UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ending February 29, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commercial Concepts, Inc.
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(Name of Small Business Issuer In Its Charter)
Utah 87-0409620
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
324 S. 400 W. Suite B, Salt Lake City, Utah 84101
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(Address of Principal Executive Offices) (Zip Code)
(801) 328-0540
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [ x ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ ]
Registrant's revenues for the most recent fiscal year were $261,263.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of April 3, 2000 was $14,802,629. As of April 3, 2000
Registrant had 23,683,630 outstanding shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
February 29, 2000 and notes attached thereto are incorporated by reference into
Part II hereof.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [x]
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FORM 10-KSB
PART I
Item 1. Description of Business
History and Development of the Company
The Company was incorporated in the state of Utah on March 1, 1984. The
Company was originally organized to engage in the milling and recovery of
precious minerals. In November 1997, the Company's last mining asset, an option
to acquire mining property, expired. As a result, the Company changed its
business focus by acquiring the rights to certain software products developed to
fix computer date recognition problems associated with the year 2000 ("Y2K").
The Company acquired computer equipment and hired software developers to refine
and further develop the program. The software tests the internal clock found in
personal computers each time the clock is turned on to determine if the date is
correct. The Company holds a registered copyright for such software which it
began marketing in April 1998. Because of its late entry into the market, lack
of name recognition and a limited marketing network, the Company's sales of the
Y2K software were insignificant and with the advent of the year 2000 have been
discontinued.
The computer equipment acquired and software developers hired by the
Company to develop the Y2K software provided the means for the Company to become
a software development and technology company. Building on this foundation, the
Company hired a new President and Chief Executive Officer in February 1999, a
new Executive Vice President in July 1999 and a new Chief Financial Officer in
February 2000. In June 1999 the Company acquired 100% of the stock of Advice
Productions, Inc., a graphic design company specializing in customized video
marketing and training tools. From this acquisition certain assets were acquired
that enable the Company to create customized compact discs. The acquisition,
however, did not provide all the benefits the Company anticipated. As a result,
effective February 29, 2000 the Company dissolved Advice Productions and
conveyed certain assets to the previous owners of Advice Productions in return
for reconveyance to the Company of a portion of the shares of stock of the
Company which were paid to the owners in June, 1999.
Products and Services
The Company's primary focus is on the development of proprietary
"platforms" that serve as a base for subsequent development of "canned" software
programs. The Company's primary source of revenue, however, presently comes from
the development of customized software and products for clients. The Company's
programmers develop customized software programs to meet specific needs such as
data entry and retrieval, multi media and internet-based information
dissemination. The Company generally retains all rights, title and interest in
the customized software it develops, including source codes, with the
expectation that the Company will revise and improve such programs so the
programs can be "canned" and sold to other customers. In addition the Company is
currently developing several proprietary software products. The Company is also
willing to discuss development and marketing joint venture arrangements with the
owners of suitable software applications.
Electronic Brochures. Using photos, logos, advertising and other
information provided by clients, and the templates it has designed, the Company
creates customized presentations and
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advertising on compact discs. The compact discs are designed to replace
traditional printed advertising and brochures, and even business cards. The
compact discs come in a variety of designs (the most common of which is a disc
the size of a business card) and can be uniquely packaged for each client.
Because the Company uses pre-designed templates, the compact discs can be
created at an affordable cost of between $2,000 and $4,000. The average price of
compact discs from the Company's local competitors is approximately $10,000. The
Company's lower production costs give it a strategic advantage. The Company is
developing software that will permit clients to create their own presentations
using the software further reducing production costs. This software will be
introduced in the near future and as yet there is no assurance that it will be
accepted by the public.
Medical Imaging Software. The Company contracted with Intermountain
Health Care ("IHC") to develop medical imaging software ("CCI Picture Base") to
capture images generated by equipment used in medical procedures such as
ultra-sound, catheter cameras, MRI's and CAT scans. The software is designed to
store images generated during medical procedures in real time on a computer
network that can be linked to the internet. The software permits physicians and
administrators to access and notate the images during or after the procedure
from any computer on the network. IHC paid the Company a fee to finance the
development, in exchange for up to thirty operating room licenses. The Company
retains all rights, title and interest to the software and its source code. The
Company has filed a patent application to protect the source code. The product
is now patent pending.
Beta testing at IHC's Cottonwood Hospital commenced in March 2000 and
was successfully completed in May 2000. As a result IHC is exercising its option
for thirty CCI Picture Base operating room licenses. The Company is in
discussions with IHC and certain other organizations for sale of additional
licenses and accompanying hardware.
Screen Saver Technology. The Company has developed technology for an
interactive screen-saver for which a patent is pending. The screen saver
technology permits network administrators to place any image or text they choose
on the computer screen and to change or update the images as often as they
desire. The screen saver software is also interactive. A link to a web site can
be placed on the screen saver to connect users to the advertised site if the
user clicks on the link. The screen saver also monitors when the screen saver
appears, who is logged on to the computer when it appears, and records the
information for marketing purposes. The Company expects to generate revenues
from advertising, annual maintenance fees and one-time licensing.
The Company believes that there are several uses for this software.
First, businesses can use the screen saver to disseminate information and
control what employees have on their computer screens when they are not in use
since the program records when the screen saver appears. Second, schools and
other organizations can use the program to raise funds from advertising as well
as to disseminate information. Parents of school children can increase their
awareness of school activities by downloading the screensaver on their home or
office computer systems. Based on initial market research advertisers are paying
two cents per impression per day for banner advertisements. The Company
believes, although it has conducted limited research to determine, that
advertisers will pay at least one cent per impression for screen saver
advertising.
The Company faces competition in the screen saver market from numerous
competitors, some of whom have greater resources than the Company. There is also
technology presently in the market that permits network administrators to place
any image they choose on the computer screen and to update or change the images
as often as they desire. To the knowledge of the Company,
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none of the screen saver software in the market is interactive. To be exact,
none of the existing screen saver software keeps a record of when the screen
saver appears and who is logged onto the computer when the screen saver appears,
nor does such software permit links to be placed on the screen saver. The
Company believes the interactive features of its screen saver program will give
it a competitive advantage. However, there can be no assurance that the Company
will be first to market with this technology, that its patent application will
be approved or that there will be sufficient public interest to successfully
market the software.
In March 2000 the Company commenced a pilot program of screen saver
installations with local schools and non-profit organizations. The purpose of
this pilot program is to gather detailed, documented data on actual system
performance and the effectiveness of screen saver advertisements in preparation
for the Company's full-scale product introduction in Fall 2000. Local and
regional commercial organizations have placed advertisements. All funds received
during the course of the pilot program will go to the participating schools and
non-profit groups.
Sales and Marketing
The Company has three full-time sales and marketing persons who are
compensated with a combination of salary and commissions, but expects to rely on
wholesale distributors and sales persons with established distribution networks
and contacts to market its products as they are developed. Such persons or
organizations will be paid on a commission basis.
The Company intends to market its products based on their high
value-added benefits to the user and ongoing service, and not on basis of price.
The Company believes its products are priced very favorably with competitors
that have been identified to-date.
Employees
As of April 30, 2000 the Company had 14 full and part-time employees.
No union or other collective bargaining group represents the Company's
employees. Management believes the Company's relations with its employees are
good.
Item 2. Description of Property.
The Company conducts its business operations at 324 South 400 West,
Suite B, Salt Lake City, Utah, where it has approximately 7,105 square feet of
office space under lease through February 29, 2004. Under the terms of the
lease, the Company pays $6,143 per month, which amount increases by 4% annually.
There is no renewal option under the terms of this lease. The Company, however,
has an option to purchase the office building in which its offices are located
for $800,000. The option expires on October 31, 2000. Management of the Company
believes that it will either be able to negotiate a new lease on its existing
space or obtain suitable other space in the Salt Lake area upon the expiration
of the existing lease.
Item 3. Legal Proceedings
The Company knows of no litigation now pending or threatened against it
or involving any of its properties or contract rights.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter of the Company's fiscal year.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock currently trades on the NASDAQ Bulletin
Board where it has been listed since March 9, 2000. Between October 20, 1999 and
March 9, 2000 the quotation was transferred off the NASDAQ Bulletin Board to the
National Quotation Bureau's "Pink Sheets" pursuant to NASD Eligibility Rule 6530
issued on January 4, 1999, which provides that issuers who do not make current
filings pursuant to Sections 13 and 15(d) of the Securities and Exchange Act of
1934 are ineligible for listings on the NASDAQ Bulletin Board. Subsequent to
October 20, 1999 the Company prepared a complete registration statement that
brought the Company's filing status to current and permitted the March 9, 2000
re-listing to the NASDAQ Bulletin Board.
The following table sets forth the high and low bid prices for shares
of the Company's common stock for the periods noted, as reported by the National
Daily Quotation Service and the NASDAQ Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions. There was no trading of the Company's common
stock prior to the second quarter of the 1999 fiscal year.
Bid Prices
Fiscal Year Period High Low
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Feb. 29, 2000 Fourth Quarter 0.31 0.08
Third Quarter 0.20 0.06
Second Quarter 0.54 0.04
First Quarter 1.25 0.13
Feb. 28, 1999 Fourth Quarter 1.40 0.08
Third Quarter 2.98 1.25
Second Quarter 3.00 2.50
As of February 29, 2000, the Company had 23,683,630 shares of its
common stock issued and outstanding, and there were 319 record stockholders. As
of the date hereof, the Company has not paid or declared any cash dividends.
Management has followed the policy of retaining any and all earnings to finance
the development of the business. Such a policy is likely to be maintained as
long as necessary to provide working capital for the Company's operations.
On or about April 18, 2000 L&B Charitable Trust purchased 500,000
restricted common shares of the Company for $100,000. The funds will be remitted
to the Company at the rate of $20,000 per month over five months. The purchase
price also included two-year warrants to purchase an additional 500,000 common
shares of the Company at a price of $0.50 in the first year and $0.75 in the
second year. These shares were issued in reliance on Rule 506 of Regulation D
promulgated under the 1933 Act.
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Item 6. Management's Discussion and Analysis.
General
The following discussion and analysis of the Company's 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. The Company's fiscal year runs from March 1 through
the last day of February.
Effective March 1, 1998, the Company began earning revenues and was no
longer classified as a development stage company.
Results of Operations
Fiscal Year Ended February 29, 2000 Compared to the Fiscal Year Ended February
28, 1999.
Sales increased by $196,606 to $261,263 for the year ended February 29,
2000 from $64,657 for the year ended February 28, 1999. This increase was the
result of sales of Quick Fixx 2000 software and customized software and computer
products for clients. Cost of sales increased from $31,336 to $81,797 as the
result of increased sales. Gross margins on sales increased from 52% to 69% as a
result of the Company's emphasis on higher margin client software projects and
improved production techniques.
Marketing and selling expenses decreased by $35,785 or 87%, to $5,214
for the year ended February 29, 2000 from $40,999 for the comparable period in
fiscal year 1999. This decrease was the result of focusing our sales efforts for
Quick Fixx 2000 on the domestic market and only paying commissions and royalties
on product that was actually bought and paid for. Most client software projects
were not subject to commission payments. The Company expects its marketing and
selling expenses to increase in future periods as it acquires or develops
additional technology products and services.
General and administrative expenses other than marketing expenses
increased by $304,570 or 95% to $624,162 for the fiscal year ended February 29,
2000 from $319,572 for the fiscal year ended February 28, 1999. This increase
was a result of an increase in the number of employees and consultants employed
by the Company as well as travel expenses. The Company expects that such
expenses will continue to increase as the Company's operations expand and
develop.
The Company did not incur research and development expenses for the
fiscal year ended February 29, 2000, nor in the fiscal year ended February 28,
1999. The Company's practice is to emphasize development of future software
products from the proprietary product platforms it develops. The Company
develops proprietary software internally, but all related costs are expensed
until the developed product enters the beta testing stage. From the point
commercial beta testing commences until the commercial viability of a product is
established, additional development for that product will be capitalized. The
Company's research and development expenses to-date have been substantially paid
for by customers who retain the Company to develop customized software programs.
The Company typically retains all rights to the software it develops.
During the fiscal year ended February 29, 2000, the Company incurred
$5,513 of expenses in connection with the settlement of a lawsuit by Rex
Pitcher, a shareholder, against the
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Company based upon the sale by a former officer of the Company of stock of the
Company held by that officer to Mr. Pitcher. The former officer allegedly made
promises and incurred obligations that he could not legally fulfill.
Fiscal Year Ended February 28, 1999 Compared to the Fiscal Year Ended February
28, 1998.
For the first time in its operating history, the Company generated
revenue from sales in fiscal year 1999. The amount of such revenue was $64,657.
This was the result of sales of Quick Fixx 2000 software. Costs of such sales
equaled $31,336.
Although the Company did not generate revenue until fiscal year 1999,
it did incur marketing and selling expenses in the prior fiscal year. Marketing
and selling expenses increased by $35,999 or 720%, to $40,999 for the fiscal
year ended February 28, 1999 from $5,000 for the fiscal year ended February 28,
1998. This increase was the result of increased marketing efforts. The Company
expects to continue to increase its marketing and selling efforts as it acquires
or develops additional technology products and services and as the current
products are taken to market.
General and administrative expenses other than marketing expenses
increased by $277,821, or 665%, to $319,572 for the 1999 fiscal year end from
$41,751 for the 1998 fiscal year end. This increase was a result of an increase
in the number of employees and consultants employed by the Company as well as
legal expenses. The Company expects that such expenses will continue to increase
as the Company's operations expand, but at a slower rate as the Company
continues to develop.
There were no research and development costs in fiscal year 1999.
Liquidity and Capital Resources
At February 29, 2000, the Company had cash and other current assets of
$75,973 as compared to cash and other current assets of $94,535 at February 28,
1999. The decrease of $18,562 results primarily from greater product development
efforts of the Company not fully offset by revenue from sales and various
private placements of the Company's common stock. The decrease was also caused
in part by increased general and administrative costs and payments on debt
obligations. During the year ended February 29, 2000 the Company acquired
various equipment through the use of capital leases. As of February 29, 2000,
the Company had $17,432 in long-term obligations resulting from capital leases.
The Company borrowed $15,000 from an individual and an additional
$10,000 from a second individual, neither of who 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. The Company borrowed $20,000 from an individual who is not a shareholder
of the Corporation in December of 1999, pursuant to a promissory note at the
rate of 10% per annum being due and payable December 9, 2000
The Company generated $155,000 from the private placement of 700,000
shares of common stock in March of 1999. Additional private placements through
the remainder of the year totaling 1,700,000 shares yielded $178,000. The
Company issued 10,987,350 shares of common stock in lieu of cash for various
services through the year ending February 29, 2000
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totaling $384,564. From August 26, 1998 to November 28, 1998 the Company raised
a total of $310,000 from a private placement of its common stock.
Item 7. Financial Statements.
The response to this Item is submitted in a separate section to this
report. See F-1.
Item 8. Changes in and Disagreements With Accountants.
On August 31, 1999, Commercial Concepts, Inc. (the "Company")
terminated its independent auditor relationship with David T. Thomson, P.C.
("Thomson").
Thomson's report on the financial statements of the Company for the
fiscal year ended February 28, 1998, did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. The Thomson report for the fiscal year
ended February 28, 1998, contained a statement as to the ability of the Company
to continue as a going concern. Other than the foregoing, there were no adverse
opinions or disclaimers of opinions, or qualifications or modifications as to
uncertainty, audit scope or accounting principles.
During the fiscal years ended February 28, 1997, 1998, and 1999, and
the period March 1, 1999 through August 31, 1999, there were no disagreements
with Thomson on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures or any reportable events.
On September 5, 1999 the Company engaged Fitzgerald Sanders, LLC
("Fitzgerald") as its independent auditors to audit and report on the financial
statements of the Company for the fiscal year ended February 28, 1999, which had
not yet been audited.
The decision to change accountants was approved by the Company's Board
of Directors. The Company authorized Thomson to respond fully to Fitzgerald's
inquiries concerning the Company.
Prior to engaging Fitzgerald, neither the Company nor anyone acting on
its behalf consulted with Fitzgerald regarding the application of accounting
principles to any specified transaction or the type of audit opinion that might
be rendered on the Company's financial statements. In addition, during the
Company's fiscal years ended February 29, 2000 and February 28,1999 and 1998,
neither the Company nor anyone acting on its behalf consulted with Fitzgerald
with respect to any matters that were the subject of a disagreement (as defined
in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in
Item 304(a)(1)(v) of Regulation S-K).
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Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth the name, office and age of each officer
and director of the Company:
Name Title Age
George E. Richards, Jr. Chairman, President & CEO 37
Scott G. Adamson Executive Vice President & Director 43
Karl A. Hansen CFO, Secretary & Director 46
Lee R. Kunz Sr. Director 73
Wilf Blum Director 46
George E. Richards has served as Chief Executive Officer and a director
of the Company since March 1, 1999. Mr. Richards may be elected to successive
terms of office. Since June 1996, Mr. Richards has served as the President and
Director of Richards & Associates, Inc., a financial consulting firm of which
Mr. Richards is the sole shareholder. From May, 1993 to June, 1996, Mr. Richards
was employed by The Goldenberg Group, Inc., a division of Plygem, Inc. Mr.
Richards attended Cal State Fullerton.
Scott G. Adamson has served as Executive Vice President and a director
of the Company since July, 1999. Mr. Adamson may be elected to successive terms
of office. Since 1986, Mr. Adamson has served as the President and a director of
SGA Financial Group, Inc., a financial company which he founded to provide
project and debt financing, and currency conversion services. From 1981 to 1986,
Chase Manhattan employed Mr. Adamson in its Latin American division as a 2nd
Vice President. Mr. Adamson received a Bachelors of Science in Business
Administration from Weber State University in 1979 and a Masters of
International Management from the American Graduate School of International
Management in 1981.
Karl A. Hansen has served as Chief Financial Officer and Director since
February 2000. Mr. Hansen may be elected to successive terms of office. He is a
Certified Public Accountant. From June 1999 to February 2000 Mr. Hansen served
as a consultant with RHI Management Resources, providing financial consulting
services to an Internet related company. From December 1997 to May 1999, Mr.
Hansen served as CFO of East European Imports, Inc., a Miami-based importation
company. From December 1987 to 1997, Mr. Hansen served as CFO of two related
mining companies, American Pacific Mining Company and Jordex Resources, Inc.
From 1977 to 1987 Mr. Hansen worked in financial positions with Ernst & Young,
Salomon Brothers and Lever Brothers. Mr. Hansen received a Bachelor of Science
degree in management from Rensselaer Polytechnic Institute and a Bachelor of
Science degree in Accounting from the Rochester Institute of Technology, awarded
in 1977.
Lee R. Kunz Sr. has served as a director since April, 2000. He may be
elected to successive terms of office. He is the retired CEO of Kunz
Construction Company. Mr. Kunz served for 19 years on a hospital Board of
Directors and has been associated with the development of biological and
pharmaceutical companies. Mr. Kunz understands the challenges of financing for a
new company and brings solid business experience to the Company.
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Wilfred R. Blum has served as a director since November 1997. From May
1998 through February, 1999, Mr. Blum served as President and Chief Executive
Officer of the Company. Mr. Blum is a licensed real estate agent and has been
employed by Butch Johnson Realty as a land developer since 1996. Mr. Blum
attended the Northern Alberta Institute of Technology.
During the past five years none of the officers/or directors, or any of
the promoters or control persons of the Company have been partners/or executive
officers of a business less than two years from the time in which a bankruptcy
petition was filed against the business. Also, none of the officers/or
directors, or any of the promoters or control persons have been convicted in or
been the subject of any pending criminal proceedings, or the subject of any
order, judgment or decree involving the violation of any federal or state
securities laws. There is no unresolved significant litigation outstanding
against the Company or its officers and/or directors.
Compliance With Section 16 Reporting Obligations
The Directors and Executive Officers of Commercial Concepts are
required under the Securities Act of 1934 to file reports with the Securities
and Exchange Commission evidencing their ownership of, and their current
transactions in, Commercial Concepts' equity securities. This is a personal
obligation of the Executive Officers and Directors. Based on information
provided to Commercial Concepts from a review of the SEC EDGAR database, it
appears that all Directors and Executive Officers filed these reports in a
timely manner through the period ending May 26,2000 except Mr. Wilf Blum who,
based on the above information source, appears to have failed to file a Form 3
for March 7, 2000.
Item 10. Executive Compensation.
The Company has no deferred compensation plan. The following sets forth
a summary of cash and non-cash compensation for each of the last three fiscal
years ended February 29, 2000 and February 28, 1999 and 1998. Beginning in
fiscal year 2001, the Company has instituted a performance-based bonus plan for
Company management.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
Awards
Name and Fiscal Salary Bonus Restricted Options/ All Other
Principal Position Year ($) ($) Stock SARs Compensation
Awards (#) ($)
($)
<S> <C> <C> <C> <C> <C> <C>
George E. Richards, Jr. 2000 $120,000(1) $11,800(2) - - -
Chief Executive Officer 1999 10,000(3) - - - -
1998 - - - - -
Scott G. Adamson 2000 $ 73,233(4) $34,900(5) - - -
Executive Vice-President 1999 - - - - -
1998 - - - - -
</TABLE>
(1) $72,000 paid in cash and $48,000 deferred. Deferred compensation
payable by the Company to Mr. Richards in fiscal year 2001. Payment of
deferred wages will be with cash or, at the option of Mr. Richards, in
common stock of the Company valued at the average closing price of the
common shares of the Company during the periods in which Mr. Richard's
compensation was deferred.
(2) Bonus paid in stock. On December 23, 1999 the Company issued 147,500
restricted shares to Mr. Richards, valued at $.08 per share as reported
at Item 12.
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(3) Salary paid in stock. On February 3, 1999 the Company issued 50,000
shares, valued at $.20 per share as reported at Item 12.
(4) $25,305 paid in cash and $47,928 deferred. Deferred compensation is
payable by the Company to Mr. Adamson in fiscal year 2001 under the
same conditions as described for Mr. Richards in (1) above.
(5) Bonus amount consists of $9,900 paid in stock (123,750 shares of stock
of the Company, valued at $.08 per share and issued on December 23,
1999) and $25,000 deferred. The deferred bonus compensation is payable
by the Company to Mr. Adamson in fiscal year 2001 under the same
conditions as described for the payment of deferred wages for Mr.
Richards in (1) above.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of February 29, 2000 by
(i) each person known by the Company to be the beneficial owner of more than 5%
of the Company's common shares; (ii) each of the Company's directors; (iii) each
executive officer of the Company; and (iv) all the directors and executive
officers as a group (5 persons). As of February 29, 2000, the Company had
23,683,630 shares of common stock issued and outstanding.
Name and Address of Beneficial Number of Shares Percent of Class
Owner Owned
George E. Richards, Jr. 2,147,500 9.1%
1992 S. Chokecherry
Bountiful, Utah 84010
Scott G. Adamson 1,521,750 6.4%
2485 S. Elaine Dr.
Bountiful, Utah 84010
Ron Poulton Trustee of Tech Trust 2,236,000 9.4%
136 E. South Temple, Suite 1700-A
Salt Lake City, Utah 84111
Wilfred E. Blum 1,541,337(1) 6.5%
1756 E. Wasatch Blvd.
Sandy, Utah 84092
Karl A. Hansen 530,000(2) 2.2%
225 S. 200 West
Salt Lake City, Utah 84101
Lee Kunz 1,000,000 4.2%
Denver, CO
Lombardi Research Foundation 4,000,000 16.9%
47 East 400 South
Salt Lake City, UT 84111
All Officers and Directors
as a Group (5 persons) 6,740,587 28.5%
(1) Consists of 941,337 shares held by Blum, Inc., a Utah corporation, of
which Mr. Blum is a controlling shareholder, 300,000 shares held by
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Laura Blum, 100,000 shares held by Amber Blum, 100,000 shares held by
Karli Blum, 100,000 shares held by Kerri Blum (all immediate family of
Mr. Blum).
(2) Mr. Hansen will return 300,000 shares if his employment with the
Company is terminated prior to January 1, 2001.
Item 12. Certain Relationships and Related Transactions.
The information set forth herein describes certain transactions between
the Company and certain affiliated parties. Future transactions, if any, will be
approved by a majority of the disinterested members of the Company's Board of
Directors and will be on terms no less favorable to the Company than those that
could be obtained from unaffiliated parties.
On October 21, 1999 Karl Hansen accepted an offer to become the Chief
Financial Officer of the Company. The Company's offer included a bonus of
500,000 restricted common shares. If Mr. Hansen's employment with the Company is
terminated prior to January 1, 2001, 300,000 shares will be returned. Between
October 21, 1999 and February 29, 2000 Mr. Hansen purchased 30,000 free-trading
common shares of the Company.
Lee Kunz, a director of the Company since April 2000, purchased 300,000
free-trading common shares of the Company for $24,000 in November 1999, on
behalf of L&B Charitable Trust, a Colorado trust. The shares were issued in
reliance on Rule 504 of Regulation D promulgated under the 1933 Act. Mr. Kunz,
on behalf of L & B Charitable Trust, on or about February 2000 also purchased
500,000 restricted common shares of the Company for $75,000. These shares were
issued in reliance on Rule 506 of Regulation D promulgated under the 1933 Act.
On or about January 2000, Mr. Kunz on behalf of L & B Charitable Trust purchased
200,000 restricted common shares of the Company for $20,000 received by the
Company. The 200,000 shares acquired by L & B Charitable Trust were a part of
the 2,198,000 shares issued to Scott G. Adamson, the Executive Vice President of
the Company, in August 1999. The shares were endorsed to L & B Charitable Trust
in March 2000.
On or about April 18, 2000 L&B Charitable Trust purchased 500,000
restricted common shares of the Company for $100,000. The funds will be remitted
to the Company at the rate of $20,000 per month over five months. The purchase
price also included two-year warrants to purchase an additional 500,000 common
shares of the Company at a price of $0.50 in the first year and $0.75 in the
second year. These shares were issued in reliance on Rule 506 of Regulation D
promulgated under the 1933 Act.
Ron Poulton, the trustee of Tech Trust, a shareholder owning more than
five percent of the outstanding shares of stock of the Company, rendered legal
services to the Company from 1985 to November 1999. Legal fees and expenses paid
or payable to Mr. Poulton in the twelve-month period ended February 29, 2000
totaled $28,988 and totaled $57,862 and $5,700 for the fiscal years ended
February 28, 1999 and 1998, respectively.
On December 23, 1999 the Company issued 147,500 shares of common stock
to Richards & Associates, Inc., a Utah corporation, of which Mr. George E.
Richards, Jr., the President and Chief Executive Officer of the Company, is the
sole shareholder, 123,750 shares to Scott Adamson, its Executive Vice President,
69,300 shares to Larry D. Rogers, its Vice-President, and an aggregate of
134,500 shares to all other employees as year-end employment bonuses.
On December 15, 1999 the Company agreed to issue an option to purchase
500,000 shares of common stock, at an exercise price of $0.104 per share, to Mr.
Wilfred Blum, a director
13
<PAGE>
of the Company, as repayment of $52,000 of reimbursements and other expenses
allegedly owed by the Company to Mr. Blum. The Company has negotiated a written
agreement regarding the same with Mr. Blum.
In August of 1999 the Company reached an oral agreement with
Cybercenters International, Inc. ("Cybercenters"), a principal shareholder of
which is Scott Adamson, an Executive Vice President of the Company, to acquire
all of the issued and outstanding stock of Cybercenters after February 28, 2000.
As part of the transaction, the Company issued 342,000 shares of stock to three
shareholders of Cybercenters in consideration of an oral agreement by such
persons to pay an aggregate of $18,642 to the Company. Mr. Adamson was issued
2,198,000 shares of common stock in consideration of an oral agreement to pay
$131,880 to the Company. The foregoing obligations are not due and payable until
the stock is sold. Mr. Adamson subsequently endorsed 800,000 of the 2,198,000
common shares issued to him to other investors for the benefit of the Company.
All funds realized by such sales were remitted directly to the Company and
partially offset Mr. Adamson's indebtedness to the Company. No interest accrues
on the obligations.
In July of 1999, Richards & Associates, Inc., a Utah corporation, of
which Mr. Richards is the sole shareholder, and Wilfred Blum, a director of the
Company, each pledged 2,000,000 shares of stock personally held by them (for an
aggregate amount of 4,000,000 shares) to Lombardi Research Foundation to secure
a short-term loan to the Company in the amount of $30,000. The proceeds of the
loan were used to finance a business development trip to China and to purchase
assets for the Company. The loan was to be repaid on or before August, 1999.
When the loan was not repaid by August, 1999, Lombardi Research Foundation
caused all 4,000,000 shares to be transferred to it pursuant to a security
agreement. The shares pledged by Richards & Associates to secure the loan were
issued to it on May 5, 1999 as described below. The shares pledged by Mr. Blum
however, were issued to Mr. Blum by the Company's transfer agent at Mr. Blum's
request without the approval of the Company's Board of Directors. Since all of
the proceeds of the loan were used for the Company's benefit, on December 23,
1999, the Company issued 2,000,000 shares of common stock to Richards &
Associates to replace the shares that were transferred to Lombardi. The Company
did not issue replacement shares to Mr. Blum. The Company has also implemented
certain procedures to prevent the issuance of stock without the approval of the
Company's Board of Directors.
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 Chief
Executive Officer and President, George E. Richards, Jr., is the sole
shareholder, in consideration of an oral agreement to pay the Company $120,000.
The obligation is not payable until the shares of stock are sold and no interest
accrues on the obligation.
The Company paid Albert Fretz, who at the time of the transaction was
an officer of the Company, a royalty fee of $6,750 for the year ended February
28, 1999 in relation to sales of Quick Fixx 2000 software.
On January 25, 1999, the Company issued 2,000,000 shares of restricted
common stock valued at $.06 per share, for a total amount of $120,000 to Wilfred
Blum, a director of the Company and its former Chief Executive Officer and
President. Of the shares issued, 1.6 million shares or $96,000 worth of stock
was issued for services rendered to the Company during the fiscal year ended
February 28, 1999, and 400,000 shares, or $24,000 worth of stock was issued to
repay cash advances to the Company. On or about July 1999, the Company loaned
$12,340 to
14
<PAGE>
Mr. Blum. No note was executed for this advance. The loan did not bear interest.
The loan was repaid in Calendar year 2000.
On February 3, 1999, the Company issued 50,000 shares of restricted
common stock valued at $.20 per share, for a total amount of $10,000 to Richards
& Associates, Inc., a Utah corporation, of which Mr. George E. Richards, Jr.,
the current Chief Executive Officer and President of the Company, is the sole
shareholder, for services rendered by Mr. Richards to the Company during the
fiscal year ended February 29, 1999.
Item 13. Exhibits and Reports on Form 10-KSB
The following Exhibits are filed herewith pursuant to Rule 601 of
regulation S-B or are incorporated by reference to previous filings.
2.1 Articles of Incorporation*
2.2 Bylaws*
6.1 Lease Agreement, dated November 10, 1999*
6.2 Office Building Lease, dated February 18, 1999*
6.3 First Amendment to Office Building Lease, dated October 5,
1999*
6.4 Agreement to Develop Software, dated 7/27/99*
10.1 Consent of Fitzgerald Sanders, LLC*
10.2 Consent of David T. Thomson, P.C.*
10.3 Settlement Agreement and General Release with Larry Rogers
23.1 Consent of Fitzgerald Sanders, LLC
27.1 Financial Data Schedule
* Incorporated by reference from Registration Statement on Form 10, as
filed on March 6, 2000.
15
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Commercial Concepts, Inc.
By /George Richards Jr.
--------------------
George Richards, Jr.
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By /Scott Adamson
----------------------
Scott Adamson
Executive Vice-President
By /Karl Hansen
-----------------------
Karl Hansen
Chief Financial Officer
16
<PAGE>
COMMERCIAL CONCEPTS, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
FEBRUARY 29, 2000, AND FEBRUARY 28, 1999 AND 1998
WITH ACCOUNTANTS' REPORT THEREON
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
of Commercial Concepts, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Commercial Concepts, Inc. (a
Utah corporation) as of February 29, 2000, and February 28, 1999, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements and
supplementary information of Commercial Concepts, Inc. as of February 28, 1998
were audited by other auditors whose report dated March 11, 1998, on those
statements included an explanatory paragraph that described a substantial doubt
about the Company's ability to continue as a going concern due to losses from
operations and limited working capital discussed on Note 4 to the financial
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commercial Concepts, Inc. as of
February 29, 2000 and February 28, 1999, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements as of February 29, 2000, have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 4 to the financial statements, the Company has suffered
recurring losses from operations and has limited working capital. The factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 4. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Salt Lake City, Utah
May 17, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
BALANCE SHEETS
February 29, 2000 and February 28, 1999
ASSETS 2000 1999
-------------- --------------
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 31,171 77,695
Accounts receivable 37,811 -
Due from officer - 12,340
Inventory - 4,500
Prepaid expenses 6,991 -
-------------- --------------
Total current assets 75,973 94,535
-------------- --------------
EQUIPMENT
Equipment 86,140 38,033
Leasehold improvements 7,000
Less: accumulated depreciation (22,810) (7,213)
Net property and equipment 70,330 30,820
-------------- --------------
OTHER ASSETS
Software marketing rights 100 100
-------------- --------------
TOTAL ASSETS $ 146,403 125,455
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 106,902 55,661
Accrued expenses 162,363 -
Long-term debt - short term 49,514 -
-------------- --------------
Total Current Liabilities 318,779 55,661
-------------- --------------
Long term debt 17,432 -
-------------- --------------
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 50,000,000 shares
authorized, 23,683,630, and 9,136,280 shares
issued and outstanding, respectively 23,683 9,136
Stock subscriptions receivable (225,922) -
Additional paid-in capital 2,015,357 1,231,580
Accumulated Deficit (2,002,926) (1,170,922)
-------------- --------------
Total Stockholders' Equity (189,808) 69,794
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 146,403 125,455
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF OPERATIONS
Years Ended February 29, 2000, and February 28, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
REVENUES:
<S> <C> <C> <C>
Sales $ 261,263 64,657 -
------------- ------------- -------------
Total Revenues 261,263 64,657 -
Less cost of goods sold 81,797 31,336 -
------------- ------------- -------------
Gross Profit 179,466 33,321 -
------------- ------------- -------------
EXPENSES
General and Administrative expenses 630,997 360,571 46,751
Services provided for common stock 239,402 121,275 -
Bad Debts 55,770 - -
Depreciation 15,597 6,203 24,421
Abandoned Acquisitions 80,000 - 83,600
African project-funds transferred
to other members of venture - - 43,357
------------- ------------- -------------
Total Expenses 1,021,766 488,049 198,129
------------- ------------- -------------
NET LOSS FROM OPERATIONS (842,300) (454,728) (198,129)
OTHER INCOME (EXPENSE)
Miscellaneous income 15,806 - 1,244
Interest income - 159 19
Interest expense (5,510) (2,630) -
------------- ------------- -------------
NET LOSS $ (832,004) (457,199) (196,866)
============= ============= =============
LOSS PER SHARE $ (.05) (.08) (0.04)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 29, 2000, and February 28, 1999 and 1998
Paid - In
Common Stock Capital in
------------ Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ ---------- -------
<S> <C> <C> <C> <C>
Balance, February 28, 1997 4,700,930 $ 4,701 706,340 (516,857)
Issuance of shares for software and
documentation at par value ($.001)
February 1998 100,000 100 - -
Contributed capital, January and
February, 1998 - - 16,000 -
Issuance of common stock for cash at
$2.00 per share, February, 1998 2,500 2 4,998 -
Net loss for the year ended
February 28, 1998 - - - (196,866)
--------- --------- --------- ----------
BALANCE, February 28, 1998 4,803,430 $ 4,803 727,338 (713,723)
Issuance of common stock for cash at
various dates during the year 1,221,000 1,671 315,500 -
Issuance of common stock for services at
various dates during the year 2,472,850 2,000 114,150 -
Issuance of common stock for
repayment of officer advances at various
dates during the year 639,000 662 74,592 -
Net loss for the year ended
February 28, 1999 - - - (457,199)
--------- --------- --------- ----------
Balance, February 28, 1999 9,136,280 $ 9,136 1,231,580 (1,170,922)
</TABLE>
The Accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 29, 2000, and February 28, 1999 and 1998 (Continued)
Paid - In
Common Stock Capital in
------------ Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ ---------- -------
<S> <C> <C> <C> <C>
Balance February 28, 1999 9,136,280 $ 9,136 1,231,580 (1,170,922)
Issuance of common stock
for acquistions 700,000 700 79,600 -
Issuance of common stock for repayment
of loans 100,000 100 - -
Litigation settlement, Note 11 360,000 360
Issuance of common stock for cash at
various dates during the year 2,400,000 2,400 330,600 -
Issuance of common stock for services at
various dates during the year 10,987,350 10,987 373,577 -
Net loss for the year ended
February 29, 2000 - - - (832,004)
---------- --------- --------- ----------
Balance, February 29, 2000 23,683,630 $ 23,683 2,015,357 (2,002,926)
========== ========= ========= ==========
</TABLE>
The Accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC
STATEMENTS OF CASH FLOWS Years
Ended February 29, 2000, and February 28, 1999 and 1998
2000 1999 1998
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) from current operations $ (832,004) $ (457,199) $ (196,866)
Items not requiring current cash flows: - - -
Services paid in stock 239,402 121,275 -
Decrease in officer loans paid in stock - 28,929 -
Depreciation 15,597 6,203 24,421
Loss on building reconveyance - - 83,600
Assets conveyed to individuals as
compensation - - 21,092
Changes in assets and liabilities
(Increase) in deposits - 5,385 (5,385)
(Increase) in prepaid expense (6,991) - -
(Increase) in accounts receivable (37,811) - -
(Increase) in inventory 4,500 (4,500) -
(Increase) decrease in stock sales
receivable - - 30,023
(Decrease) increase in accounts payable 51,241 46,561 8,382
(Decrease) increase in accrued expenses 162,363 - (7,488)
Increase (decrease) in franchise taxes - (905) 100
----------- ----------- ------------
Net Cash Flows used in Operating Activities (403,703) (254,251) (42,121)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (32,537) (11,831) (7,850)
----------- ----------- ------------
Net Cash Flows used in Investing Activities (32,537) (11,831) (7,850)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash receipts from sale of stock and capital
contributions 333,000 311,800 21,000
Increase in stockholder loans 45,000 - -
Stockholder loan repayment 12,340 - -
Stockholder loans (624) 31,256 4,725
----------- ----------- ------------
Net Cash Flows from Financing Activities 389,716 343,056 25,725
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended February 29, 2000, and February 28, 1999 and 1998
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ (46,524) 76,974 (24,246)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 77,695 721 24,967
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,171 $ 77,695 721
=========== =========== ============
SUPPLEMENTAL INFORMATION:
CASH PAID FOR:
Interest $ 5,510 $ 2,630 -
=========== =========== ============
Income taxes $ 100 $ 100 100
=========== =========== ============
NON CASH TRANSACTIONS
Shares issued to pay for services $ 384,564 $ 116,150 -
=========== =========== ============
Shares conveyed to officers for loan
repayments $ - $ 28,929 21,092
=========== =========== ============
Shares issued for software and documentation $ - $ - 100
=========== =========== ============
Equipment purchased for debt $ 25,570 $ - -
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
Our report on our audits of the basic financial statements of Commercial
Concepts, Inc. for February 29, 2000 and February 28, 1999 appears on page 2.
These audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary Schedule of General and
Administrative Expenses is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic statements taken as a whole. The supplementary
information of Commercial Concepts, Inc. as of February 28, 1998, was audited by
other auditors whose report dated March 11, 1998, expressed an unqualified
opinion on that supplementary information.
Salt Lake City, Utah
May 17, 2000
F-9
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL CONCEPTS INC.
Schedule of General and Administrative Expense
Years Ended February 29, 2000, and February 28, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Accounting $ 11,735 6,353 4,880
Bank Charges 1,002 2,091 622
Taxes and licenses 14 1,798 -
Consulting fees 387,857 16,090 26,211
Education and seminars - - 64
Postage and deliveries 3,314 1,058 -
Salaries and wages - 131,765 -
Liability insurance 783 - -
Health insurance 22,664 - -
Investor relations 1,912 - 1,292
Janitorial - - -
Laboratory supplies - - -
Legal 53,641 57,862 5,700
Maintenance and repairs 3,288 3,385 81
Marketing 5,214 40,999 5,000
Meals and entertainment 2,339 - -
Office lease 27,786 - 1,340
Office supplies and expense 3,787 8,346 78
Rental equipment 11,648 - -
Subcontractors - - -
Tools 5,582 1,755 424
Telephone 27,911 21,348 105
Travel 52,148 24,751 594
Rent - 31,247 -
Utilities 394 859 250
Other Expenses 6,257 10,864 10
State franchise tax 100 100 100
----------- ----------- -----------
Total general and administrative expense $ 629,376 $ 360,571 46,751
=========== =========== ===========
</TABLE>
F-10
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1998
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.
F-11
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 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. There are no options or warrants outstanding to
acquire the stock of the Company as of February 28, 1999.
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.
NOTE 3 - SOFTWARE DEVELOPMENT COSTS
The Company has capitalized the acquisition cost of Quick Fix 2000, a Y2K fix,
but no other software costs have been capitalized. 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.
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.
F-12
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 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 -
------- ----------
$1,790,202 $1,762,081
========== ==========
F-13
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 CONTINUED
NOTE 6 - NOTES PAYABLE
Long
Current Term Total
Note payable to individual, dated August 16,
1999, due February 12, 2000, with interest at
10% annually. Includes conversion option to
exchange for 100,000 shares of restricted
Company stock. Holders intends to exercise
conversion option. $ 15,000 - 15,000
Note payable to individual, dated August 16,
1999, due February 12, 2000, with interest at
10% annually. Terms include conversion option
to exchange 40,000 shares of Company stock.
Holder intends to exercise conversion option. 10,000 - 10,000
Note payable to individual, dated December 9,
1999, due December 9, 2000 at 10% interest
annually. Terms include option to convert
200,000 shares of Company stock. 20,000 - 20,000
Obligations under capital leases 4,514 17,432 21,946
-------- ------ ------
$ 49,514 17,432 66,946
======== ====== ======
Long term debt at February 29, 2000 is scheduled to mature as follows:
2001 49,514
2002 4,514
2003 4,514
2004 4,514
2005 3,890
NOTE 7 - 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.
F-14
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 CONTINUED
NOTE 7 - 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 8- 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.
Effecive 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 9 - 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.
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.
The Company paid an officer a royalty fee of $6,750 for the year ended February
28, 1999.
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. Company management expects this will be repaid in the
following fiscal year.
F-15
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 CONTINUED
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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.
NOTE 10 - LEASE COMMITMENTS
As of February 29, 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
------ ------
2000 ................................... $ 73,713 $ 8,064
2002 ................................... 76,656 8,064
2003 ................................... 79,716 8,064
2004 ................................... 82,908 8,064
----------
2005 ................................... - 6,362
---------
Total minimum lease payments $312,993 38,618
========
Less amount representing interest 16,672
------
Present value of net minimum lease payments 21,946
Less current portion 4,514
---------
Total $ 17,432
=========
As of February 29, 2000, the Company has equipment purchased under noncancelable
capital leases with a cost of $22,570 and accumulated amortization of $1,042.
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.
F-16
<PAGE>
COMMERCIAL CONCEPTS, INC
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 CONTINUED
NOTE 11 - 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.
F-17
