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 May 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_________________to_________________
Commission file number 0-28891
Commercial Concepts, Inc.
-------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0409620
---- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
324 South 400 West Suite B, Salt Lake City, Utah 84101
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(Address of principal executive offices)
(801) 328-0540
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(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 May 31, 2001: 28,837,726
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
Financial Statements and
Supplementary Information
Commercial Concepts, Inc.
As of May 31, 2001 (Unaudited) and February 28,
2001 and for the (Unaudited) three months ended May 31,
2001 and 2000
With Accountants' Review Report
2
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 May 31, 2001 and the related statements of operations, stockholders' deficit
and of cash flows for the three 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 28, 2001 was previously audited
and our report dated May 10, 2001 expressed an unqualified opinion on the
February 28, 2001 balance sheet and included an explanatory paragraph concerning
the Company's ability to continue as a going concern. The statement of
operations and of cash flows for the three months ended May 31, 2000 were
reviewed by other accountants whose report dated August 17, 2000 stated that
they were not aware of any material modifications that should be made to such
May 31, 2000 financial statements in order for them to be in conformity with
generally accepted accounting principals.
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 May 31, 2001 financial statements in order for them
to be in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has current liabilities in excess of current
assets, a net stockholders' deficit and has incurred substantial operating
losses, all of which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 3. The financial statements do not include any adjustments that might
result from the outcome of the uncertainty.
CHRISTENSEN & DUNCAN CPA's LC
July 13, 2001
3
COMMERCIAL CONCEPTS, INC.
BALANCE SHEETS
May 31, 2001 and February 28, 2001
May 31, February 28,
ASSETS 2001 2001
-------------- --------------
(Unaudited)
CURRENT ASSETS
Cash in bank $ 10,261 $ 1,621
Accounts receivable 6,806 11,548
Employee advances 11,700 11,700
Prepaid expenses 933 1,683
-------------- --------------
Total current assets 29,700 26,552
PROPERTY AND EQUIPMENT
Property and equipment 123,249 118,228
Less: accumulated depreciation (55,004) (47,995)
-------------- --------------
Property and equipment, net 68,245 70,233
-------------- --------------
OTHER ASSETS
Investment in software development 551,541 550,291
Deposits 7,217 7,217
-------------- --------------
Total other assets 558,758 557,508
-------------- --------------
TOTAL ASSETS $ 656,703 $ 654,293
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 439,932 $ 398,070
Current portion of long-term debt 4,850 4,850
Short term debt 258,488 167,988
-------------- --------------
Total current liabilities 703,270 570,908
-------------- --------------
LONG TERM DEBT 1,144,059 830,172
-------------- --------------
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 75,000,000 shares
authorized, 28,837,726 and 28,197,590 shares issued
and outstanding, respectively 28,838 28,198
Due from shareholders for sale of Company stock (200,880) (200,880)
Additional paid-in capital 2,889,833 2,807,473
Accumulated deficit (3,908,417) (3,381,578)
-------------- --------------
Total Stockholders' Deficit (1,190,626) (746,787)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 656,703 $ 654,293
============== ==============
See accompanying notes to financial statements and accountants' review report
4
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended May 31, 2001 and 2000
Three months ended Three months ended
May 31, May 31,
2001 2000
-------------- -------------
REVENUES:
Sales $ 9,092 $ 18,207
Less cost of goods sold 6,817 4,558
-------------- -------------
Gross Profit 2,275 13,649
EXPENSES:
General and Administrative Expenses 420,415 196,135
Services provided for in common stock 33,000 153,298
Depreciation 7,009 5,506
Interest 68,926 -
-------------- -------------
Total Expenses 529,350 354,939
-------------- -------------
NET LOSS FROM OPERATIONS (527,075) (341,290)
OTHER INCOME:
Interest 111 512
Other 125 -
-------------- -------------
NET LOSS BEFORE INCOME TAXES (526,839) (340,778)
PROVISION FOR INCOME TAXES - -
NET LOSS $ (526,839) $ (340,778)
============== =============
NET LOSS PER COMMON SHARE:
Weighted Average Shares Outstanding:
Basic 28,517,658 25,187,347
Diluted 28,517,658 25,187,347
Net Loss per Common Share:
Basic (.018) (.014)
Diluted (.018) (.014)
See accompanying notes to financial statements and accountants' review report.
5
COMMERCIAL CONCEPTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended May 31, 2001
Paid - In
Common Stock Capital in
------------ Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ --------- -------
Balance, February 28, 2001 28,197,590 $ 28,198 $ 2,807,473 $(3,381,578)
Issuance of common stock for services 300,000 300 32,700 -
Issuance of common stock for cash 340,136 340 49,660 -
Net loss for three months ended
May 31, 2001 - - - (526,839)
---------- ---------- ------------ -----------
Balance, May 31, 2001 28,837,726 $ 28,838 $ 2,889,833 $(3,908,417)
========== ========== ============ ===========
See accompanying notes to financial statements and accountants' review report.
6
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended May 31, 2001 and 2000
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (526,839) $ (340,778)
Non cash items included in net loss:
Services paid in stock 33,000 153,298
Depreciation 7,009 5,506
Interest expense recorded as an addition
to notes payable 91,207 -
Changes in operating assets and liabilities:
Prepaid expenses 750 (3,013)
Accounts receivable & advances 4,742 22,386
Accounts payable and accrued expenses 55,042 (7,632)
--------------- ---------------
Net Cash Flows used in Operating Activities (335,089) (170,233)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investment in software development (1,250) (73,997)
Purchase of equipment (5,021) (3,790)
--------------- ---------------
Net Cash Flows used in Investing Activities (6,271) (77,787)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from sale of stock 50,000 220,500
Stockholder loans, net - 2,870
Proceeds from long-term debt 300,000 -
--------------- ---------------
Net Cash Flows from Financing Activities 350,000 223,370
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 8,640 (24,650)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,621 31,171
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,261 $ 6,521
=============== ===============
SUPPLEMENTAL INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 30,369 $ 7,693
=============== ===============
See accompanying notes to financial statements and accountants' review report.
7
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2001
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The Company 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.
The accompanying interim financial statements of the Company are unaudited, but
in the opinion of management reflect all adjustments (consisting of normal
recurring accruals) necessary for fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of the results for the respective full year. These financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the Company's annual report of Form 10KSB for the year
ended February 28, 2001 as filed with the Securities and Exchange Commission.
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.
As of May 31, 2001 and February 28, 2001 property and equipment consisted of the
following:
May 31, 2001 February 28, 2001
(unaudited)
Leasehold improvements $ 7,000 $ 7,000
Equipment 104,076 99,055
Furniture & fixtures 12,173 12,173
------------ ----------
Totals $ 123,249 $ 118,228
============ ==========
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.
Revenue Recognition - For the quarters ended May 31, 2001 and 2000, sales
represented miscellaneous sales of computer hardware and or multi-media
projects. It is anticipated that future sales will consist primarily of royalty
payments from distributors of the Company's Picturebase Medical product and or
advertising revenues associated with the Company's Wavescreen software. Future
revenues will be recognized by the Company as royalties are earned upon sales by
the distributors of the Company's Picturebase Medical product and or over the
course of the contract associated with the Company's Wavescreen software.
8
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2001
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. As reflected in the accompanying financial
statements, the Company has current liabilities in excess of current assets, has
a net stockholders' deficit and has incurred substantial operating losses, all
of which raise substantial doubt about its ability to continue 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 borrowing relationship with a private investment
group (see Notes 5 and 7). Through May 31, 2001, the Company has borrowed
$800,000 under the terms of three convertible long-term notes payable. In
addition, $500,000 was borrowed on June 14, 2001 from this investment group and
an additional $300,000 was borrowed on December 3, 2000 from a different
investment group. Management believes that the actions presently being taken
will provide the opportunity for the Company to continue as a going concern.
NOTE 4 - INCOME TAXES
Deferred tax assets at May 31, 2001 and February 28, 2001, consisted of the
following:
May 31, 2001 February 28, 2001
(Unaudited)
Deferred tax asset arising from:
Net operating loss carryforwards $ 1,300,000 $ 1,100,000
Less allowance valuation at 100% (1,300,000) (1,100,000)
------------ ------------
Deferred tax asset $ NONE $ NONE
============ ============
The Company has unused net operating loss carry forwards of approximately
$3,500,000 to offset future taxable income which expire at various times and
amounts through 2021.
9
COMMERCIAL CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2001
NOTE 5 - SHORT-TERM AND LONG-TERM DEBT
Short-term debt consisted of the following at May 31, 2001 and February 28,
2001:
May 31,
2001 February 28,
(Unaudited) 2001
----------- -----------
Notes payable (collateralized by one-million shares of
the Company's common stock ) to individual dated June
22, 2000 through April 12, 2001, due at various dates
through April 12, 2002, plus all accrued interest at
15%. $ 90,500 $ 68,500
Note payable to individual dated November 3, 2000,
collateralized by 200,000 shares of the Company's
common stock, payable on demand plus all accrued
interest at 15%. 15,000 15,000
Note payable (non-collateralized) to individual dated
June 15, 2000 payable on demand plus all accrued
interest at 10%. 42,988 42,988
Note payable to limited partnership dated February
2001, collateralized by 571,250 shares of the Company's
common stock, payable on March 15, 2001 plus all
accrued interest at 12%. 30,000
Note payable to corporation (non-collateralized) dated
January 23, 2001 due on demand plus all accrued
interest at 10%. 10,000 10,000
Note payable to Corporation (non-collateralized) dated
May 25, 2001 due on demand plus all accrued interest at
12%. 100,000
Other - 1,500
-------- --------
Total $258,488 $167,988
======== ========
Long-term debt consisted of the following at May 31, 2001 and February 28, 2001:
May 31,
2001 February 28,
(Unaudited) 2001
----------- -----------
Convertible notes payable to private investment
group with $250,000 due on July 20, 2003, and
$250,000 due on September 20, 2003 and $300,000
due on April 19, 2004 plus all accrued interest at
6% to 8% (see Note 7). $ 823,762 $ 514,712
Convertible note payable to private investment
group due December 3, 2003 plus all accrued
interest at 8% (see Note 7). 311,967 305,918
Capital leases (see Note 8). 13,180 14,392
----------- -----------
Total 1,148,909 835,022
Less current-portion (4,850) (4,850)
----------- -----------
Long-term portion $ 1,144,059 $ 830,172
=========== ===========
10
COMMERCIAL CONCEPTS, INC
NOTES TO REVIEWED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2001
NOTE 5 - SHORT-TERM AND LONG-TERM DEBT (CONTINUED)
Long term debt as of May 31, 2001 is scheduled to mature as follows:
Year ended May 31,
2002 $ 4,850
2003 5,000
2004 1,139,059
-----------
Total $ 1,148,909
===========
NOTE 6 - LOANS RECEIVABLE FROM SHAREHOLDERS FOR SALE OF COMPANY STOCK
The following summarizes receivable amounts due to the Company for sale of
common 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 AND OTHER EQUITY INSTRUMENTS
Through May 31, 2001, the Company issued to a private investment group two
$250,000, 6% convertible notes due July 20, 2003 and September 20, 2003, and one
$300,000, 8% convertible note due April 19, 2004. 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. 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, the Company issued warrants to
purchase 850,000 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, warrants to
purchase 850,000 shares issued at an exercise price of $.1925, in connection
with the second $250,000 note and warrants to purchase 510,000 shares issued at
an exercise price of $.09 in connection with the issuance of the $300,000 note,
which exercise prices approximated the fair market value of the Company's common
stock. In addition, on June 14, 2001, the Company borrowed an additional
$500,000 under an 8% convertible note and issued in connection therewith
warrants to purchase 500,000 shares at $.10 per share.
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.
On March 7, 2001 the Company issued warrants to purchase 40,816 shares of the
Company's common stock at $.175 in connection with a short-term $50,000 note
payable entered into on March 1, 2001. The note was converted into 340,136
shares of the Company's common stock during the three months ended May 31, 2001.
Four employees including two officers of the Company have the option to convert
accrued salaries in the amount of $151,059 into 1,575,893 shares of the
Company's common stock.
11
COMMERCIAL CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2001
NOTE 8 - LEASE COMMITMENTS
As of May 31, 2001, the Company leased office space and certain equipment under
non-cancelable operating and capital leases. Future minimum lease payments
required under the operating and capital leases are as follows:
Operating Capital
Year ended May 31, Leases Leases
--------- -------
2002 ................................... $ 77,421 $ 8,064
2003 ................................... 80,514 8,064
2004 ................................... 62,181 8,064
2005 ................................... - 2,181
---------- --------
Total minimum lease payments $ 220,116 26,373
==========
Less amount representing interest 13,193
--------
Present value of net minimum lease payments $ 13,180
========
As of May 31, 2001, the Company has equipment purchased under non-cancelable
capital leases with a cost of $22,570 and accumulated amortization of
approximately $4,000.
12
MANAGEMENT DISCUSSION AND ANALYSIS
Sales decreased by $9,115 to $9,092 for the three months ended May 31,
2001 from $18,207 for the three months ended May 31, 2000. The decrease in sales
is the result of the Company's emphasis on completing its software products in
preparation for Summer, 2001 commercial rollout.
General and Administrative Expenses increased by $224,280 to $420,415
in the three months ended May 31, 2001 from $195,135 in the comparable period in
2000. This increase was largely offset by a $120,298 decline in Services
provided for in common stock between the periods, from $153,298 to $33,000. The
Company is providing compensation in cash and is issuing fewer common shares for
services in lieu of cash. The overall increase in General and Administrative
Expenses includes increased employment to expedite the Company's development
efforts. Legal expenses also increased, reflecting additional funding, SEC
submittals and patent registration efforts.
The Company capitalized $1,250 in product development expenditures in
the three months ended May 31, 2001. The modest level of capitalization (versus
$231,997 capitalized for the comparable period in ending May 31, 2000)
illustrates the Company's belief that beta testing of the Company's current
products is complete, and that technical and commercial feasibility has been
proven to the satisfaction of Commercial Concepts, Inc.
Interest expense increased to $68,926 for the three months ended May
31, 2001 from zero for the three months ended May 31, 2000. The increase
reflects substantial interest charges incurred in obtaining funding to maintain
the Company's operations. Each convertible debt placement by the Company incurs
certain fees, some of which fees are recorded as a one-time interest charge in
the period incurred.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2001, the Company had cash and other current assets of
$29,700 compared to cash and other current assets of $26,552 at May 31, 2000. A
increase of $8,640 in cash is partially offset by a decrease of $4,742 in
accounts receivable.
The Company received funding from the issuance of a $300,000 three year
8% note convertible into shares of the Company's common stock in accordance with
terms and conditions detailed in Note 7. A total of 510,000 five-year warrants
with an exercise price of $0.09 were also issued in connection with this note.
The Company also received funds from the issuance of a $100,000 short-term, 12%
note. This note was a bridge loan and was repaid in June, 2001 from the proceeds
of a $500,000 three year 8% convertible note which transaction is also describe
in Note 7. The Company also borrowed $22,000 from an individual by issuing
one-year 15% notes payable, due April 12, 2002.
During the three months ended May 31, 2000, the Company generated
$50,000 from the sale of 340,136 restricted common shares to a shareholder and
director of the Company. The Company issued 300,000 shares of common stock for
services related to funding through the three months ending May 31, 2001.
13
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 7/16/01
- ---------------------------------------- -------------
George E. Richards, President Date
/s/ Scott Adamson 7/16/01
- ---------------------------------------- -------------
Scott Adamson, Executive Vice-President Date
/s/ Karl A. Hansen 7/16/01
- ---------------------------------------- -------------
Karl A. Hansen, Chief Financial Officer Date
14