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 ended November 30, 2001
[X] Transition report under Section 13 or 15(d) of the Exchange Act
For the transiton 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 of (I.R.S. Employer
incorporation or organization) 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)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock equity, as of November 30, 2001 was 36,646,517.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
Commercial Concepts, Inc.
Financial Statements
As of November 30, 2001 (Unaudited) and February 28, 2001
and for the (Unaudited) Three and Nine Months Ended
November 30, 2001 and 2000
Contents
Balance Sheets as of November 30, 2001 (Unaudited) and
February 28, 2001.................................................. 3
Unaudited Statements of Operations for the three and
nine months ended November 30, 2001 and 2000....................... 4
Unaudited Statements of Cash Flows for the nine months
ended November 30, 2001 and 2000....................................5
Unaudited Statements of Shareholders' Deficit for the
nine months ended November 30, 2001.................................6
Notes to Financial Statements.......................................7
2
Commercial Concepts, Inc.
BALANCE SHEETS
November 30, February 28,
ASSETS 2001 2001
----------------- -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 42,006 $ 1,621
Trade receivables 19,374 11,548
Employee advances 17,101 11,700
Prepaid expenses and other current assets 3,824 1,683
----------------- -----------------
Total current assets 82,305 26,552
PROPERTY AND EQUIPMENT, net 57,922 70,233
SOFTWARE DEVELOPMENT COSTS 554,683 550,291
DEPOSITS 7,217 7,217
----------------- -----------------
$ 702,127 $ 654,293
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade accounts payable $ 151,612 $ 88,030
Accrued compensation 213,721 301,622
Other accrued expenses 59,364 8,418
Current portion of long-term debt 4,000 4,850
Short-term notes payable 208,488 167,988
----------------- -----------------
Total current liabilities 637,185 570,908
LONG-TERM LIABILITIES
Convertible notes payable 1,691,140 830,172
----------------- -----------------
Total liabilities 2,328,325 1,401,080
STOCKHOLDERS' DEFICIT
Common stock 36,647 28,198
Paid-in-capital 3,238,462 2,807,473
Receivable from shareholders (213,880) (200,880)
Accumulated deficit (4,687,427) (3,381,578)
----------------- -----------------
Total stockholders' deficit (1,626,198) (746,787)
----------------- -----------------
$ 702,127 $ 654,293
================= =================
3
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF OPERATIONS
For Quarter Ended November 30, For the Nine Months Ended November 30,
2001 2000 2001 2000
---------- ---------- ------------ ----------
SALES $ 35,217 $ 17,550 $ 71,435 $ 55,951
COST OF SALES 47 2,750 10,281 12,911
---------- ---------- ------------ ----------
GROSS MARGIN 35,170 14,800 61,154 43,040
OPERATING EXPENSES
General and administrative 193,139 160,092 662,827 824,500
Sales and marketing 52,847 - 185,523 -
Product development 101,558 - 292,380 -
---------- ---------- ------------ ----------
Total operating expenses 347,544 160,092 1,140,730 824,500
---------- ---------- ------------ ----------
OPERATING LOSS (312,374) (145,292) (1,079,576) (781,460)
OTHER INCOME (EXPENSE)
Interest income and other 79 5,195 1,472 7,791
Financing costs - (85,275)
Interest expense (35,750) (12,399) (142,470) (49,007)
---------- ---------- ------------ ----------
Total other income (expense) (35,671) (7,204) (226,273) (41,216)
---------- ---------- ------------ ----------
NET LOSS BEFORE INCOME TAXES (348,045) (152,496) (1,305,849) (822,676)
Benefit for income taxes - - - -
---------- ---------- ------------ ----------
NET LOSS $ (348,045) $ (152,496) $ (1,305,849) $ (822,676)
========== ========== ============ ==========
NET LOSS PER COMMON SHARE
Weighted Average Shares Outstanding:
Basic 35,191,678 26,728,988 31,692,127 25,997,636
Diluted 35,191,678 26,725,988 31,692,127 25,997,636
Net loss per Common Share:
Basic $ (0.010) $ (0.006) $ (0.041) $ (0.032)
Diluted (0.010) (0.006) (0.041) (0.032)
4
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF CASH FLOWS
For the Nine Months Ended November 30,
2001 2000
---- ----
CASH FLOWS FOR OPERATING ACTIVITIES
Net loss $ (1,305,849) $ (822,676)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 21,161 18,230
Common stock issued for expenses 67,000 363,388
Interest on convertible debt balances 148,167 27,174
Changes in operating assets and liabilities: - -
Trade receivables and advances (24,927) 19,411
Prepaids and other assets (2,141) (4,701)
Accounts payable and accrued liabilities 100,216 18,352
----------------- ----------------
Net cash used in operating activities (996,373) (380,822)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (8,850) (22,398)
Additions to capitalized software & patents (4,392) (540,750)
----------------- ----------------
Net cash used in investing activities (13,242) (563,148)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 1,100,000 500,000
Payments of notes payable (50,000) (17,432)
Net proceeds from notes receivable from shareholders - 25,042
Net proceeds from issuance short-term debt - 98,472
Net proceeds from issuance of common stock - 310,560
----------------- ----------------
Net cash provided by financing activities 1,050,000 916,642
----------------- ----------------
Net change in cash and cash equivalents 40,385 (27,328)
Cash and cash equivalents, beginning of period 1,621 31,171
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,006 $ 3,843
================= ================
SUPPLEMENTAL DISCLOSURES
Cash interest paid $ 3,960 $ 16,382
Conversion of long-term debt to common stock 306,368 -
Common stock issued in settlement of liabilities 66,070 -
5
Commercial Concepts, Inc.
UNAUDITED STATEMENT OF STOCKHOLDERS' DEFICIT
Nine Months Ended November 30, 2001
Paid-In
Common Stock Capital In
------------ Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ --------- -------
Balance at February 28, 2001 (Audited) 28,197,590 $ 28,198 $ 2,807,473 $ (3,381,578)
Common stock issued for services 757,400 757 66,243
Common stock issued in conversion of debt 6,915,627 6,916 299,452
Common stock issued in payment of liabilities 858,600 859 65,211
Common stock cancelled (82,700) (83) 83
Net loss (1,305,849)
---------- -------- ----------- ------------
Balance at November 30, 2001 36,646,517 $ 36,647 $ 3,238,462 $ (4,687,427)
========== ======== =========== ============
6
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended November 30, 2001
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: 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.
Interim Financial Information: 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 on Form 10KSB for the year ended February 28, 2001 as
filed with the Securities and Exchange Commission.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with maturities 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.
Property and Equipment: Property and equipment is stated at cost, less
accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets,
generally three to seven years, except for leasehold improvements,
which are depreciated using the straight-line method over the shorter
of the estimated useful lives of the assets or the remaining lease
terms. Normal maintenance and repair items are expensed as incurred.
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 is
expected to begin in the fourth quarter for certain of the software
costs. There has been no amortization to date.
Revenue Recognition - For the quarters ended November 30, 2001 and
2000, sales represented miscellaneous sales of computer hardware and/or
multi-media projects and for the quarter ended November 30, 2001 it
also includes revenue for software development services. It is
anticipated that future sales will consist primarily of software
development revenues, 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 each advertisers contract associated with the Company's
Wavescreen software. Software development revenue will be recognized as
earned.
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.
2. 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.
7
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended November 30, 2001
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 borrowing relationships
with some private investor groups (see Notes 4 and 6). Through November
30, 2001, the Company has borrowed $1,850,000 under the terms of eight
convertible long-term notes payable. Management believes that the
actions presently being taken will provide the opportunity for the
Company to continue as a going concern.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
November 30, February 28,
2001 2001
------------------------------------
(Unaudited)
Leasehold improvements $ 7,000 $ 7,000
Computer and other equipment 107,906 99,055
Furniture 12,173 12,173
------------------------------------
Total 127,079 118,228
Less accumulated amortization (69,157) (47,995)
------------------------------------
$ 57,922 $ 70,233
====================================
4. NOTES PAYABLE
Short-term debt consisted of the following:
November 30,
2001 February 28,
(Unaudited) 2001
----------- -----------
Notes payable (collateralized by one-million shares of the Company's
common stock ) to an individual at dates from 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 an 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 an individual dated June 15, 2000
payable on demand plus all accrued interest at 10%. 42,988 42,988
Note payable to a 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 a corporation (non-collateralized) dated
January 23, 2001 due on demand plus all accrued interest at 10%. 10,000 10,000
Note payable (non-collateralized) to a limited partnership dated
October 22, 2001 payable on demand with an interest rate of 12%. 50,000
Other - 1,500
--------- ---------
Total $ 208,488 $ 167,988
========= =========
8
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended November 30, 2001
Long-term debt consisted of the following:
November 30, February 28,
2001 2001
----------- ----------
(Unaudited)
Convertible notes payable to a private investment group with $250,000
originally due on July 20, 2003, $250,000 due on September 20, 2003,
$300,000 originally due on April 19, 2004, and $500,000 due on
June 14, 2004 plus all accrued interest at 6% to 8% (see Note 6). $ 1,126,664 $ 514,712
Convertible note payable to a private investment group due December 3,
2003 plus all accrued interest at 8% (see Note 6). 307,800 305,918
Three convertible notes payable to an individual with $100,000 due
August 29, 2003, $100,000 due October 19, 2003 and $50,000 due
November 30, 2003 plus all accrued interest at 6%. 252,367 -
Capital leases 8,309 14,392
----------- ----------
Total 1,695,140 835,022
Less current-portion (4,000) (4,850)
----------- ----------
Long-term portion $ 1,691,140 $ 830,172
=========== ==========
Long-term debt as of November 30, 2001 is scheduled to mature as
follows:
2002 $ 4,000
2003 4,309
2004 1,686,831
----------
Total $1,695,140
==========
5. RECEIVABLE FROM SHAREHOLDERS
The following summarizes receivable amounts from shareholders for
purchase 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 93,880
--------
Remaining balance due $213,880
========
6. CONVERSION OF NOTES PAYABLE
The convertible notes payable described in note 4 above can be
converted into common shares of the Company based upon 80% of the three
lowest closing share prices during the thirty trading days prior to the
date of the note, or 76% of 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% to
9
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended November 30, 2001
150% of the note's face value, plus accrued interest. In addition, the
Company issued warrants to purchase 4,060,000 shares of the Company's
common stock at market on the day issued with exercise prices ranging
from $0.4375 to $.03 in connection with these notes.
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.
7. LEASE COMMITMENTS
As of November 30, 2001, the Company leased office space and certain
equipment under non-cancelable operating leases. Future minimum
operating lease requirements for the years following November 30, 2001
are as follows:
2002 $ 80,629
2003 84,032
2004 28,873
--------
Total $193,534
========
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company continues to make progress in the development and commercialization
of WaveScreens and PictureBase Medical. There are currently nine WaveScreens
Representatives throughout the country. Each WaveScreen Representative (WaveRep)
is an independent contractor tasked with the responsibility to add hosts to the
WaveScreens network and solicit advertisers for those screens. Most of these
WaveReps are recent additions to the team and are currently learning the product
and developing their sales strategies. The Company expects to start seeing
results from its WaveReps within the next few months.
The Company continues to negotiate distribution agreements for PictureBase
Medical and has expanded its targeted market for the product. The project team
has been working to expand the flexibility of the product to work with
additional software products. Beta versions of the product were installed in a
hospital and clinic during the quarter.
Sales: Sales increased by approximately $17,700 for the three months ended
November 30, 2001 to $35,217 over the same period in the prior year, and by
approximately $15,500 for the nine-month periods ended November 30, 2001 and
2000. There has been a change in the mix of revenues between the periods. While
revenues for the three and nine month periods ended November 30, 2000 were
comprised primarily of media revenue, a substantial portion of the revenue for
the comparable periods in 2001 were derived from software development. There
were some minor amounts of revenue generated during each period in 2001 from
beta versions of both Wavescreens and PictureBase products.
Cost of sales: Cost of sales decreased by approximately $2,700 for the three
months ended November 30, 2001 to $2,750 compared to the same period in the
prior year and by $2,600 to $10,281 for the nine-month period ended November 30,
2001 over the same period in 2000. The decreases in 2001 relates to the shift
between the media revenues with lower margins to software development revenues
with higher margins.
Operating expenses: Operating expenses increased from $160,100 for the three
months ended November 30, 2000 to $347,544 for the same period in 2001. Of the
$187,500 increase, approximately $140,000 represent software development costs
in the prior year quarter that were capitalized under the requirements of
Financial Accounting Standards Statement No. 86. The remaining increase results
from additional sales personnel with their related salary, benefits and travel
costs and other general operating cost increases. Operating expenses increased
from $824,500 for the nine months ended November 30, 2000 to $1,140,700 for the
same period in 2001. However, after considering capitalized software costs, the
year-to-date costs for the nine months ended November 30, 2001 are approximately
$233,800 less than for the same period in the prior year. The majority of this
differential was the result of compensation paid in the form of common stock
during the nine-month period in 2000.
Interest expense: Interest expense increased by approximately $23,400 and
$93,500 for the three and nine month periods ended November 30, 2001 compared to
the same periods in 2000. These increases are directly related to the long-term
convertible notes payable discussed in the financial statements. Although
interest accrues on these notes, payment is not due until converted or repaid at
the maturity of the notes. Accrued interest is convertible into common stock
with the principal of the notes. In addition, the Company incurred some
financing costs in relation to these notes that are shown on the income
statement adjacent to the interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2001, the Company had cash and other current assets of $82,305
while current liabilities were $637,185. The Company used approximately $996,400
in operations for the nine months ended November 30, 2001. Most of the cash used
resulted from the net losses for the period. Cash was generated from financing
activities for those same periods. The Company raised $1,100,000 in convertible
debt for the nine months ended November 30, 2001. The terms and interest rates
related to this debt are discussed in the Notes to the Unaudited Financial
Statements as of November 30, 2001. Based on current cash flows and the cash
balance on hand, we will need additional capital in order for the Company to
continue operations. We believe the Company can generate the cash necessary to
continue in operations through additional debt and equity financing.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant cause
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Commercial Concepts, Inc.
/s/ George E. Richards 1/10/02
- -----------------------------------------------
George E. Richards, President and Chief
Executive Officer
1/10/02
/s/ Scott Adamson
- -----------------------------------------------
Scott Adamson, Executive Vice President
/s/ V. Kelly Randall 1/10/02
- -----------------------------------------------
V. Kelly Randall, Vice President and Chief
Financial Officer
12