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, 2000
[ ] 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.
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(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 the latest practicable date: 26,691,064
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [x]
<PAGE>
COMMERCIAL CONCEPTS, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
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2
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<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
BALANCE SHEETS
May 31, 2000 and 1999
ASSETS 2000 1999
-------------- --------------
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 6,521 312
Accounts receivable 15,425 97,055
Note receivable 369,500 -
Inventory - 4,500
Prepaid expenses 10,004 9,634
-------------- --------------
Total current assets 401,450 111,501
EQUIPMENT
Equipment 96,930 66,095
Less: accumulated depreciation (28,316) (10,613)
Property and equipment, net 68,614 55,482
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OTHER ASSETS
Investment in software development 231,997 -
Software marketing rights 100 100
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TOTAL ASSETS $ 702,161 167,083
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 259,644 18,205
Advances payable 1,850 18,000
Short term debt 28,513 -
-------------- --------------
Total Current Liabilities 290,007 36,205
LONG TERM DEBT 16,303 -
STOCKHOLDERS EQUITY
Common Stock, $.001 par value, 50,000,000 shares
authorized, 26,691,064 and 12,671,420 shares
issued and outstanding, respectively 26,746 12,671
Stock subscriptions receivable (260,923) (120,000)
Additional paid-in capital 2,973,593 1,565,203
Accumulated Deficit (2,343,565) (1,326,996)
-------------- --------------
Total Stockholders' Equity 395,851 130,878
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 702,161 167,083
============== ==============
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended May 31, 2000 and 1999
2000 1999
-------------- --------------
REVENUES:
<S> <C> <C>
Sales $ 18,207 55,709
Less cost of goods sold (4,558) (11,708)
-------------- --------------
Gross Profit 13,649 44,001
EXPENSES
General and Administrative Expenses 196,135 177,520
Services provided for common stock 153,298 19,158
Depreciation 5,506 3,400
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Total Expenses 354,939 200,078
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NET LOSS FROM OPERATIONS (341,290) (156,077)
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OTHER INCOME (EXPENSE)
Interest 512 -
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NET LOSS $ (340,778) (156,077)
============== ==============
NET LOSS PER SHARE $ (.01) (.01)
============== ==============
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended May 31, 2000 and 1999
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) from current operations $ (340,778) (156,077)
Items not requiring current cash flows:
Services paid in stock 153,298 19,158
Depreciation 5,506 3,400
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (3,013) (9,634)
(Increase) decrease in accounts receivable 22,386 (44,912)
(Decrease) increase in accounts payable (17,982) (40,650)
(Decrease) increase in accrued expenses 8,500 3,194
Increase (decrease) in advances 1,850 (31,000)
-------------- --------------
Net Cash Flows used in Operating Activities (170,233) (256,521)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investment in software development (73,997) -
Purchase of equipment (3,790) (28,062)
-------------- --------------
Net Cash flows used in Investing Activities (77,787) (28,062)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from sale of stock 220,500 198,000
Stockholder loans, net 2,870 9,200
-------------- --------------
Net Cash Flows from Financing Activities 223,370 207,200
-------------- --------------
NET INCREASE (DECREASE) IN CASH (24,650) (73,383)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 31,171 77,695
-------------- --------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 6,521 312
=============== ==============
SUPPLEMENTAL INFORMATION:
CASH PAID DURING THE YEAR FOR INTEREST $ 7,693 -
=============== ==============
NON CASH TRANSACTIONS
Shares issued for services and software
development $ 153,298 19,156
=============== ==============
</TABLE>
See accompanying notes.
5
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<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
Schedules of General and Administrative Expenses
Three Months Ended May 31, 2000 and 1999
2000 1999
-------------- --------------
<S> <C> <C>
Accounting $ 4,000 $ -
Taxes and licenses 535 20
Consulting fees 23,500 90,281
Postage and deliveries 209 1,583
Salaries and wages 98,268 24,114
Insurance 6,921 2,777
Investor relations 3,723 577
Legal 7,828 5,186
Maintenance and repairs 1,493 515
Marketing 1,750 200
Meals and entertainment 605 151
Office Supplies 4,133 2,138
Rental equipment 424 -
Tools 2,557 1,937
Telephone 3,889 7,881
Travel 5,764 37,633
Rent 16,028 2,310
Utilities 219 138
Other Expenses 14,289 79
-------------- --------------
Total general and administrative expenses $ 196,135 $ 177,520
============== ==============
</TABLE>
See accompanying notes.
6
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDING MAY 31, 2000 AND 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business Operations 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.
Development Stage Classification - Commercial Concepts, Inc. was incorporated in
the state of Utah on March 1, 1984. Until February 28, 1998, the Company has
been defined as a development stage company because it had not commenced planned
principal operations and did not have operational revenues, but only sold its
common stock to the public. In November 1997, the Company experienced a change
in its Board of Directors and management. Under the new management the Company
engaged in the purchasing of computer software products and in marketing and
distributing them, and effective March 1, 1998, has been an operating company
not subject to development stage company disclosures.
The Company has elected a February Fiscal year end for accounting and reporting
purposes.
Provision for income taxes - No provision for income taxes has been made in the
financial statements due to operating losses. The State of Utah franchise taxes
have been included in operating expenses in the statements of operations. Income
tax expense includes federal and state taxes currently payable and deferred
income taxes arising from temporary differences between income for financial
reporting and income tax purposes. These differences result principally from
depreciable assets where different methods of depreciation are used and the
allowances for bad debt which is not deductible for income tax purposes. Due to
operating losses no provision for deferred income taxes has been made.
Inventories - Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Inventories consist of packaged software and related
packaging supplies, for the period ending February 28, 1999.
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. Depreciation is computed on the straight-line method
for financial reporting purposes and on the MACRS method for income tax
purposes.
7
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000 AND 1999, CONTINUED
NOTE 1 - 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 2 - PUBLIC OFFERING OF COMMON STOCK
At inception, the Company offered and sold 1,000,000 shares of its authorized
but unissued stock to the public. An offering price of $.10 per share was
determined by the Company.
In May 1996, the Company commenced a private offering of common stock pursuant
to an exemption from registration under Regulation D of the Security and
Exchange Commission. 92,050 shares were sold and a total of $460,205 in capital
was raised.
Since inception the Company has privately sold for cash and exchanged common
stock for services and property at various times. A private sale of restricted
common stock issued in April, 2000 included 500,000 two-year warrants to
purchase common shares of the Company at a price of $0.50 in the first year and
$0.75 in the second year. There are no other options or warrants outstanding to
acquire the stock of the Company as of May 31, 2000.
NOTE 3 - 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. No amortization
of capitalized software costs has been included in the accompanying statements
of operations.
At the end of February 2000, two of the Company's products had completed their
research and development stages. Market beta testing for both products commenced
in March 2000. For the three months ended May 31, expenses incurred in market
testing and development of these products totaling $231,997 were capitalized.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
losses. In addition, the Company has used almost all of its working capital and
has stockholders' deficits from inception, which raise substantial doubt as to
the Company's ability to continue as a going concern.
8
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000 AND 1999 CONTINUED
NOTE 4 - GOING CONCERN (CONTINUED)
In view of these matters, continued existence of the Company is dependent upon
its ability to develop working capital and to attract equity investment, in
order to meet current and future creditors' demands and to attain future
profitable operations. 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. Management believes that the actions presently being taken will
provide the opportunity for the Company to continue as a going concern.
NOTE 5 - INCOME TAXES
Deferred tax assets and deferred tax liability comprise the following at
February 29, 2000 and February 28, 1999.
2000 1999
---- ----
Deferred tax asset:
Net operating loss carryforwards $ 623,431 340,550
Deferred tax liability
Excess tax depreciation - -
Net deferred tax benefit before allowance Valuation (623,431) 340,550
Federal and state net deferred tax benefit $ 0 0
=========== ==========
For federal and state purposes the Company has unused not operating loss carry
forwards to offset future taxable income which expire as follows:
Year Ending
February 28 Federal State
----------- ------- -----
2001 $ 8,617 1,364
2002 14,355 249,924
2007 548 221,790
2008 115 457,099
2009 123 831,904
2010 3,863 -
2011 1,464 -
2012 250,024 -
2013 221,890 -
2019 457,199 -
2020 832,004 -
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$1,790,202 $1,762,081
========== ==========
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<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 29, 2000 AND 1999 CONTINUED
NOTE 6 - NOTES RECEIVABLE
Effective March 2000 the Company entered into a subscription agreement with an
investor for the purchase by the investor of 1,008,434 restricted common shares.
As payment for the shares the Company accepted a note receivable due August 31,
2000 for $550,000. At May 31 $180,500 in cash had been received by the Company.
The share certificates will be issued after payment for the balance of the note
is received.
NOTE 7 - NOTES PAYABLE
Long
Current Term Total
------- ---- -----
Loan payable to individual shareholder $ 3,999 3,999
at no interest, due March 15, 2001
Note payable to individual, dated
December 9, 1999, due December 9, 2000
at 10% interest annually. The note is
convertible to 200,000 shares of Company
stock. 20,000 - 20,000
Obligations under capital leases 4,514 16,303 20,817
------- ------ ------
$28,513 16,303 44,816
======= ====== ======
Term debt at May 31, 2000 is scheduled to mature as follows (Fiscal Year):
2001 27,384
2002 4,514
2003 4,514
2004 4,514
2005 3,890
NOTE 8 - PURCHASE OF ADVICE PRODUCTIONS, INC.
On June 10, 1999, the Company acquired all the outstanding stock of Advice
Productions, Inc. The acquisition has been accounted for as a purchase. The
total purchase price was $200,000, paid in 1,000,000 shares of restricted
Company common stock valued at $.20 per share. The Company received accounts
receivable, equipment, and liabilities, but the purchase price exceeded the fair
value of net assets received by $200,000, which excess will be recorded as
goodwill in the financial statements. Simultaneous with the acquisition, the
Company entered into a five year employment contract with the principal of the
seller, which set forth, among other matters, the manner in which compensation
will be computed, and also allowed for bonuses and profit sharing. Advice
Productions, Inc. was previously operated as a sole proprietorship, but
incorporated immediately prior to the acquisition, and therefore had no
corporate operations to be combined with Company operations.
10
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000 AND 1999 CONTINUED
NOTE 8 - PURCHASE OF ADVICE PRODUCTIONS, INC. (CONTINUED)
Effective February 29, 2000 the Company dissolved Advice Productions. The
Company entered into a Settlement and General Release with the prior owner of
Advice Productions, which, among other matters, dissolved any employment
relationship between the parties. The Settlement and General Release provided
for a recapture by the Company of 600,000 shares of restricted Company common
stock valued at $.20 per share. Of the $200,000 goodwill recorded by the Company
as a result of the original acquisition of Advice Productions, $80,000 was
expensed in the period ending February 29, 2000. The remaining $120,000 of
goodwill was reversed to record the recapture and retirement by the Company of
600,000 Shares of restricted common stock.
NOTE 9- SUBSEQUENT EVENTS
Effective March 1, 1999, the Company accepted the resignations of Wilfred R.
Blum as President, David Welcker as Vice President, and Albert E.S. Fretz as
Vice President. The Board of Directors appointed George Richards as the new
President, and appointed Wilfred. S. Blum as Secretary Treasurer. On September
14, 1999, the Board accepted the resignation of Wilfred R. Blum as Secretary
Treasurer, and appointed V. Kelly Randal as Secretary Treasurer. Wilfred R. Blum
will continue as a member of the Board of Directors.
Effective October 12, 1999, V. Kelly Randall resigned as Secretary Treasurer. On
October 12, 1999 the Board of Directors appointed Scott Adamson as Secretary
Treasurer. On February 15, 2000 the Board of Directors appointed Karl Hansen
Chief Financial Officer of the Company, a member of the Board of Directors and
Secretary Treasurer of the Company, following the resignation of Scott Adamson
from that position on the same day.
Effective February 29, 2000 Larry Rogers resigned from the Board of Directors.
The vacancy created by Roger's resignation was filled April 18, 2000 with the
appointment of Lee Kunz to the Board of Directors.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company has transactions with certain stockholders and officers who receive
compensation paid in the form of wages, royalties, consulting fees, and Company
stock.
The Company paid an officer a royalty fee of $6,750 for the year ended February
28, 1999.
On November 25 and December 2, 1998, the Company issued a total of 234,100
shares of restricted common stock valued at $.22 per share to repay previous net
unpaid cash advances to the Company of $51,500, from a former Company officer.
On January 25, 1999, the Company issued 2,000,000 shares of restricted common
stock to an officer valued at $.06 per share, for a total amount of $120,000.
$96,000 was recorded as services for the year ended February 28, 1999, and
$24,000 was a repayment for previous cash advances to the Company. As of
February 28, 1999, the officer owed the Company $12,340. No note has been
executed for this advance. The advance was repaid in the following fiscal year.
On February 3, 1999, the Company issued 50,000 shares of restricted common stock
to a Company officer valued at $.20 per share, for a total amount of $10,000,
which was recorded as services for the year ended February 28, 1999.
11
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000 AND 1999 CONTINUED
NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED)
On May 5, 1999, the Company issued 2,000,000 shares of common stock to Richards
& Associates, Inc., a Utah corporation, of which the current President and Chief
Executive Officer and President, George Richards, Jr., is the sole shareholder,
in consideration of an oral agreement to pay the Company $200,000. The
obligation is not payable until the shares are sold and no interest accrues on
the obligation.
On August 9, 1999, the Company issued 1,398,000 shares of restricted Company
common stock for services to an officer, valued at $.06 per share, for a total
of $83,880.
On September 15, 1999 the Company issued 4,000,000 shares of restricted Company
common stock for services to two officers, valued at $.03 per share, for a total
of $122,000.
On December 23, 1999 the Company issued 271,250 shares of restricted Company
common stock for services to two officers, valued at $.08 per share for a total
of $21,700.
On December 23, 1999 the Company issued 500,000 shares of restricted Company
common stock as a signing bonus to an officer, valued at $.08 per share for a
total of $40,000.
On May 31, 2000 the Company issued 500,000 shares of restricted Company common
stock for services to an officer, valued at $.20 per share for a total of
$100,000.
NOTE 11 - LEASE COMMITMENTS
As of May 31, 2000, the Company leased office space and certain equipment under
various noncancelable operating and capital leases. Future minimum lease
payments required under the operating and capital leases are as follows:
Operating Capital
Leases Leases
------ ------
2001 ................................... $ 55,285 $ 6,048
2002 ................................... 76,656 8,064
2003 ................................... 79,716 8,064
2004 ................................... 82,908 8,064
---------
2005 ................................... - 6,362
--------
Total minimum lease payments $ 294,565 36,602
=========
Less amount representing interest 15,785
------
Present value of net minimum lease payments 20,817
Less current portion 4,514
------
Total $16,303
=======
As of May 31, 2000, the Company has equipment purchased under non-cancelable
capital leases with a cost of $22,570 and accumulated amortization of $2,923.
12
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COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000 AND 1999 CONTINUED
NOTE 11 - LEASE COMMITMENTS, CONT.
As of February 28, 1998, the Company leased office space for $2,885 per month
for 12 months and had an option to purchase the leased space for $225,000 with a
down payment of $22,500. The Company has since moved from this office space, and
the purchase option as of February 28, 1998, has expired.
NOTE 12 - LITIGATION SETTLEMENT
The Company was a defendant in litigation wherein the plaintiff sought
rescission and monetary damages in connection with the purchase of 50,000 shares
of company common stock directly from a former officer of the Company. Without
authorization from the Board of Directors, the former officer made certain
promises and incurred certain obligations in connection with the stock sale,
which the Company subsequently determined it could not legally fulfill.
On December 21, 1999, this lawsuit was mutually settled and dismissed. All
parties have waived all claims, liabilities and demands. As a part of the
settlement, the Company has agreed to issue 360,000 shares of restricted common
stock to the plaintiff.
MANAGEMENT DISCUSSION AND ANALYSIS
Sales deceased by $37,503 to $18,207 for the three months ended May 31,
2000 from $55,709 for the three months ended May 31, 1999. The decrease was 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.
Marketing and selling expenses increased by $1,550 to $1,750 for the
three months ended May 31, 2000 from $200 for the comparable period in 1999. The
marketing expenditures in the most recent quarter are low due to lack of
commissionable sales. In the comparable period in 1999 the Company had not yet
commenced significant marketing efforts for its Quick Fixx 2000 software. The
Company expects its marketing and selling expenses to increase in future periods
as it acquires or develops additional technology products and services.
Salaries and wages increased by $74,154 to $98,268 in the three months
ended May 31, 2000 from $24,114 in the comparable period in 1999. This increase
was largely offset by a $66,781 decline in consulting fees between the periods,
from $90,281 to $23,500. Over the last twelve months the Company moved to
replace consulting expenditures with employee salaries. Remaining general and
administrative expenses other than marketing, salaries and consulting fees
increased by $9,692 or 16% to $72,617 for the three months ended May 31, 2000
from $62,295 for the comparable period in 1999. The increase reflects the
Company's increased levels of activity related to its product development
program.
The Company's expenditures for services paid for with restricted common
stock increased $134,140 to $153,298 for the three months ended may 31, 2000
compared to $19,158 for the comparable period in 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 $231,997 in product development expenditures in
the three months ended May 31, 2000. Two of the Company's proprietary software
products were in active beta testing
13
<PAGE>
throughout the three-month period, 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 May 31, 2000, the Company had cash and other current assets of
$401,450 compared to cash and other current assets of $111,501 at May 31, 1999.
The increase of $289,949 results primarily from various private placements of
the Company's common stock.
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
and both were converted into restricted common shares of the Company in April of
2000.
During the three months ended May 31, 2000, the Company generated
$650,000 from the sale of 1,508,434 restricted common shares. Of this amount
$220,500 was received as cash with the remainder as notes or subscriptions
receivable. The Company issued 1,999,000 shares of restricted common stock in
lieu of cash for various services through the three months ending May 31, 2000.
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 7/11/00
--------------------------------- -------------
George E. Richards, President Date
/s/ Scott Adamson 7/11/00
--------------------------------- -------------
Scott Adamson, Executive Vice-President Date
/s/ Karl A. Hansen 7/11/00
--------------------------------- -------------
Karl A. Hansen, Chief Financial Officer Date
14
