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 May 31, 2002
[ ] 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 of (I.R.S. Employer Identification No.
incorporation or organization
168 E Center, North Salt Lake, Utah 84054-1807
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(Address of principal executive offices)
(801) 936-0595
----------------------
(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 May 31, 2002 was 45,884,517.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
Commercial Concepts, Inc.
Financial Statements
As of May 31, 2002 (Unaudited) and February 28, 2002
and for the (Unaudited) Three Months Ended May 31, 2002 and 2001
Contents
Balance Sheets as of May 31, 2002 (Unaudited) and February 28, 2002....... 3
Unaudited Statements of Operations for the three months ended
May 31, 2002 and 2001..................................................... 4
Unaudited Statements of Cash Flows for the three months ended
May 31, 2002 and 2001..................................................... 5
Unaudited Statements of Stockholders' Deficit for the three months
ended May 31, 2002........................................................ 6
Notes to Financial Statements............................................. 7
2
Commercial Concepts, Inc.
BALANCE SHEETS
As of May 31, 2002 and February 28, 2002
May 31, February 28,
ASSETS 2002 2002
----------------- ------------------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 550 $ 308
Trade receivables 400 21,796
----------------- ------------------
Total current assets 950 22,104
PROPERTY AND EQUIPMENT, net 43,316 49,151
SOFTWARE DEVELOPMENT COSTS, net of
reserve for impairment of $554,683 at May 31, and
Februray 28, 2002
DEPOSITS - 7,117
----------------- ------------------
$ 44,266 $ 78,372
================= ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 427
Trade accounts payable $ 214,820 217,394
Accrued compensation 421,455 341,416
Other accrued expenses 44,010 36,665
Current portion of capital lease obligation 4,157 4,157
Short-term notes payable 249,488 249,488
----------------- ------------------
Total current liabilities 933,930 849,547
LONG-TERM LIABILITIES
Long-term portion of capital lease obligation 12,218 12,218
Convertible notes payable 1,715,700 1,673,470
----------------- ------------------
Total liabilities 2,661,848 2,535,235
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 250,000,000 shares
authorized, 45,884,517 and 43,,306,517 shares
issued and outstanding, respectively 45,885 43,307
Additional paid-in-capital 3,344,881 3,322,707
Receivable from shareholders (213,880) (213,880)
Accumulated deficit (5,794,468) (5,608,997)
----------------- ------------------
Total stockholders' deficit (2,617,582) (2,456,863)
----------------- ------------------
$ 44,266 $ 78,372
================= ==================
3
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF OPERATIONS
For the Quarters Ended May 31, 2002 and 2001
2002 2001
------------- -------------
REVENUES $ 1,434 $ 9,092
COST OF SALES 6,817
------------- -------------
GROSS MARGIN 1,434 2,275
OPERATING EXPENSES
General and administrative 129,538 460,424
Sales & marketing 3,525
Product development 15,096
------------- -------------
Total operating expenses 148,159 460,424
------------- -------------
OPERATING LOSS (146,725) (458,149)
OTHER INCOME (EXPENSE)
Interest income 26 236
Interest expense (38,772) (68,926)
------------- -------------
Total other income (expense) (38,746) (68,690)
------------- -------------
NET LOSS $ (185,471) $ (526,839)
============= =============
NET LOSS PER COMMON SHARE
Weighted Average Shares Outstanding:
Basic 44,534,517 28,517,658
Diluted 44,534,517 28,517,658
Net loss per Common Share:
Basic $ (0.004) $ (0.018)
Diluted $ (0.004) $ (0.018)
4
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF CASH FLOWS
For the Quarters Ended May 31, 2002 and 2001
2002 2001
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (185,471) $ (526,839)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 5,835 7,009
Common stock issued for services 33,000
Interest expense added to convertible debt balances 28,191 91,207
Changes in operating assets and liabilities:
Trade receivables and advances 21,396 4,742
Prepaids and other assets 7,117 750
Accounts payable, bank overdrafts and accrued liabilities 105,384 55,042
---------------- ---------------
Net cash used in operating activities (17,548) (335,089)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment - (5,021)
Additions to software licenses - (1,250)
---------------- ---------------
Net cash used in investing activities - (6,271)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debt 17,790 300,000
---------------- ---------------
Net cash provided by financing activities 17,790 350,000
---------------- ---------------
Net change in cash and cash equivalents 242 8,640
Cash and cash equivalents, beginning of year 308 1,621
---------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 550 $ 10,261
=============== ==============
SUPPLEMENTAL DISCLOSURES
Cash interest paid $ - $ 5,789
Conversion of long-term debt to common stock 3,751 351,148
Common stock issued in settlement of liabilities 21,001 105,944
5
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF STOCKHOLDERS' DEFICIT
Quarter Ended May 31, 2002
Common Stock Additional Receivable
------------ Paid-In Accumulated From
Shares Amount Capital Deficit Shareholders
------ ------ ------- ------- ------------
Balance at February 28, 2002 43,306,517 43,307 3,322,707 (5,608,997) (213,880)
Common stock issued in conversion of debt 875,000 875 2,876
Common stock issued in payment of liabilities 1,703,000 1,703 19,298
Net loss (185,471)
---------- -------- ---------- ----------- ----------
Balance at May 31, 2002 45,884,517 $ 45,885 $3,344,881 $(5,794,468) $ (213,880)
========== ======== ========== =========== ==========
6
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended May 31, 2002
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-accessible database-driven software products are developed. As each
product completes beta testing, the Company plans to seek either a distribution
partner to market and provide ongoing support for the product or a licensee to
license 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.
Concentration of Credit Risk: Financial instruments that potentially subject the
Company to a concentration of credit risk consist principally of cash. Banking
with federally insured, creditworthy institutions minimizes risks associated
with cash.
Cash and Cash Equivalents: The Company considers all cash and highly liquid
investments purchased with an original maturity of less than three months at the
date of purchase to be cash equivalents.
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 five
years. Normal maintenance and repair items are expensed as incurred.
Software Licenses: 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 products to market are then capitalized. Capitalization of software costs is
discontinued when the product is available for general release to customers.
These amounts are recorded at cost and are amortized over the life of the
licenses, which is estimated to be 5 years. However, given concerns about the
Company's ability to continue as a going concern and therefore it's ability to
ultimately recover the value of such capitalized costs, an impairment reserve of
$554,683 was recorded at February 28, 2002 offsetting the amount of capitalized
software costs (see Note 2). No costs were capitalized during the quarter ended
May 31, 2002.
Income Taxes: The Company provides for income taxes based on the asset and
liability method required by SFAS No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities based on differences
between financial reporting and tax bases of assets and liabilities measured
using enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities.
Although management believes estimates are appropriate, actual results could
differ from the estimates and assumptions used.
Comprehensive Income: The Company has adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. Comprehensive loss is the same as net loss for the
quarters ended May 31, 2002 and 2001.
Net Income (Loss) per Common Share: Basic net income (loss) per common share is
computed based upon the average number of common shares outstanding during the
period. The diluted per share computation adds to the weighted common shares
outstanding the incremental increase in shares due to outstanding common stock
equivalents (options, warrants, etc.) unless such common stock equivalents are
considered anti-dilutive.
7
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended May 31, 2002
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. However as of May 31, 2002, the Company had
current liabilities substantially in excess of current assets, has a net
stockholders' deficit and has incurred significant operating losses, all of
which raise substantial doubt about its ability to continue as a going concern.
The Company has taken certain actions in order to enable it to obtain additional
financing, however, as of the date of these financial statements, these actions
have been unsuccessful. Without additional financing, the Company will not be
able to continue as a going concern. As of July 10, 2002, the Company had no
commitment for additional financing, and it is doubtful as to the ability of the
Company to continue as a going concern. As a result, all assets and liabilities
have been recorded at their estimated net recoverable amounts, including an
impairment charge for capitalized software development costs in the amount of
$554,683.
3. Property and Equipment
Property and equipment consists of the following:
February 28,
2002 2001
-------------------------------------
Leasehold improvements $ 7,000 $ 7,000
Computer and other equipment 104,904 104,904
Office furniture 12,173 12,173
----------- -----------
Total 124,077 124,077
Less accumulated depreciation (80,761) (74,926)
----------- -----------
$ 43,316 $ 49,151
=========== ===========
4. Notes Payable
Short-term debt consisted of the following:
May 31, February 28,
2002 2002
--------- ------------
Notes payable 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%. $ 78,500 $ 78,500
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%.
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 payables (non-collateralized) to a limited partnership dated October 22
and December 14, 2001 payable on demand with an interest rate of 12%. 100,000 100,000
Other 3,000 3,000
--------- ---------
Total $ 249,488 $ 249,488
========= =========
8
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended May 31, 2002
Convertible debt consisted of the following:
May 31, February 28,
2002 2002
---------- ------------
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, $500,000 due on June 14,
2004, and $17,790 due on May 8, 2005, plus accrued interest at 6% to 8%. $1,136,684 $1,103,982
Convertible note payable to a private investment group due December 3, 2003
plus all accrued interest at 8%. 319,169 313,422
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% 259,847 256,066
---------- ----------
Long-term portion $1,715,700 $1,673,470
========== ==========
Long-term debt as of May 31, 2002 is scheduled to mature as follows:
2003 None
2004 $1,159,401
2005 556,299
----------
Total $1,715,700
==========
The convertible notes payable described 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 150% of the note's
face value, plus accrued interest. In addition, the Company issued warrants to
purchase 5,290,000 shares of the Company's common stock at market on the day
issued with exercise prices ranging from $0.50 to $.0072 (weighted average
exercise price of $.23) in connection with these notes.
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 an officer
valued at $.06 per share $120,000
1,598,000 shares issued August 9, 1999 to an officer,
valued at $.06 per share. 93,880
--------
Balance due $213,880
========
6. Lease Commitments
As of May 31, 2002, the Company leased office space under non-cancelable
operating leases. However, due to cash flow difficulties, the Company is
relocating to a smaller, less expensive office in July, 2002 and the landlord
has agreed to release the Company from its current lease obligation.
9
Management's Discussion and Analysis
General
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the financial
statements (including the notes thereto), and the other information included
elsewhere herein. Our fiscal year runs from March 1 through the last day of
February.
RESULTS OF OPERATIONS
Quarter Ended May 31, 2002 vs. Quarter Ended May 31, 2001
Sales: Sales decreased by approximately $7,600 during the first quarter
of fiscal 2003 to $1,434 compared to the same quarter in the prior fiscal year.
This decrease is a combination of the lack of PictureBase and media revenue and
reduced Wavescreen revenue during the first quarter of fiscal 2003. Wavescreen
revenues decreased primarily due to our inability to seek hosts and advertisers
because of cash flow difficulties.
Cost of sales: There was no cost of sales during the first quarter of
fiscal 2003 compared to a cost of sales of $6,817 in the same quarter of the
prior year. The cost of sales in the prior year consisted primarily of hardware
costs associated with PictureBase sales and costs associated with media sales.
There are relatively few costs associated with the generation of Wavescreens
revenues.
Operating expenses: Operating expenses decreased from $460,424 in the
first quarter of fiscal 2002 to $148,159 for the same quarter in fiscal 2003.
Because of our current financial position, most of our employees have been laid
off until additional funding is secured. The reduction in salaries combined with
the elimination of most variable costs resulted in the decrease in operating
expenses. We continue to look for ways to reduce costs including moving the
corporate headquarters to smaller and less expensive office space.
Interest expense: Interest expense decreased by approximately $30,000
during first quarter of fiscal 2003 as compared to the same quarter in 2002.
During the first quarter of fiscal 2002, we paid certain costs related to
financing transactions that were recorded as interest expense. In the first
quarter of fiscal 2003, we did not incur this same type of expense resulting in
the decrease between the two quarters.
Liquidity and Capital Resources
At May 31, 2002, we had cash amounting to $550 and total current assets
of $950 with current liabilities amounting to approximately $934,000. During the
quarter Commercial Concept's expenditures and cash requirements were met using a
combination of sales, collection of receivables and debt. Due to our current
liquidity position, our auditors have issued a going concern opinion on our
audited financial statements as of February 28, 2002. Our ability to continue as
a going concern is dependent upon our ability to generate additional capital. We
do not currently have any additional financing in place, nor have we generated
additional equity or debt subsequent to the end of our fiscal quarter. During
the first quarter of fiscal 2003 we used approximately $17,500 of cash in
operations.
10
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 7/12/02
- ---------------------------------------------------
George E. Richards, President and Chief Executive
Officer
7/12/02
/s/ Scott G. Adamson
- ---------------------------------------------------
Scott G.Adamson, Executive Vice President
11