UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_________________to_________________
Commercial Concepts, Inc.
-------------------------
(Exact name of small business issuer as specified in its charter)
Utah 0-28891 87-0409620
---- ------- ----------
(State or other jurisdiction Commission (IRS Employer
of incorporation or organization) file number Identification No.)
324 South 400 West Suite B, Salt Lake City, Utah 84101
------------------------------------------------------
(Address of principal executive offices)
(801) 328-0540
---------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 26,720,988
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [x]
Financial Statements and
Supplementary Information
Commercial Concepts, Inc.
As of November 30, 2000 (Unaudited) and February
29, 2000 and for the (Unaudited) three and nine months ended
November 30, 2000 and 1999
With Accountants' Review Report
2
Commercial Concepts, Inc.
Financial Statements and
Supplementary Information
As of November 30, 2000 (Unaudited) and February 29, 2000
and for the (Unaudited) Three and Nine Months Ended
November 30, 2000 and 1999
Contents
Accountants' Review Report................................................... 1
Financial Statements:
Balance Sheets as of November 30, 2000 (Unaudited) and February
29, 2000............................................................... 2
Unaudited Statements of Operations for the three and nine months
ended November 30, 2000 and 1999....................................... 3
Unaudited Statement of Stockholders' Equity for the nine months
ended November 30, 2000................................................ 4
Unaudited Statements of Cash Flows for the nine months ended
November 30, 2000 and 1999............................................ 5
Notes to Reviewed Financial Statements...................................... 6
3
Accountants' Review Report
Board of Directors
Commercial Concepts, Inc.
Salt Lake City, Utah
We have reviewed the accompanying balance sheet of Commercial Concepts, Inc. as
of November 30, 2000 and the related statements of operations for the three and
nine months then ended and statements of stockholders' deficit and of cash flows
for the nine months then ended in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Commercial Concepts, Inc. The balance
sheet of the Company as of February 29, 2000 was audited by other auditors whose
report dated May 17, 2000 expressed an unqualified opinion on those statements
and included an explanatory paragraph concerning the Company's ability to
continue as a going concern.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ CHRISTENSEN & DUNCAN CPA's LC
CHRISTENSEN & DUNCAN CPA's LC
January 8, 2001
4
COMMERCIAL CONCEPTS, INC.
BALANCE SHEETS
November 30, 2000 and February 29, 2000
November 30, February 29,
ASSETS 2000 2000
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash in bank $ 3,843 31,171
Accounts receivable 18,400 37,811
Prepaid expenses 11,692 6,991
------------ ------------
Total current assets 33,935 75,973
PROPERTY AND EQUIPMENT
Property and equipment 115,539 93,140
Less: accumulated depreciation (41,041) (22,810)
------------ ------------
Property and equipment, net 74,498 70,330
------------ ------------
OTHER ASSETS
Investment in software development 540,850 100
------------ ------------
TOTAL ASSETS $ 649,283 146,403
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 263,894 269,265
Short term debt 147,986 49,514
------------ ------------
Total current liabilities 411,880 318,779
LONG TERM DEBT 523,723 17,432
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 75,000,000 shares
authorized, 26,720,988 and 23,683,630 shares issued
and outstanding, respectively 26,721 23,683
Due from shareholders for sale of company stock (200,880) (225,922)
Additional paid-in capital 2,713,441 2,015,357
Accumulated deficit (2,825,602) (2,002,926)
------------ ------------
Total Stockholders' Deficit (286,320) ( 189,808)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 649,283 146,403
============ ============
See accompanying notes to financial statements and accountants' review report
5
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three and Nine Months Ended November 30, 2000 and 1999
Three months ended Nine months ended
November 30, November 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Sales $ 17,550 $ 117,065 $ 55,951 $ 219,555
Less cost of goods sold 2,750 29,538 12,911 65,483
------------ ------------ ------------ ------------
Gross Profit 14,800 87,527 43,040 154,072
EXPENSES:
General and Administrative Expenses 152,928 186,960 442,882 481,715
Services provided for common stock - - 363,388 58,995
Depreciation 7,164 3,394 18,230 10,194
Interest 12,399 - 49,007 3,131
------------ ------------ ------------ ------------
Total Expenses 172,491 190,354 873,507 554,035
------------ ------------ ------------ ------------
NET LOSS FROM OPERATIONS (157,691) (102,827) (830,467) (399,963)
OTHER INCOME:
Interest 261 - 384 -
Other 4,934 - 7,407 -
------------ ------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (152,496) (102,827) (822,676) (399,963)
PROVISION FOR INCOME TAXES - - - -
------------ ------------ ------------ ------------
NET LOSS $ (152,496) $ (102,827) $ (822,676) $ (399,963)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Weighted Average Shares Outstanding:
Basic 26,725,988 18,806,280 25,997,636 15,124,698
Diluted 26,725,988 18,806,280 25,997,636 15,124,698
Net Loss per Common Share:
Basic (.006) (.005) (.032) (.026)
Diluted (.006) (.005) (.032) (.026)
See accompanying notes to financial statements and accountants' review report.
6
COMMERCIAL CONCEPTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Nine Months Ended November 30, 2000
Paid-In
Common Stock Capital in
--------------------- Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ --------- -------
Balance, February 29, 2000 23,683,630 $ 23,683 $ 2,015,357 $(2,002,926)
Issuance of common stock for
services at various dates 2,152,358 2,153 361,235 -
Issuance of common stock for cash
at various dates 900,000 900 309,660 -
Net loss for nine months ended
November 30, 2000 - - - (822,676)
Beneficial note conversion feature - - 27,174 -
Cancellation of shares (15,000) (15) 15 -
---------- ---------- ------------ -----------
Balance, November 30, 2000 26,720,988 $ 26,721 $ 2,713,441 $(2,825,602)
========== ========== ============ ===========
See accompanying notes to financial statements and accountants' review report.
7
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended November 30, 2000 and 1999
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (822,676) (399,963)
Non cash items included in net loss:
Services paid in stock 363,388 58,995
Depreciation 18,230 10,194
Interest expense on convertible note
conversion feature 27,174 -
Changes in assets and liabilities:
Increase in prepaid expenses (4,701) (9,725)
(Increase) decrease in accounts receivable 19,411 (77,112)
Increase in accounts payable 18,352 28,352
------------ ------------
Net Cash Flows used in Operating Activities (380,822) (389,259)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investment in software development (540,750) -
Purchase of equipment (22,398) (29,782)
------------ ------------
Net Cash Flows used in Investing Activities (563,148) (29,782)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from sale of stock 310,560 300,928
Stockholder loans, net 25,042 41,868
Net proceeds from short-term debt 98,472 -
Proceeds from long-term debt 500,000 -
Payment of long-term debt (17,432) -
Net Cash Flows from Financing Activities 916,642 342,796
------------ ------------
NET DECREASE IN CASH (27,328) (76,245)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 31,171 77,695
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,843 1,450
============ ============
SUPPLEMENTAL INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 16,382 3,131
============ ============
See accompanying notes to financial statements and accountants' review report.
8
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Business Operations Commercial Concepts, Inc. (The Company) creates proprietary
software platforms. From these platforms individual internet related database
software products are developed. As each product completes beta testing the
Company seeks a distribution partner to market and provide ongoing support for
the product.
The Company has elected a February fiscal year end for accounting and reporting
purposes.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Equipment - The cost of equipment is depreciated over the estimated useful lives
of the related assets. The cost of leasehold improvements is depreciated
(amortized) over the lesser of the length of the related leases or the estimated
useful lives of the assets.
Capitalization of Software Development Costs - The Company's policy is to
expense research and development costs until technological feasibility is
reached and all related research and development activities are completed,
subsequent production expenses to bring the product to market are then
capitalized. Capitalization of software costs is discontinued when the product
is available for general release to customers. Amortization expense of
capitalized software costs has not been provided for in the accompanying
statements of operations because the software products are not available as yet
for sale to customers.
Income Taxes - Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates the continuation of
the Company as a going concern
In order to develop additional working capital and attract continued equity
investment the Company has reorganized management, formulated a new business
plan, and developed and marketed new business products. On or about July 18,
2000, the company initiated a $6,500,000 equity line of credit with a private
investment group (see Note 7). The equity line of credit will be formalized upon
Securities and Exchange Commission acceptance of the Company's SB-2 registration
statement. Through November 30, 2000, the Company has borrowed $500,000 under
this line of credit. Management believes that the actions presently being taken
will provide the opportunity for the Company to continue as a going concern.
9
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
NOTE 4 - INCOME TAXES
Deferred tax assets at November 30, 2000 consisted of the following:
Deferred tax asset arising from:
Net operating loss carryforwards $ 975,000
Less allowance valuation at 100% (975,000)
------------
Deferred tax asset $ NONE
============
The Company has unused net operating loss carry forwards of approximately
$2,600,000 to offset future taxable income which expire at various times and
amounts through 2015.
NOTE 5 - NOTES PAYABLE
Long
Current Term Total
Advances payable by shareholder, at 15% interest
annually. No repayment terms have been
established. No note has been executed for this
advance. $ 3,999 - $ 3,999
Note payable to individual dated June 15, 2000 at
10% interest annually, due December 15, 2000 42,988 - 42,988
Note payable to shareholder, dated June 22, 2000,
at 15% interest annually, due December 22, 2000. 20,000 - 20,000
Note payable to shareholder, dated August 28,
2000, at 15% interest annually, due August 28,
2001. 10,000 - 10,000
Note payable to individual, dated June 22, 2000,
at 10% interest annually, due December 22, 2000.
Terms include option to convert into 200,000
shares of common stock at $.10 per share. 20,000 - 20,000
Note payable to shareholder, dated September 1,
2000 at 15% interest annually, due September 1,
2001. 10,000 10,000
Note payable to shareholder/director, dated
November 3, 2000 at 15% interest annually, due
December 3, 2000. 15,000 15,000
Convertible notes payable (see Note 7) 508,548 508,548
Other Advances 21,485 418 21,903
Obligations under capital leases (see Note 9) 4,514 14,757 19,271
-------- -------- --------
Totals $147,986 $523,723 $671,709
======== ======== ========
10
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (CONTINUED)
Long term debt at November 30, 2000 is scheduled to mature as follows:
2001 147,986
2002 4,514
2003 513,660
2004 4,514
2005 1,035
-------
Total 671,709
=======
NOTE 6 - LOANS RECEIVABLE FROM SHAREHOLDERS FOR SALE OF COMPANY STOCK
The following summarizes receivable amounts due to the company for sale of
company stock:
2,000,000 shares issued May 5, 1999 to a
company officer valued at $.06 per share $ 120,000
1,598,000 shares issued August 9, 1999 to
a company officer, valued at $.06 per
share. 80,880
---------
Remaining balance due $ 200,880
=========
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Through November 30, 2000, the Company issued to a private investment group two
$250,000, 6% convertible notes due July 20, 2003 and September 20, 2003,
respectively. The notes are convertible into common shares of the Company based
upon the three lowest closing prices for the Company during the thirty trading
days prior to the date of the note, or the three lowest closing prices during
the sixty trading days prior to the conversion date. In accordance with Emerging
Issues Task Force No. 98-5, the Company recorded interest expense and a
corresponding increase to additional paid-in capital in the amount of $27,174 in
connection with the beneficial conversion feature during the nine months ended
November 30, 2000. The Company retains a redemption clause in the notes that
allow the Company to repurchase the notes upon payment of 130% of the note's
face value, plus accrued interest. In addition, 850,000 five-year warrants were
issued for shares of the Company's common stock at an exercise price of $0.4375,
in connection with the issuance of the first $250,000 note and 850,000 five-year
warrants were issued at an exercise price of $.1925, in connection with the
second $250,000 note, which exercise prices approximated the fair market value
of the Company's common stock. These convertible notes are part of a $6,500,000
equity line of credit (see Note 3). The entire line will become available to the
Company upon successful registration by the Company of an SB-2 filing with the
Securities and Exchange Commission.
On December 3, 2000, the Company received $300,000 from a private investment
group under the terms of a convertible 8% note payable due December 3, 2003. In
connection therewith, the Company issued 750,000 five-year warrants having an
exercise price of $0.115.
11
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS
On or about April 18, 2000 L&B Charitable Trust purchased 500,000 restricted
common shares of the Company for $100,000. The purchase price also included
two-year warrants to purchase an additional 500,000 common shares of the Company
at an exercise price of $0.50 in the first year and $0.75 in the second year.
On May 31, 2000, the company issued 500,000 restricted shares of company stock
to an officer of the Company for services, valued at $.20 per share, for a total
of $100,000.
On August 16, 2000, the Company issued a total of 97,306 restricted shares of
company stock to three officers of the company for services, valued at $ .281
per share for a total of $27,343.
NOTE 9 - LEASE COMMITMENTS
As of November 30, 2000, the Company leased office space and certain equipment
under various non-cancelable operating and capital leases. Future minimum lease
payments required under the operating and capital leases are as follows:
Operating Capital
Leases Leases
--------- ----------
2001 ................................... $ 74,451 $ 8,064
2002 ................................... 77,421 8,064
2003 ................................... 80,514 8,064
2004 ................................... 62,181 8,064
2005 ................................... - 2,181
--------- ----------
Total minimum lease payments $ 294,567 34,437
=========
Less amount representing interest 15,166
----------
Present value of net minimum lease payments 19,271
Less current portion 4,514
----------
Total $ 14,757
==========
As of November 30, 2000, the Company has equipment purchased under
non-cancelable capital leases with a cost of $22,570 and accumulated
amortization of $3,300.
12
Management Discussion and Analysis
Sales decreased by $99,515 to $17,550 for the three months ended
November 30, 2000 from $117,065 for the three months ended November 30, 1999,
and decreased by $163,604 to $55,951 for the nine months ended November 30, 2000
from $219,555 for the nine months ended November 30, 1999. The decrease in
respective sales is the result of the Company's decision to concentrate activity
on the development and testing of new products instead of customizing software
and computer products for clients.
Operating expenses for the nine-month period ended November 30, 2000
increased $319,472 to $873,507 from $ 554,035 during the first nine months ended
November 30, 1999. The primary reason for the increase was the addition of
senior technical and administrative staff, plus support services, to expedite
development of the Company's software products. Increases in depreciation and
interest expenses reflect an expanded fixed asset base required to support the
development efforts, and debt service on convertible and other loans necessary
to fund the Company's operations.
The Company's expenditures for services paid for with restricted common
stock increased $304,393 to $363,388 for the nine months ended November 30, 2000
from $58,995 for the nine months ended November 30, 1999. These expenditures
using restricted common stock recognized the efforts of certain Company
programmers and management in the development of Company products and systems.
The Company capitalized $540,850 in product development expenditures
during the nine months ended November 30, 2000. Two of the Company's proprietary
software products were in active beta testing for the first six months of this
period, with one of these products for all nine months, as a final step before
commercial release. In accordance with Generally Accepted Accounting Principles,
all costs related to this testing period have been capitalized. There were no
product development expenditures capitalized in the comparable period for 1999.
Liquidity and Capital Resources
At November 30, 2000, the Company had cash and other current assets of
$33,935 compared to cash and other current assets of $75,973 at November 30,
1999. The decrease of $42,038 results primarily from the revaluation by the
Company of certain outstanding receivables, and increased operating capital
requirements. During the previous twelve months the Company's expenditures and
cash requirements were met using a combination of sales, equity placements and
debt.
The Company borrowed $15,000 from an individual and an additional
$10,000 from a second individual, neither of which are shareholders of the
Corporation, in August of 1999, pursuant to promissory notes, at the rate of 10%
per annum with each note being respectively due and payable on February 12, 2000
and February 16, 2000. Both promissory notes remained outstanding at year-end
13
and both were converted into restricted common shares of the Company in April of
2000. During the nine months ended November 30, 2000, the Company borrowed a
total of $143,472 from various individuals, some of which are shareholders of
the Corporation, at interest rates from 10% to 15% per annum. The various loan
details are explained at Note 5 of the Company's financial statements.
In July 2000, the Company completed negotiations with a private
investment group for a $6.5 million equity line of credit. The execution of the
line of credit is dependent upon an approval by the Securities and Exchange
Commission of a SB-2 registration statement. The SB-2 registration was duly
prepared by the Corporation and filed with the Securities and Exchange
Commission in September 2000. Through November 30, 2000, the Company issued two
$250,000, 6% convertible notes due July 20, 2003 and September 20, 2003
respectively to the above-mentioned private investment group. In addition,
850,000 five-year warrants were issued for shares of the Company's common stock
at a price not to exceed $0.4375, in connection with the issuance of the first
note, and an additional 850,000 five-year warrants were issued at an exercise
price not to exceed $0.1925, in connection with the second $250,000 note. The
exercise prices of the warrants approximated the fair market value of the
Company's common stock at the time of issuance. The funds received by the
Company from the convertible notes are a part of the $6.5 million equity line of
credit and helped meet the working capital requirements of the Company prior to
the anticipated acceptance of the SB-2 registration statement.
During the nine months ended November 30, 2000, the Company generated
$310,560 from the sale of 900,000 restricted common shares. The Company issued
2,152,358 shares of restricted common stock in lieu of cash for various services
through the nine months ended November 30, 2000.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Commercial Concepts, Inc.
/s/ George E. Richards 1/9/01
- --------------------------------- -------------
George E. Richards, President Date
/s/ Scott Adamson 1/9/01
- --------------------------------- -------------
Scott Adamson, Executive Vice-President Date
/s/ Karl A. Hansen 1/9/01
- --------------------------------- -------------
Karl A. Hansen, Chief Financial Officer Date
15