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 quarterl ended November 30, 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 incorporation or (I.R.S. Employer
organization Identification No.)
168 E Center, North Salt Lake, Utah 84054-1807
----------------------------------------------
(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 September 30, 2002 was 57,049,182.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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 and None-Months Ended November 30, 2002 vs. Quarter Ended
November 30, 2001
Sales: There were no sales in during the quarter ended November 30, 2002 and
only $1,434 for the nine-month period then ended. This is compared to sales of
$35,170 and $61,154 for the three and nine
months ended November 30, 2001. Substantially all revenues in fiscal 2003 were
generated from Wavescreens. There have no sales in the last two quarters since
the Company has been unable to employ sales personnel or perform any marketing
activities due to lack of funding. .
Cost of sales: Consistent with the information discussed under sales,
there have been no cost of sales during the three and nine month periods ended
November 30, 2002 compared to cost of sales of $0 and $10,281 for the same
periods in the prior year.
Operating expenses: Operating expenses were substantially lower in during
the three and nine-month periods ended November 30, 2002 as compared to the same
period in the prior year. Of the $388,369 in expenses in the nine month period
ended November 30, 2002, $73,000 are for corporate consulting services paid for
with common stock of the Company. 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 the first nine months of fiscal 2003 as compared to the same period 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. Interest expense in the second quarter of fiscal 2003 is only
slightly higher than interest expense in the same period of the prior year.
Liquidity and Capital Resources
At November 30, 2002, we had cash and current assets amounting to $49
with current liabilities of approximately $1,084,000. During the quarter
Commercial Concept's expenditures and cash requirements were met using a
combination of increasing payables and cash contributed. 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 nine months of fiscal 2003 we used approximately
$34,000 of cash in operations.
We are currently in serious negotiations with a company that plans to
use a portion of our Wavescreens technology in its product. The successful
completion of this project may provide us with small amounts of operating
capital and the potential of new revenue during fiscal 2004 from this product
in fiscal 2004. It could also provide the opportunity for new sales
opportunities into other markets with this product. We are unable to make
reasonable projections of the impact of this potential agreement at this time.
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 01/12/03
--------
- ---------------------------------------------------
George E. Richards, President and Chief Executive
Officer
01/12/03
/s/ Scott G. Adamson
- ---------------------------------------------------
Scott G.Adamson, Executive Vice President
Commercial Concepts, Inc.
Financial Statements
As of November 30, 2002 (Unaudited) and
February 28, 2002 and for the (Unaudited)
Three and Nine Months Ended November 30, 2002
and 2001
Contents
Balance Sheets as of November 30, 2002
(Unaudited) and February 28, 2002.............................. 1
Unaudited Statements of Operations for
the three and nine months ended November 30, 2002 and 2001..... 2
Unaudited Statements of Cash Flows for the nine months ended
November 30, 2002 and 2001 .................................... 3
Unaudited Statements of Stockholders' Deficit for the nine
months ended November 30, 2002................................. 4
Notes to Financial Statements..................................... 5
Commercial Concepts, Inc.
BALANCE SHEETS
As of November 30, 2002 and February 28, 2002
November 30, February 28,
ASSETS 2002 2002
---- ----
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents 49 308
Trade receivables 21,796
Total current assets 49 22,104
---------------------------------------
PROPERTY AND EQUIPMENT, net 6,268 49,151
SOFTWARE DEVELOPMENT COSTS, net of
reserve for impairment of $554,683 at November 30, and
Februray 28, 2002
DEPOSITS - 7,117
---------------------------------------
6,317 78,372
======================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft 427
Trade accounts payable 257,843 217,394
Accrued compensation 511,913 341,416
Accrued interest and other expenses 60,527 36,665
Current portion of capital lease obligation 4,157 4,157
Short-term notes payable 249,488 249,488
---------------------------------------
Total current liabilities 1,083,928 849,547
LONG-TERM LIABILITIES
Long-term portion of capital lease obligation 12,218 12,218
Convertible notes payable 1,761,609 1,673,470
------------------------------------
Total liabilities 2,857,755 2,535,235
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 250,000,000 shares
authorized, 57,149,182 and 43,306,517 shares issued
and outstanding at November 30 and February 28, 2002,
respectively 57,150 43,307
Additional paid-in-capital 3,433,083 3,322,707
Receivable from shareholders (213,880) (213,880)
Accumulated deficit (6,127,791) (5,608,997)
-----------------------------------------
Total stockholders' deficit (2,851,438) (2,456,863)
--------------------------------------
6,317 78,372
========================================
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF OPERATIONS
For the Quarters Nine-Months Ended November 30, 2002 and 2001
For Quarter Ended November 30, For the 9 Months Ended November 30,
2002 2001 2002 2001
---- ---- ---- ----
REVENUES 35,217 1,434 71,435
COST OF SALES 47 10,281
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GROSS MARGIN - 35,170 1,434 61,154
OPERATING EXPENSES
General and administrative $ 87,191 193,139 388,369 662,827
Sales and marketing 52,847 4,565 185,523
Product development - 101,558 15,097 292,380
----------------------------------------------------------------------------
Total operating expenses 87,191 347,544 408,031 1,140,730
----------------------------------------------------------------------------
OPERATING LOSS (87,191) (312,374) (406,597) (1,079,576)
OTHER INCOME (EXPENSE)
Interest and other income 113 79 1,038 1,472
Financing costs (85,275)
Interest expense (36,151) (35,750) (113,235) (142,470)
-----------------------------------------------------------------------------
Total other income (expense) (36,038) (35,671) (112,197) (226,273)
----------------------------------------------------------------------------
NET LOSS BEFORE INCOME TAXES (123,229) (348,045) (518,794) (1,305,849)
Benefit for income taxes - -
----------------------------------------------------------------------------
NET LOSS $ (123,229) $ (348,045) $ (518,794) $ (1,305,849)
============================================================================
NET LOSS PER COMMON SHARE
Weighted Average Shares Outstanding:
Basic 57,074,457 35,191,678 50,145,539 31,692,127
Diluted 57,074,457 35,191,678 50,145,539 31,692,127
Net loss per Common Share:
Basic (0.002) (0.010) (0.010) (0.041)
Diluted (0.002) (0.010) (0.010) (0.041)
Commercial Concepts, Inc.
UNAUDITED STATEMENTS OF CASH FLOWS
For the Nine-months Ended November 30, 2002 and 2001
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (518,794) $ (1,305,849)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 42,883 21,161
Common stock issued for services 73,000 67,000
Interest expense added to convertible debt balances 84,567 148,167
Changes in operating assets and liabilities:
Trade receivables and advances 21,796 (24,927)
Prepaids and other assets 7,117 (2,141)
Accounts payable, bank overdrafts and accrued liabilities 255,382 100,216
-----------------------------------
Net cash used in operating activities (34,049) (996,373)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment - (8,850)
Additions to software licenses - (4,392)
-----------------------------------
Net cash used in investing activities - (13,242)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debt 17,790 1,100,000
Payments of notes payable - (50,000)
Net proceeds from payment for common stock 16,000
Net cash provided by financing activities 33,790 1,050,000
-----------------------------------
Net change in cash and cash equivalents (259) 40,385
Cash and cash equivalents, beginning of period 308 1,621
-----------------------------------
CASH AND CASH EQUIVALENTS, end of period 49 42,006
===================================
SUPPLEMENTAL DISCLOSURES
Conversion of long-term debt to common stock $ 14,210 $ 306,368
Cash interest paid 3,960
Common stock issued in settlement of liabilities 21,000 66,070
UNAUDITED STATEMENTS OF STOCKHOLDERS' DEFICIT
Nine-Months Ended November 30, 2002
Additional Receivable
Common Stock 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 3,139,665 3,140 11,078
Common stock issued in payment of liabilities 1,703,000 1,703 19,298
Common stock issued for services 9,000,000 9,000 64,000
Contribution for unissued of common stock 16,000
Net loss (518,794)
-----------------------------------------------------------------------------
Balance at November 30, 2002 57,149,182 $57,150 $3,433,083 $(6,127,791) $ (213,880)
==========================================================================
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended November 30, 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. Due to lack of funding, little activity occurred during the
quarter.
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, 2002 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
November 30, 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 November 30, 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.
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 November 30, 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 January 12, 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
Computer and other equipment $103,970 104,904
Office furniture 12,173 12,173
---------------------------------------
Total 116,143 124,077
Less accumulated depreciation (109,875) (74,926)
---------------------------------------
$6,268 $49,151
=======================================
During the second quarter, the Company relocated offices to smaller and less
expensive office space. As a result, the leasehold improvements on the prior
office space were fully depreciated and then written off. During the third
quarter, certain office equipment reached the end of its useful life and was
fully depreciated.
4. Notes Payable
Short-term debt consisted of the following:
November 30, 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 100,000 100,000
12%.
Other 3,000 3,000
----- -----
Total $ 249,488 $ 249,488
========= =========
Convertible debt consisted of the following:
November 30, 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% . $1,170,602 $1,103,982
Convertible note payable to a private investment group due December 3, 2003
plus all accrued interest at 8%. 323,640 313,422
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% 267,367 256,066
----- ------- ------------
Long-term portion $1,761,609 $1,673,470
========== ==========
Long-term debt as of November 30, 2002 is scheduled to mature as follows:
2003 None
2004 $1,184,542
2005 577,067
----- -------
Total $1,761,609
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 ninety 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 November 30, 2002, the Company leased office space under non-cancelable
operating leases. However, due to cash flow difficulties, the Company relocated
to a smaller, less expensive office in July, 2002 and the Company is in
negotiations with the prior landlord to release it from its current obligation.
At the present time, the Company is still accruing an obligation under the
previous lease. Approximately $15,000 was accrued during the current quarter.
CERTIFICATION
In connection with the Annual Report of Commercial Concepts, Inc., a
Utah corporation (the "Company") on Form 10-QSB for the period ending November
30, 2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, George E. Richards, Jr., Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) I have received the Report being filed.
(2) The Report fully complies with the requirements of Section 13a-14 and
15d-14 of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(3) The information contained in the Report
fairly presents, in all material respects,
the financial condition and results of
operations of the Company.
/s/ GeorgeE. Richards, Jr
George E. Richards, Jr., Chief Executive Officer
Dated: January 15, 2003