the Period May 13, 1998 (Date of Inception) to December 31, 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Operating Expenses: | |||||||||||
General and Administrative Expenses | $ | 130,584 | $ | 245,233 | $ | 375,306 | |||||
Loss from Disposal of Assets | -- | -- | 212,089 | ||||||||
Depreciation and Amortization | 936 | 624 | 25,555 | ||||||||
Total Operating Expenses | 131,520 | 245,857 | 612,950 | ||||||||
Other Income | -- | 119,815 | 74,032 | ||||||||
Income Tax Expense | -- | -- | -- | ||||||||
Net Loss | $ | (131,520 | ) | $ | (126,042 | ) | $ | (538,918 | ) | ||
Loss Per Common Share (Note G) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.08 | ) | ||
(Basic and Assuming Dilution) | |||||||||||
Weighted Average Common | |||||||||||
Shares Outstanding | 21,461,725 | 8,416,397 | 6,530,270 |
See accompanying notes to consolidated financial statements
F-5
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE PERIOD May 13, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2003
Common Shares | Stock Amount | Additional Paid-In Capital | Stock Subscription Payable | Deficit Accumulated During Development Stage | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares issued at date of inception (May 13,1998) to parent company | 2,000,000 | $ | 2,000 | $ | -- | $ | -- | $ | -- | $ | 2,000 | |||||||||
Net loss | -- | -- | -- | -- | (35,202 | ) | (35,202 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 35,432 | -- | -- | 35,432 | ||||||||||||||
Balance at December 31, 1998 | 2,000,000 | $ | 2,000 | $ | 35,432 | $ | -- | $ | (35,202 | ) | $ | 2,230 | ||||||||
Net loss | -- | -- | -- | -- | (70,727 | ) | (70,727 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 33,266 | -- | -- | 33,266 | ||||||||||||||
Balance at December 31, 1999 | 2,000,000 | $ | 2,000 | $ | 68,698 | $ | -- | $ | (105,929 | ) | $ | (35,231 | ) | |||||||
Net loss | -- | -- | -- | -- | (178,138 | ) | (178,138 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 56,056 | -- | -- | 56,056 | ||||||||||||||
Balance at December 31, 2000 | 2,000,000 | $ | 2,000 | $ | 124,754 | $ | -- | $ | (284,067 | ) | $ | (157,313 | ) | |||||||
Net income | -- | -- | -- | -- | 2,711 | 2,711 | ||||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 37,287 | -- | -- | 37,287 | ||||||||||||||
Balance at December 31, 2001 | 2,000,000 | $ | 2,000 | $ | 162,041 | $ | -- | $ | (281,356 | ) | $ | (117,315 | ) | |||||||
Shares issued to consultants in May 2002 in exchange for services | ||||||||||||||||||||
rendered at $.06 per share | 715,000 | 715 | 42,185 | -- | -- | 42,900 | ||||||||||||||
Shares issued to consultants and employees in September 2002 in | ||||||||||||||||||||
exchange for services rendered at $.06 per share | 17,300,000 | 17,300 | 86,500 | -- | -- | 103,800 | ||||||||||||||
Shares issued in September 2002 in connection with acquisition of | ||||||||||||||||||||
USM Financial Solutions, Inc. valued at $.006 per share | 800,000 | 800 | 4,000 | -- | -- | 4,800 | ||||||||||||||
Common stock subscription | -- | -- | -- | 87,250 | -- | 87,250 | ||||||||||||||
Net loss | -- | -- | -- | -- | (126,042 | ) | (126,042 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 6,591 | -- | -- | 6,591 | ||||||||||||||
Balance at December 31, 2002 | 20,815,000 | $ | 20,815 | $ | 301,317 | $ | 87,250 | $ | (407,398 | ) | $ | 1,984 | ||||||||
See accompanying notes to consolidated financial statement
F-6
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY (continued)
FOR THE PERIOD May 13, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2003
Common Shares | Stock Amount | Additional Paid-In Capital | Stock Subscription Payable | Deficit Accumulated During Development Stage | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance carry forward | 20,815,000 | $ | 20,815 | $ | 301,317 | $ | 87,250 | $ | (407,398 | ) | $ | 1,984 | ||||||||
Common shares issued to sophisticated investors in February 2003 | ||||||||||||||||||||
for cash at $0.50 per share | 176,000 | 176 | 87,824 | -- | -- | 88,000 | ||||||||||||||
Common shares issued in February 2003 at $0.50 per share for | ||||||||||||||||||||
common stock subscription proceeds received in December 2002 | 174,500 | 175 | 87,075 | (87,250 | ) | -- | -- | |||||||||||||
Net loss | -- | -- | -- | -- | (131,520 | ) | (131,520 | ) | ||||||||||||
Balance at December 31, 2003 | 21,165,500 | $ | 21,166 | $ | 476,216 | $ | -- | $ | (538,918 | ) | $ | (41,536 | ) | |||||||
See accompanying notes to consolidated financial statements
F-7
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
2003 | 2002 | For the Period May 13, 1998 (Date of Inception) through December 31, 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||||
Net loss for the period | $ | (131,520 | ) | $ | (126,042 | ) | $ | (538,918 | ) | ||
Adjustments to reconcile net loss | |||||||||||
to net cash (used in) operating activities: | |||||||||||
Adjustment for common stock issued to Majestic, in | |||||||||||
connection with stock splits in March and August 2002 | -- | -- | 2,000 | ||||||||
Common stock issued in exchange for services rendered | |||||||||||
(Note D) | -- | 146,700 | 146,700 | ||||||||
Adjustments for expenses previously paid by Majestic on | |||||||||||
the Company's behalf (Note B) | -- | 6,591 | 168,632 | ||||||||
Common stock issued in connection with acquisition of | |||||||||||
USM Financial (Note C) | -- | 4,800 | 4,800 | ||||||||
Extinguishment of debt to Majestic (Note E) | -- | (107,419 | ) | (107,419 | ) | ||||||
Depreciation | 936 | 624 | 25,555 | ||||||||
Loss from disposal of assets | -- | -- | 212,089 | ||||||||
Increase (decrease) in: | |||||||||||
Cash disbursed in excess of available fund | (2,493 | ) | 2,493 | -- | |||||||
Accounts payable and accrued liabilities | 31,658 | 1,338 | 32,996 | ||||||||
Net cash (used in) operating activities | (101,419 | ) | (70,915 | ) | (53,565 | ) | |||||
Cash flows (used in) investing activities: | |||||||||||
Acquisition of property, plant, and equipment | -- | (6,550 | ) | (242,634 | ) | ||||||
Cash flows from financing activities: | |||||||||||
Proceeds from sale of common stock, net of costs | 88,000 | -- | 88,000 | ||||||||
Proceeds from common stock subscription | -- | 87,250 | 87,250 | ||||||||
Proceeds from (repayment to) shareholders loans | 5,400 | 10,100 | 15,500 | ||||||||
Due to related parties, net | -- | (9,896 | ) | 107,419 | |||||||
Net cash provided by financing activities | 93,400 | 87,454 | 298,169 | ||||||||
Net increase (decrease) in cash and equivalents | (8,019 | ) | 9,989 | 1,970 | |||||||
Cash and cash equivalents at beginning of period | 9,989 | -- | -- | ||||||||
Cash and cash equivalents at end of period | $ | 1,970 | $ | 9,989 | $ | 1,970 | |||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW | |||||||||||
INFORMATION: | |||||||||||
Cash paid during the period for taxes | $ | -- | $ | -- | $ | -- | |||||
Cash paid during the period for interest | -- | -- | -- | ||||||||
Common stock issued for services rendered | -- | 146,700 | 148,700 | ||||||||
Acquisition: | |||||||||||
Assets acquired, net | -- | -- | -- | ||||||||
Acquisition costs | -- | 4,800 | 4,800 | ||||||||
Liabilities assumed, net | -- | -- | -- | ||||||||
Common stock issued | -- | (4,800 | ) | (4,800 | ) | ||||||
Net cash paid for acquisition | $ | -- | $ | -- | $ | -- | |||||
See accompanying notes to consolidated financial statements
F-8
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE A — SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.
Business and Basis of Presentation
Commerce Development Corporation, Ltd. (the “Company”), formerly Majestic Financial, Ltd., is incorporated under the laws of the state of Maryland in May 1998. From inception to March 31, 2002, the Company was a wholly-owned subsidiary of The Majestic Companies, Ltd. (“Majestic”, the “Parent”). In March 2002, Majestic’s Board of Directors approved a plan to spin-off the Company to an entity controlled by Majestic’s former Chief Executive Officer and to Majestic’s stockholders (see Note B). The financial statements of the Company as of March 2002 are presented on a carved-out basis, and derived from the historical financial statements of Majestic, and are not indicative of the financial position, results of operations or net cash flows that would have existed had the Company been a separate stand-alone entity during the periods presented or of future results. Summarized results of the allocation of expenses are further described in Note B.
In the past the Company was engaged in the limited origination and servicing of new modular building leases. This activity is conducted primarily in the state of California. All of the leases which the Company entered into were accounted for as operating leases. The Company ceased entering into new leases in 2000 and the accompanying consolidated financial statements reflect as other income, the revenues recognized from the final leasing transactions.
On September 24, 2002, the Company acquired USM Financial Solutions, Inc. (“USM Financial”), a wholly owned subsidiary of U.S. Microbics, Inc., through a Stock Exchange Agreement (“Agreement”). Pursuant to the Agreement, USM Financial became a wholly-owned subsidiary of the Company (Note C). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, USM Financial Solutions, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company is a development stage company, as defined by Statement of Financial Accounting Standards No. 7 (“SFAS 7”) and is in the business of providing business management and capital acquisition solutions. To date, the Company has generated no significant operating revenues, and has incurred expenses and has sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. For the period from inception through December 31, 2003, the Company has accumulated losses of $538,918.
Revenue Recognition
The Company followed a policy of recognizing revenue from leasing modular buildings for leases entered into before year 2000. The Company will follow a policy of recognizing revenue in the period the services are provided or when products are delivered to customers.
Advertising
The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company occurred $0, $511 and $15,773 of advertising costs for the years ended December 31, 2003, 2002 and for the period from inception to December 31, 2003, respectively.
F-9
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
Property and Equipment
For financial statement purposes, property and equipment are depreciated using the straight-line method over their estimated useful lives (seven years for furniture, fixtures and equipment). The straight-line method of depreciation is also used for tax purposes.
Income Taxes
Income taxes are provided based on the liability method for financial reporting purposes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per share because they are either antidilutive, or their effect is not material.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS 144”). The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should an impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. SFAS No. 144 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
F-10
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
Research and Development
The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs. Under SFAS 2, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred no research and product development costs for the year ended December 31, 2003 and 2002 and the period from inception to December 31, 2003.
Concentrations of Credit Risk
Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company’s customers are concentrated primarily in the state of California and it periodically reviews its trade receivables in determining its allowance for doubtful accounts.
Stock Based Compensation
Liquidity
As shown in the accompanying financial statements, the Company incurred a net loss of $131,520 and $126,042 for the year ended December 31, 2003 and 2002, respectively. For the period from inception through December 31, 2003, the Company has accumulated losses of $538,918. As of December 31, 2003, the Company’s current liabilities exceeded its current assets by $46,526. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.
F-11
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
Comprehensive Income
Statement of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive Income,” establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not have any items of comprehensive income in any of the periods presented.
Segment Information
Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Reclassifications
Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FASB interpretation no. 46 will not have a material impact on the Company’s results of operations or financial position.
F-12
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
New Accounting Pronouncements (Continued)
In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires that contracts with similar characteristics be accounted for on a comparable basis. The provisions of SFAS 149 are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 will not have a material impact on the Company’s results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 will not have a material impact on the Company’s results of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS’ DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS — AN AMENDMENT OF FASB STATEMENTS NO. 87, 88, AND 106. This statement retains the disclosure requirements contained in FASB statement no. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The revision applies for the first fiscal or annual interim period ending after December 15, 2003 for domestic pension plans and June 15, 2004 for foreign pension plans and requires certain new disclosures related to such plans. The adoption of this statement will not have a material impact on the Company’s results of operations or financial positions.
NOTE B – SPIN-OFF TRANSACTIONS
On March 31, 2002, the Company’s parent, The Majestic Companies, Ltd. (the “Majestic” or “Parent”), entered into a Stock Purchase Agreement (“Agreement”) to spin-off the Company to Alexander & Wade, Inc. (the “A&W”), an entity controlled by Majestic’s former Chief Executive Officer and to Majestic’s stockholders.
Pursuant to the Agreement, the Company authorized a stock split of 20,000,000-for-1, which increased the solely one share outstanding to 20,000,000 shares. A&W agreed to purchase 17,500,000 shares of the Company’s common stock, and the remaining 2,500,000 shares held by Majestic would be distributed as a dividend to the shareholders of record of Majestic as of April 30, 2002. After the closing of the Agreement, Majestic received $10,000 from A&W, and other good and valuable consideration. A&W assumed total liabilities for any and all outstanding obligations of the Company in existence at the time of closing, and also assumed $110,490 of Majestic’s debt owed to its former Chief Executive Officer.
F-13
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE B – SPIN-OFF TRANSACTIONS (Continued)
Certain information in the Company’s financial statements relating to the results of operations and financial condition was derived from the historical financial statements of Majestic, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Various allocation methodologies were employed to allocate the expenses incurred by Majestic on the Company’s behalf. Allocations of these expenses include advertising, officer salaries, accounting and legal fees, rent, and other general office expenses. Management believes that these allocation methodologies are reasonable. The expenses allocated are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, independent public entity and had managed these functions. The Company may incur additional general administrative expenses, and other costs as a result of operating independently of Majestic.
The accompany financial statements include expenses incurred by Majestic on behalf of the Company, summarized results of the allocation expenses are as follows:
2003 | 2002 | For the Period May 13, 1998 (Date of Inception) through December 31, 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net transfer from Majestic | $ | 168,632 | $ | 162,041 | $ | -- | |||||
beginning of the period | |||||||||||
Net transactions with Majestic: | |||||||||||
Advertising | -- | 511 | 15,774 | ||||||||
Accounting and legal fees | -- | 2,375 | 64,747 | ||||||||
Rent | -- | 1,500 | 22,375 | ||||||||
Officer salaries | -- | 717 | 44,184 | ||||||||
Office expenses | -- | 1,488 | 21,552 | ||||||||
-- | 6,591 | 168,632 | |||||||||
Net transfer from Majestic - | |||||||||||
end of the period | $ | 168,632 | $ | 168,632 | $ | 168,632 | |||||
NOTE C – BUSINESS COMBINATION
On September 24, 2002, the Company acquired USM Financial Solutions, Inc. (“USM Financial”), a wholly owned subsidiary of U.S. Microbics, Inc. (“US Microbics”), through a Stock Exchange Agreement (“Agreement”). Pursuant to the Agreement, the Company issued to US Microbics and US Microbics’s majority-owned subsidiary, USM Capital Group, Inc. (“USM Capital”), a total of 800,000 shares of common stock of the Company.
USM Financial has no assets and liabilities and has no business activities as of December 31, 2002. The excess of the aggregate purchase price over the fair market value of net assets acquired was recorded as acquisition costs and expensed in the period incurred. The acquisition is being accounted for as a purchase in accordance with APB 16 and, accordingly, the operating results of the acquired company have been included in the Company’s financial statements since the date of acquisition.
F-14
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE C – BUSINESS COMBINATION (Continued)
The following summarizes the acquisition of USM Financial:
Issuance of 800,000 shares of common stock | $ | (4,800 | ) | ||
Assets acquired | -- | ||||
Liabilities assumed | -- | ||||
Acquisition costs | $ | 4,800 | |||
NOTE D — CAPITAL STOCK
The Company was authorized to issue 10,000,000 shares of common stock with a par value of $.01 per share. In March 2002, the Company’s Board of Directors approved an increase in the Company’s authorized common stock to 300,000,000 shares and changed the par value from $.01 to $.001 per share.
In May 1998, the Company issued one share of common stock at par to its parent company, The Majestic Company, Ltd. (“Majestic”). In March 2002, pursuant to a Stock Purchase Agreement (“Agreement”) to spin-off the Company (see Note B), the Company authorized a stock split of 20,000,000-for-1, which increased the solely one share outstanding to 20,000,000 shares. A&W purchased 17,500,000 shares of the Company’s common stock from Majestic, and the remaining 2,500,000 shares held by the Majestic would be distributed as a dividend to the shareholders of record of Majestic as of April 30, 2002.
On August 31, 2002, the Company effected a one one-for-ten reverse stock split of its authorized and outstanding shares of common stock. All references in the financial statements and notes to financial statements, numbers of shares and share amounts have been retroactively restated to reflect the reverse split. The Company has 21,165,500 and 20,815,000 shares of common stock issued and outstanding as of December 31, 2003 and 2002, respectively.
On September 24, 2002, the Company issued a total of 800,000 shares of common stock to US Microbics, Inc. and USM Capital Group, Inc. pursuant to a Stock Exchange Agreement (Note C). The shares were valued at $0.006 per share, which approximated the fair value of the Company’s common stock during the period.
During the year ended December 31, 2002, the Company issued an aggregate of 18,015,000 shares of common stock to consultants and employees for $146,700 of services rendered. The shares issued to the consultants and employees were based upon the value of the services received, which did not differ materially from the value of the stock issued.
In December 2002, the Company received $87,250 proceeds of common stock subscription from sophisticated investors at $0.50 per share. In February 2003, the Company issued an aggregate of 174,500 shares of common stock to the sophisticated investors for common stock previously subscribed.
In February 2003, the Company issued additional 176,000 shares of common stock at $0.50 per share to sophisticated investors and received proceeds of $88,000, net of costs and fees.
F-15
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE E — RELATED PARTY TRANSACTIONS
During the period May 13, 1998 through March 31, 2002 (the “spin-off date), Majestic advanced funds to the Company for working capital purposes. The amount due to Majestic was $107,419 at March 31, 2002. No formal repayment terms or arrangements existed. In June 2002, the Company was legally released from its obligation to Majestic. The Company recognized $107,419 of other income in connection with the extinguishment of the debt. Corporate general and administrative expenses incurred by Majestic on behalf of the Company as of March 31, 2002 (the “spin-off”) are summarized in Note B.
Significant shareholders of the Company have advanced funds to the Company for working capital purposes. The amount of the advances at December 31, 2003 and 2002 is $15,500 and $10,100, respectively. No formal repayment terms or arrangements exist.
NOTE F — INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
As of December 31, 2001, the Company’s results from operations was include in the consolidated income tax returns of Majestic and as a result, the Company does not have a material net operating loss carryforward for federal income tax purposes. The Company’s aggregate net operating losses during 2002 and 2003 approximate $257,500 which expires through 2023, subject to limitations of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset related to the carryforward is approximately $83,000. Due to significant changes in the Company’s ownership, the Company’s future use of its existing net operating losses may be limited. Accordingly, the Company has provided a valuation reserve against the full amount of the net operating loss benefit.
Components of deferred tax assets as of December 31, 2003 are as follows:
Non Current:
Net operating loss carryforward | $ | 83,000 | |||
Valuation allowance | (83,000 | ) | |||
Net deferred tax asset | $ | -- | |||
NOTE G — LOSSES PER COMMON SHARE
The following table presents the computation of basic and diluted earning (loss) per share:
2003 | 2002 | For the period from May 13, 1998 (date of inception) through December 31, 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net income (loss) available for common shareholders | $ | (131,520 | ) | $ | (126,042 | ) | $ | (538,918 | ) | ||
Basic and fully diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.08 | ) | ||
Weighted average common shares outstanding | 21,461,725 | 8,416,397 | 6,530,270 | ||||||||
F-16
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 and 2002
NOTE H — COMMITMENTS AND CONTINGENCIES
Lease Agreement
The Company leases office space under operating leases in San Diego, California for its corporate use. Commitments for minimum rentals under non-cancelable leases at December 31, 2003 are monthly payments of $812 through June 30, 2004. Rent expense charged to operations was $8,702 and $7,357 for the year ended December 31, 2003 and 2002, respectively.
Litigation
The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.
NOTE I — GOING CONCERN MATTERS
The accompanying statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements during the years ended December 31, 2003 and 2002, the Company incurred net loss of $131,520 and $126,042, respectively. For the period from inception through December 31, 2003, the Company has accumulated losses of $538,918. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company’s existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the continued developing, marketing and selling of its products and additional equity investment in the Company. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
In order to improve the Company’s liquidity, the Company is actively pursing additional equity financing through discussions with investment bankers and private investors. There can be no assurance the Company will be successful in its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts, management believes that the Company can continue to operate. However, no assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems.
F-17
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
June 30, 2004
Table of Contents
Condensed Consolidated Balance Sheets: | |||||
June 30, 2004 and December 31, 2003 | F-2 | ||||
Condensed Consolidated Statements of Losses: | |||||
Three and Six Months Ended June 30, 2004 and 2003 | |||||
For the Period May 13, 1998 (Date of Inception) through June 30, 2004 | F-3 | ||||
Condensed Consolidated Statements of Deficiency in Stockholders' Equity | |||||
For the period May 13, 1998 (Date of Inception) through June 30, 2004 | F-4-F-5 | ||||
Condensed Consolidated Statements of Cash Flows: | |||||
Six Months Ended June 30, 2004 and 2003 | |||||
For the Period May 13, 1998 (Date of Inception) through June 30, 2004 | F-6 | ||||
Notes to Unaudited Condensed Consolidated Financial Information: | |||||
June 30, 2004 | F-7 |
F-1
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, 2004 | December 31, 2003 | |||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 1,685 | $ | 1,970 | ||||
Total Current Assets | 1,685 | 1,970 | ||||||
Property, Plant and Equipment | 6,550 | 6,550 | ||||||
Less: Accumulated Depreciation | 2,027 | 1,560 | ||||||
4,523 | 4,990 | |||||||
Total Assets | $ | 6,208 | $ | 6,960 | ||||
LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' | ||||||||
EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable and Accrued Liabilities | $ | 35,782 | $ | 32,996 | ||||
Shareholder Advances | 26,500 | 15,500 | ||||||
Total Current Liabilities | 62,282 | 48,496 | ||||||
Commitments and Contingencies | -- | -- | ||||||
Common Stock, Par Value $0.001: 300,000,000 shares | ||||||||
authorized; 21,365,500 shares issued and | ||||||||
outstanding at June 30, 2004 and December 31, | ||||||||
2003, respectively | 21,366 | 21,166 | ||||||
Additional-Paid-In Capital | 481,016 | 476,216 | ||||||
Deficit During Development Stage | (558,456 | ) | (538,918 | ) | ||||
Total (Deficiency in) Stockholders' Equity | (56,074 | ) | (41,536 | ) | ||||
Total Liabilities and (Deficiency in) | ||||||||
Stockholders' Equity | $ | 6,208 | $ | 6,960 | ||||
See accompanying footnotes to the unaudited condensed consolidated financial information
F-2
COMMERCE DEVELOPMENT CORPORATION, LTD.
A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES
(UNAUDITED)
For The Three Months Ended June 30, 2004 2003 | For The Six Months Ended June 30, 2004 2003 | For the Period May 13, 1998 (Date of Inception) to June 30, 2004 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Expenses: | |||||||||||||||||
General and Administrative | |||||||||||||||||
Expenses | $ | 9,369 | $ | 15,371 | $ | 19,070 | $ | 93,348 | $ | 606,465 | |||||||
Depreciation | 234 | 234 | 468 | 468 | 26,023 | ||||||||||||
Total Operating Expenses | 9,603 | 15,605 | 19,538 | 93,816 | 632,488 | ||||||||||||
Other Income (Expenses) | -- | -- | -- | -- | 74,032 | ||||||||||||
Provision for Income Taxes | -- | -- | -- | -- | -- | ||||||||||||
Net (Loss) | $ | (9,603 | ) | $ | (15,605 | ) | $ | (19,538 | ) | $ | (93,816 | ) | $ | (558,456 | ) | ||
Income/(Loss) Per Common Share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
(Basic and Assuming Dilution) | |||||||||||||||||
Weighted Average Common Shares | |||||||||||||||||
Outstanding | 21,349,615 | 21,165,000 | 21,257,308 | 21,386,368 |
See accompanying footnotes to the unaudited condensed consolidated financial information
F-3
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY
FOR THE PERIOD May 13, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(UNAUDITED)
Common Shares | Stock Amount | Additional Paid-In Capital | Stock Subscription Payable | Deficit Accumulated During Development Stage | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares issued at date of inception (May 13,1998) to parent company | 2,000,000 | $ | 2,000 | $ | -- | $ -- | $ | -- | $ | 2,000 | ||||||||||
Net loss | -- | -- | -- | -- | (35,202 | ) | (35,202 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 35,432 | -- | -- | 35,432 | ||||||||||||||
Balance at December 31, 1998 | 2,000,000 | $ | 2,000 | $ | 35,432 | $ -- | $ | (35,202 | ) | $ | 2,230 | |||||||||
Net loss | -- | -- | -- | -- | (70,727 | ) | (70,727 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 33,266 | -- | -- | 33,266 | ||||||||||||||
Balance at December 31, 1999 | 2,000,000 | $ | 2,000 | $ | 68,698 | $ -- | $ | (105,929 | ) | $ | (35,231 | ) | ||||||||
Net loss | -- | -- | -- | -- | (178,138 | ) | (178,138 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 56,056 | -- | -- | 56,056 | ||||||||||||||
Balance at December 31, 2000 | 2,000,000 | $ | 2,000 | $ | 124,754 | $ -- | $ | (284,067 | ) | $ | (157,313 | ) | ||||||||
Net income | -- | -- | -- | -- | 2,711 | 2,711 | ||||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 37,287 | -- | -- | 37,287 | ||||||||||||||
Balance at December 31, 2001 | 2,000,000 | $ | 2,000 | $ | 162,041 | $ -- | $ | (281,356 | ) | $ | (117,315 | ) | ||||||||
Shares issued to consultants in May 2002 | ||||||||||||||||||||
in exchange for services rendered at $.06 per share | 715,000 | 715 | 42,185 | -- | -- | 42,900 | ||||||||||||||
Shares issued to consultants and employees in | ||||||||||||||||||||
September 2002 in exchange for services rendered at $.06 per share | 17,300,000 | 17,300 | 86,500 | -- | -- | 103,800 | ||||||||||||||
Shares issued in September 2002 in connection | ||||||||||||||||||||
with acquisition of USM Financial Solutions, Inc. valued at $.006 per share | 800,000 | 800 | 4,000 | -- | -- | 4,800 | ||||||||||||||
Common stock subscription | -- | -- | -- | 87,250 | -- | 87,250 | ||||||||||||||
Net loss | -- | -- | -- | -- | (126,042 | ) | (126,042 | ) | ||||||||||||
Net transfer with Majestic (Note B) | -- | -- | 6,591 | -- | -- | 6,591 | ||||||||||||||
Balance at December 31, 2002 | 20,815,000 | $ | 20,815 | $ | 301,317 | $87,250 | $ | (407,398 | ) | $ | 1,984 | |||||||||
See accompanying footnotes to the unaudited condensed consolidated financial information
F-4
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A development stage company)
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY (Continued)
FOR THE PERIOD May 13, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(UNAUDITED)
Common Shares | Stock Amount | Additional Paid-In Capital | Stock Subscription Payable | Deficit Accumulated During Development Stage | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance carry forward | 20,815,000 | $ | 20,815 | $ | 301,317 | $ 87,250 | $ | (407,398 | ) | $ | 1,984 | |||||||||
Common shares issued to sophisticated investors | ||||||||||||||||||||
in February 2003 for cash at $0.50 per share | 176,000 | 176 | 87,824 | -- | -- | 88,000 | ||||||||||||||
Common shares issued in February 2003 at $0.50 | ||||||||||||||||||||
per share for common stock subscription proceeds received in December 2002 | 174,500 | 175 | 87,075 | (87,250 | -- | -- | ||||||||||||||
Net loss | -- | -- | -- | -- | (131,520 | ) | (131,520 | ) | ||||||||||||
Balance at December 31, 2003 | 21,165,500 | $ | 21,166 | $ | 476,216 | $ -- | $ | (538,918 | ) | $ | (41,536 | ) | ||||||||
Shares issued to consultants in April 2004 | ||||||||||||||||||||
in exchange for services rendered at $.025 per share | 200,000 | 200 | 4,800 | -- | -- | 5,000 | ||||||||||||||
Net loss | -- | -- | -- | -- | (19,538 | ) | (19,538 | ) | ||||||||||||
Balance at June 30, 2004 | 21,365,500 | $ | 21,366 | $ | 481,016 | $ -- | $ | (558,456 | ) | $ | (56,074 | ) | ||||||||
See accompanying footnotes to the unaudited condensed consolidated financial information
F-5
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six Months Ended June 30, 2004 2003 | For the Period May 13, 1998 (Date of Inception) through June 30, 2004 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | ||||||||||||||
Net income (loss) for the period | $ | (19,538 | ) | $ | (93,816 | ) | $ | (558,456 | ) | |||||
Adjustments to reconcile net loss | ||||||||||||||
to net cash provided by (used in) operating activities: | ||||||||||||||
Common stock issued in exchange for services rendered | 5,000 | -- | 151,700 | |||||||||||
Adjustment for common stock issued to Majestic, in connection | ||||||||||||||
with stock splits in March and August 2002 | -- | -- | 2,000 | |||||||||||
Adjustments for expenses previously paid by Majestic on the | ||||||||||||||
Company's behalf | -- | -- | 168,632 | |||||||||||
Common stock issued in connection with acquisition of USM | ||||||||||||||
Financial | -- | -- | 4,800 | |||||||||||
Extinguishment of debt to Majestic | -- | -- | (107,419 | ) | ||||||||||
Depreciation | 468 | 468 | 26,023 | |||||||||||
Loss from disposal of assets | -- | -- | 212,089 | |||||||||||
Increase (decrease) in: | ||||||||||||||
Cash disbursed in excess of available fund | -- | (2,493 | ) | -- | ||||||||||
Accounts payable and accrued liabilities | 2,785 | (1,339 | ) | 35,781 | ||||||||||
Net cash provided by (used in) operating activities | (11,285 | ) | (97,180 | ) | (64,850 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||
Acquisition of property, plant, and equipment | -- | -- | (242,634 | ) | ||||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from sale of common stock and stock subscription, net of | ||||||||||||||
costs | -- | 88,000 | 175,250 | |||||||||||
Proceeds from (repayment to) shareholders advances | 11,000 | 2,900 | 26,500 | |||||||||||
Due to related parties, net | -- | -- | 107,419 | |||||||||||
Net cash provided by financing activities | 11,000 | 90,900 | 309,169 | |||||||||||
Net increase (decrease) in cash and equivalents | (285 | ) | (6,280 | ) | 1,685 | |||||||||
Cash and cash equivalents at beginning of period | 1,970 | 9,989 | -- | |||||||||||
Cash and cash equivalents at end of period | $ | 1,685 | $ | 3,709 | $ | 1,685 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||
Cash paid during the period for taxes | $ | -- | $ | -- | $ | -- | ||||||||
Cash paid during the period for interest | -- | -- | -- | |||||||||||
Adjustment for common stock issued to Majestic, in connection | ||||||||||||||
with stock splits in March and August 2002 | -- | -- | 2,000 | |||||||||||
Common stock issued for services rendered | 5,000 | -- | 151,700 | |||||||||||
Acquisition: | ||||||||||||||
Assets acquired, net | -- | -- | -- | |||||||||||
Acquisition costs | -- | -- | 4,800 | |||||||||||
Liabilities assumed, net | -- | -- | -- | |||||||||||
Common stock issued | -- | -- | (4,800 | ) | ||||||||||
Net cash paid for acquisition | $ | -- | $ | -- | $ | -- | ||||||||
See accompanying footnotes to the unaudited condensed consolidated financial information
F-6
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 2004
(UNAUDITED)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Item 310 of SEC Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results from operations for the six-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. The unaudited consolidated financial statements should be read in conjunction with the consolidated December 31, 2003 financial statements and footnotes thereto included in the Company’s SEC Form SB-2.
Business and Basis of Presentation
Commerce Development Corporation, Ltd. (the “Company”), formerly Majestic Financial, Ltd., is incorporated under the laws of the state of Maryland in May 1998. From inception to March 31, 2002, the Company was a wholly-owned subsidiary of The Majestic Companies, Ltd. (“Majestic”, the “Parent”). In March 2002, Majestic’s Board of Directors approved a plan to spin-off the Company to an entity controlled by Majestic’s former Chief Executive Officer and to Majestic’s stockholders (see Note B). The financial statements of the Company as of March 2002 are presented on a carved-out basis, and derived from the historical financial statements of Majestic, and are not indicative of the financial position, results of operations or net cash flows that would have existed had the Company been a separate stand-alone entity during the periods presented or of future results. Summarized results of the allocation of expenses are further described in Note B.
In the past the Company was engaged in the limited origination and servicing of new modular building leases. This activity is conducted primarily in the state of California. All of the leases which the Company entered into were accounted for as operating leases. The Company ceased entering into new leases in 2000 and the accompanying consolidated financial statements reflect as other income, the revenues recognized from the final leasing transactions.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, USM Financial Solutions, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company is a development stage company, as defined by Statement of Financial Accounting Standards No. 7 (“SFAS 7”) and is in the business of providing business management and capital acquisition solutions. To date, the Company has generated no significant operating revenues, and has incurred expenses and has sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. For the period from inception through June 30, 2004, the Company has accumulated losses of $558,456.
Reclassification
Certain reclassifications have been made to conform to prior periods’ data to the current presentation. These reclassifications had no effect on reported losses.
F-7
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 2004
(UNAUDITED)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NOTE B – SPIN-OFF TRANSACTIONS
On March 31, 2002, the Company’s parent, The Majestic Companies, Ltd. (the “Majestic” or “Parent”), entered into a Stock Purchase Agreement (“Agreement”) to spin-off the Company to Alexander & Wade, Inc. (the “A&W”), an entity controlled by Majestic’s former Chief Executive Officer and to Majestic’s stockholders.
Pursuant to the Agreement, the Company authorized a stock split of 20,000,000-for-1, which increased the solely one share outstanding to 20,000,000 shares. A&W agreed to purchase 17,500,000 shares of the Company’s common stock, and the remaining 2,500,000 would be distributed as a dividend to the shareholders of record of Majestic as of April 30, 2002. After the closing of the Agreement, Majestic received $10,000 from A&W, and other good and valuable consideration. A&W assumed total liabilities for any and all outstanding obligations of the Company in existence at the time of closing, and also assumed $110,490 of Majestic’s debt owed to its former Chief Executive Officer.
Certain information in the Company’s financial statements relating to the results of operations and financial condition was derived from the historical financial statements of Majestic, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Various allocation methodologies were employed to allocate the expenses incurred by Majestic on the Company’s behalf. Allocations of these expenses include advertising, officer salaries, accounting and legal fees, rent, and other general office expenses. Management believes that these allocation methodologies are reasonable. The expenses allocated are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, independent public entity and had managed these functions. The Company may incur additional general administrative expenses, and other costs as a result of operating independently of Majestic.
The accompany financial statements include expenses incurred by Majestic on behalf of the Company, summarized results of the allocation expenses are as follows:
F-8
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 2004
(UNAUDITED)
NOTE B – SPIN-OFF TRANSACTIONS (Continued)
For the Six Month Ended June 30, 2004 2003 | For the Period May 13, 1998 (Date of Inception) through June 30, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net transfer from Majestic | $ | 168,632 | $ | 168,632 | $ | -- | |||||
beginning of the period | |||||||||||
Net transactions with Majestic: | |||||||||||
Advertising | -- | -- | 15,774 | ||||||||
Accounting and legal fees | -- | -- | 64,747 | ||||||||
Rent | -- | -- | 22,375 | ||||||||
Officer salaries | -- | -- | 44,184 | ||||||||
Office expenses | -- | -- | 21,552 | ||||||||
-- | -- | 168,632 | |||||||||
Net transfer from Majestic | |||||||||||
end of the period | $ | 168,632 | $ | 168,632 | $ | 168,632 | |||||
NOTE C — CAPITAL STOCK
The Company is authorized to issue 300,000,000 shares of common stock with a par value of $.001 per share. The Company has 21,365,550 and 21,165,500 shares of common stock issued and outstanding as of June 30, 2004 and December 31, 2003, respectively.
In May 1998, the Company issued one share of common stock at par to its parent company, The Majestic Company, Ltd. (“Majestic”). In March 2002, pursuant to a Stock Purchase Agreement (“Agreement”) to spin-off the Company (see Note B), the Company authorized a stock split of 20,000,000-for-1, which increased the solely one share outstanding to 20,000,000 shares. A&W purchased 17,500,000 shares of the Company’s common stock from Majestic, and the remaining 2,500,000 shares held by the Majestic would be distributed as a dividend to the shareholders of record of Majestic as of April 30, 2002.
On August 31, 2002, the Company effected a one one-for-ten reverse stock split of its authorized and outstanding shares of common stock. All references in the financial statements and notes to financial statements, numbers of shares and share amounts have been retroactively restated to reflect the reverse split.
In September 2002, The Mercer Group acquired 1,500,000 shares of the 1,750,000 (post reverse split) shares previously owned by A&W. In November 2002, the 250,000 (post reverse split) shares that were issued to Majestic for distribution to its shareholders were returned to the Company and reissued to the President of A&W (Majestic’s former Chief Executive Officer).
On September 24, 2002, the Company issued a total of 800,000 shares of common stock to US Microbics, Inc. and USM Capital Group, Inc. pursuant to a Stock Exchange Agreement in connection with acquisition of USM Financial Solutions, Inc. The shares were valued at $0.006 per share, which approximated the fair value of the Company’s common stock during the period.
F-9
COMMERCE DEVELOPMENT CORPORATION, LTD.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 2004
(UNAUDITED)
NOTE C — CAPITAL STOCK (Continued)
During the year ended December 31, 2002, the Company issued an aggregate of 18,015,000 shares of common stock to consultants and employees for $146,700 of services rendered. The shares issued to the consultants and employees were based upon the value of the services received, which did not differ materially from the value of the stock issued.
In December 2002, the Company received $87,250 proceeds of common stock subscription from sophisticated investors at $0.50 per share. In February 2003, the Company issued an aggregate of 174,500 shares of common stock to the sophisticated investors for common stock previously subscribed.
In February 2003, the Company issued additional 176,000 shares of common stock at $0.50 per share to sophisticated investors and received proceeds of $88,000, net of costs and fees.
During the six month period ended June 30, 2004, the Company issued an aggregate of 200,000 shares of common stock to a consultant in exchange for $5,000 of services rendered. The shares issued to the consultants and employees were based upon the value of the services received, which did not differ materially from the value of the stock issued.
F-10
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PROSPECTUS COMMERCE DEVELOPMENT CORPORATION, LTD.
Dated November 12, 2004
Selling shareholders are offering up to 350,500 shares of common stock.
The selling shareholders will offer their shares at $.05 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. We will not receive proceeds from the sale of shares from the selling shareholders.
We will pay all expenses of registering the securities, currently estimated at $30,000.
Our common stock is not now listed on any national securities exchange, the NASDAQ stock market or the OTC Bulletin Board.
Dealer Prospectus Delivery Obligation
Until February 12, 2005 (90 days from the date of this prospectus) all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
F-11