FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal years ended April 30, 1996 and April 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
` ---------------- ----------------
Commission file Number: 33-30367-D
COMMERCIAL ACQUISITIONS CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1099421
------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1614 15th Street, Second Floor
Denver, Colorado 80202-1304
--------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (303) 629-8777
Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None
--------------
(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 and, (2) has been subject to such filing requirements
for the past 90 days.
YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
As of January 31, 1997, the aggregate market value of the Registrant's
voting stock held by nonaffiliates was zero because there was no reported bid
price of the common stock on such date.
As of January 31, 1997, Registrant had 58,501,000 shares of its $.0001 par
value common stock issued and outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business. The Company was formed under the laws
of the state of Colorado on July 29, 1988. On October 26, 1989, the Company's
Registration Statement on Form S-18 was declared effective by the United States
Securities and Exchange Commission ("SEC"). The Company offered 60,000,000
Units, each consisting of one share of no par value Common Stock, one Class A
Warrant, one Class B Warrant and Class C Warrant. On February 16, 1990, the
Company closed the public offering described in the aforementioned registration
statement and received gross proceeds of $300,010 from the sale of 30,001,000
Units. Net proceeds after deducting the costs of the offering were approximately
$245,000.
From inception through July, 1991, the Company's primary focus was to
attempt to acquire one or more business opportunities. During that period of
time, management of the Company evaluated a number of business opportunities and
conducted varying degrees of investigation into several business opportunities.
While the Company continues to evaluate business opportunities as they present
themselves, at this time the Company has not consummated an acquisition or
entered into any agreement to do so with any business opportunity.
After considerable research, management of the Company elected to enter
into the business of commercial accounts receivable financing as a "factor."
This business is the purchase of commercial accounts receivable falling into the
three categories of short term obligations rated as commercial accounts, i.e.,
those companies with Dun & Bradstreet credit ratings commensurate with the
credit the Company proposed to extend; oil and gas receivables from similarly
rated companies; and government invoices, i.e., the "net 30" invoices due
business from federal, state and local government agencies. The use of funds
from the Company's offering to enable the Company to enter into the factoring
business was approved by the Company's shareholders in July, 1991. In September,
1991, the Company began its factoring business.
The Company is still in the development stage. Through April 1996, the
Company purchased approximately $80,000 in accounts receivable in a limited
number of transactions with a few customers. In doing so, the Company had
limited success in these transactions and volume was insufficient to enable the
Company to reach profitability. Therefore, management elected to no longer
pursue the business of commercial accounts receivable financing and elected to
enter into the business of buying, selling and managing commercial real estate.
Through February 4, 1997, the Company has neither purchased nor sold any
commercial real estate, but the Chairman of the Board of the Company has entered
into a contract to purchase a medical office building on behalf of the Company.
There can be no assurance that the transaction to purchase the medical office
building will close or that the Company will be active in the investment,
purchase and management of commercial real estate. Other business acquisitions
or opportunities for the Company continue to be pursued by the management of the
Company.
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(b) Financial Information About Industry Segments. Not applicable.
(c) Narrative Description of Business.
(i) Products and Services. Until 1997, the Company was in the business of
purchasing commercial accounts receivable at a discount from their face value
and collecting a fee or "factoring charge" based upon the amount of time any
single receivable remained unpaid. The primary marketing of the Company's
factoring business was aimed directly at the business community via the existing
business contacts of the Company's management and such referrals as are made
available to the Company. These included the referral of business from other
companies active in factoring and marketing presentations made to businesses and
associations. The Company's factoring efforts were confined to the state of
Colorado. The Company has elected to no longer pursue the factoring business but
has elected to enter the commercial real estate market.
(ii) Status of Product. Not applicable.
(iii) Raw Materials. Not applicable.
(iv) Patents, Trademarks and Licenses. Not applicable.
(v) Seasonality. The management of the Company does not believe that the
Company's business is seasonal.
(vi) Working Capital Items. Not applicable.
(vii) Customer Dependence. For the fiscal years ended April 30, 1996 and
April 30, 1995, the Company received 69% and 30%, respectively, of its revenue
from Zitzner Construction, Inc. and 31% and 35%, respectively, from Richard T.
Wehrle, Esq. For the fiscal year ended April 30, 1995, the Company received 35%
of its revenue from Reginald H. Martin, CPA. See Note 7 to Notes to Financial
Statements.
(viii) Backlog of Orders. Not applicable.
(ix) Government Contracts. Not applicable.
(x) Competition. There is substantial competition in the investment,
purchase and management of commercial real estate. The Company is relatively
small with respect to other companies active in the commercial real estate
market. Many of these competitors have been in business longer than the Company
and have materially greater financial and personnel resources available to them
than the Company. The Company is, therefore, at a competitive disadvantage when
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compared directly to other larger businesses investing in, purchasing and
managing commercial real estate. However, the existing business contacts of the
Company's management have enhanced the initial efforts of the Company in
entering into the commercial real estate market.
In the business of seeking business combinations, the Company is and will
continue to be an insignificant participant in this industry for the foreseeable
future. There are a large number of established and well financed entities
active in business combinations and many are substantially larger and have more
resources and many other factors that place them in a better position to finance
the efforts required to locate, evaluate and consummate a business combination.
(xi) Research and Development. Not applicable.
(xii) Environmental Regulation. Not applicable.
(xiii) Employees. The Company currently has no employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales. Not applicable.
ITEM 2. PROPERTIES
The Company currently maintains its office in space subleased on a
month-to-month basis from David J. Clamage, the Chairman of the Board of the
Company, pursuant to terms requiring a monthly rental of approximately $571 plus
the payment of direct expenses such as postage and long distance telephone
charges.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the Company's fiscal quarters ended June 30, 1996 and June 30, 1995,
respectively.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information. The Company's Common Stock has been publicly traded
since February, 1990. There currently is no active trading market in the Common
Stock.
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(b) Holders. The number of shareholders of record of Common Stock of the
Company as of January 31, 1997 was 96.
(c) Dividends. The Company has never paid a cash dividend and does not
anticipate paying dividends in the foreseeable future. There are no current
restrictions on the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which is
qualified in its entirety by the more detailed financial information and notes
thereto appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) ... $ (11,665) $ (23,877) $ (51,770) $ (32,533) $ (72,480) $ (94,650)
Net Income (Loss) per
Share of Common Stock $ (.001) $ (.001) $ (.001) $ (.001) $ (.001) $ (.002)
Weighted Average
Number of Shares
Outstanding ......... 58,501,000 58,501,000 58,501,000 58,501,000 58,501,000 58,501,000
<CAPTION>
April 30,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Working Capital ..... $ 15,035 $ 26,497 $ 44,352 $ 62,787 $ 96,095 $ 135,519
Total Assets ........ $ 15,035 $ 28,935 $ 51,610 $ 83,947 $ 100,125 $ 146,773
Total Liabilities ... - 0 - $ 2,235 $ 1,033 - 0 - 1,600 $ 8,688
Total Long-Term
Liabilities ......... - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Total Stockholders'
Equity .............. $ 15,035 $ 26,700 $ 50,577 $ 83,947 $ 98,525 $ 138,085
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of April 30, 1996, the Company had approximately $5,534 in cash and
$9,501 in notes and other receivables, and had no long term notes receivable or
liabilities. This represents a static portfolio of factoring activity and the
conversion of several factored receivables to term notes.
The Company will seek to maintain the integrity of these assets to preserve
its value as a business engaged in the investment, purchase and management of
commercial real estate and seeking other business opportunities. The Company may
incur significant capital expenditures in the purchase of commercial real
estate. The Chairman of the Board of the Company has entered into a contract to
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purchase a medical office building on behalf of the Company. There can be no
assurance that the transaction to purchase the medical office building will
close. The Company has no other material commitments for capital expenditures
nor is it obligated to provide funds to any factoring relationship. As the
growth of the Company's commercial real estate business continues and/or a
business combination takes place, the Company's liquidity and commitments for
capital expenditures could change materially.
Results of Operations
During the year ended April 30, 1996, the Company lost $11,665 on operating
revenue of $2,882 and $1,338 in interest income derived from the conversion of
several factored accounts receivable to term notes. During the years ended April
30, 1995 and 1994, the Company lost $23,877 and $51,770, respectively on
operating revenues of $1,629 and $5,882 for the respective years then ended.
Interest revenue for the years ended April 30, 1995 and 1994 was $7,879 and
$9,779, respectively. The overall decrease in revenue and expense for the year
ended April 30, 1996, as compared to the year ended April 30, 1995, resulted
from a decrease in factoring activity and decline in expenses due to limited
activity of the Company. The Company has limited working capital to enter into
factoring arrangements. The same is applicable when comparing the fiscal years
ended April 30, 1995 to April 30, 1994, generally recognizing the overall
decrease in activities of the Company.
Net cash used in operations of $5,497 and $15,096 for the fiscal years
ended April 30, 1996 and April 30, 1995 were the result of the net loss offset
by advances effectively repaid by the affiliated entity, generally through
application of rent payments to offset the advance. Net cash used in operations
of $23,578 for the year ended April 30, 1994 was the result of a net loss of
$51,770 plus non-cash net expense of $38,532 (comprised of amortization and
depreciation, contribution of consulting services, and bad debt expense) and
increases in operating assets and liabilities totaling $12,406 (primarily an
increase in other receivable).
Net cash provided by (used in) investing activities by the Company was
$9,796, $11,052 and $22,523 in fiscal years ended April 30, 1996, 1995 and 1994,
respectively. The Company used cash in investing activities for capital
expenditures of $913 in fiscal 1994, but did not use cash in investing
activities for capital expenditures during fiscal 1996 and 1995. The Company
used $5,450, $24,121 and $17,935 to purchase factored receivables and received
$15,246, $35,173 and $41,371 from maturing factored receivables in fiscal years
ended April 30, 1996, 1995 and 1994, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required to be filed hereunder are listed under
Item 14 and are attached hereto following the signature page.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a),(b) and (e) Identification and Business Experience of Directors and
Executive Officers.
The following table sets forth the name, age and position of each officer
and director of the Company:
<TABLE>
<CAPTION>
Name and Address Age Position Period
- - ---------------- --- -------- ------
<S> <C> <C> <C>
David J. Clamage 42 Chief Executive Officer and Since Inception
1614 15th Street, 2nd Floor Chairman of the Board of Directors
Denver, CO 80202
John Hawley Atkinson, Jr. 48 President, Treasurer and Director Since Inception
16002 South 13th Place
Phoenix, AZ 85048
Dennis C. Haynes 54 Director Since Inception
3064 E. Stella Lane
Phoenix, AZ 85016
Kenneth R. Shwayder 56 Director and Secretary Since
7454 East Jefferson Drive November, 1988
Denver, CO 80237
</TABLE>
All directors of the Company will hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified or
until their death, resignation or removal. The bylaws of the Company provide
that the number on the Board of Directors shall be determined by resolution of
the Board of Directors which currently provides that there shall be five
directors.
The officers of the Company are elected at the annual meeting of the Board
of Directors and hold office until their successors are chosen and qualified or
until their death, resignation or removal.
The following tabulates information regarding the principal occupations of
the directors and executive officers of the Company for at least the last seven
years.
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David J. Clamage. Mr. Clamage has been the President of Saulsbury Hill
Financial, a commercial and government finance sole proprietorship, since 1976.
Mr. Clamage has also been a partner in The Advisory Group, a financial
consulting practice for businesses and institutional lenders, since April 1988,
and the President of TBC Aviation/Logistic Services, a company that provides
acquisition and lease/finance services for corporate and transport category
aircraft and provides computer software services, since 1976. Mr. Clamage is a
member of the Western Association of Equipment Lessors and served as the
Regional Chairman for Colorado in 1986, 1987 and 1988.
John Hawley Atkinson, Jr. Mr. Atkinson was the President of Atkinson &
Associates, Inc., a business consulting firm, from June 1985 to February 1989,
and has been the President of Atkinson & Associates since May 1992. From
February 1989 to May 1992, Mr. Atkinson was a Senior Manager or Manager with
KPMG Peat Marwick, an accounting firm. Mr. Atkinson has also been a partner of
The Advisory Group, a financial consulting practice for businesses and national
lenders, since April 1988. From 1982 to 1985, Mr. Atkinson was Executive Vice
President and Chief Financial Officer of Velocity Software Corporation, a
software development and computer retailing firm. From 1978 to 1982, Mr.
Atkinson was a consultant or senior consultant with Peat, Marwick Mitchell &
Co., an accounting firm. Mr. Atkinson received a Bachelor of Science degree in
General Business from Arizona State University and a Master of Business
Administration degree from the University of Chicago. Mr. Atkinson is a
Certified Management Accountant.
Dennis C. Haynes. Mr. Haynes is currently an independent consultant in the
business of lease financing and has served as a partner in Saulsbury Hill
Financial since 1993. Mr. Haynes was Regional Manager for Northern California
with Bell Atlantic Tricon, an equipment leasing firm, from 1987 through 1993.
From 1982 to 1987, Mr. Haynes was the president of ELF Enterprises, Inc., an
equipment leasing firm. From 1979 to 1982, Mr. Haynes was Regional Manager for
the equipment leasing division of United California Banks (subsequently First
Interstate Banks). Mr. Haynes has also been a partner in The Advisory Group, a
financial consulting practice for businesses and institutional lenders, since
1984. Mr. Haynes received a Bachelors degree in business administration from the
University of Colorado.
Kenneth R. Shwayder. Mr. Shwayder has been a real estate broker with Keller
Williams Realty of Denver since 1994. From 1990 to 1994, Mr. Shwayder was a real
estate broker with Re/Max Southeast. From 1987 to 1989, Mr. Shwayder was on the
faculty of The Center for Management and Development of the University of
Denver. In January 1987, Mr. Shwayder revised the course materials and relocated
a program with Denver Public Schools through the Emily Griffith Opportunity
School. Mr. Shwayder currently functions as a director and a teacher of that
program. From 1980 through 1987, Mr. Shwayder owned and operated the Shwayder
Real Estate Academy which trained persons to become real estate salesmen and
brokers. Prior thereto, Mr. Shwayder had various real estate teaching and sales
positions. Mr. Shwayder is a Colorado licensed real estate broker and has had
many positions with various real estate organizations, including memberships in
the National Association of Realtors, the Colorado Association of Realtors and
the Denver Board of Realtors. Mr. Shwayder is a past President and a past
director of the Colorado Real Estate Educators Advisory Committee and a past
member of the University of Denver Real Estate Construction Management Advisory
Board.
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(c) Identification of Certain Significant Employees.
Not applicable.
(d) Family Relationships.
No family relationships exist between any directors or executive officers
of the Company that are not more remote than first cousins.
(f) Involvement in Certain Legal Proceedings.
Kenneth Shwayder filed personal bankruptcy in October, 1991. The filing has
had and will have no impact whatsoever on the Company. Mr. Shwayder's bankruptcy
was necessitated by losses incurred as a result of investing most of his liquid
assets in what he believes was a fraudulent "hedge fund."
(g) Promoters and Control Persons.
Not applicable.
(h) Compliance With Section 16(a) of the Securities Exchange Act of 1934.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
(a)(1) and (2) Cash Compensation and Bonuses and Deferred Compensation.
Since September, 1991, the officers and directors of the Company have
foregone any compensation. Consulting fees may be reinstated and salaries may
commence in the future. All officers and directors are reimbursed at cost for
any accountable expenses incurred on behalf of the Company. During the Company's
fiscal years ended April 30, 1996 and April 30, 1995, no services were
contributed by members of management.
(b) Summary Compensation Table.
No compensation was paid to officers during the Company's fiscal years
ended April 30, 1996 and April 30, 1995.
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(c) Option/SAR Grants Table.
Not applicable.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table.
Not applicable.
(e) Long-Term Incentive Plan ("LTIP") Awards Table.
Not applicable.
(f) Defined Benefit or Actuarial Plan Disclosure.
Not applicable.
(g) Compensation of Directors.
No compensation was paid to directors during the fiscal years ended April
30, 1996 and April 30, 1995.
(h) Employment Contracts and Termination of Employment and Change-in-
Control Arrangements.
Not applicable.
(i) Report on Repricing of Options/SARs.
Not applicable.
(j) Additional Information with Respect to Compensation Committee
Interlocks and Insider Participating in Compensation Decisions.
Not applicable.
(k) Board Compensation Committee Report on Executive Compensation.
Not applicable.
(l) Performance Graph.
Not applicable.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of January 31, 1997, the number of shares
of the Company's Common Stock and percentage of the outstanding shares of the
Company's Common Stock owned beneficially (1) by each executive officer and
director of the Company; (2) by all executive officers and directors of the
Company as a group; and (3) by all persons who are known to the Company to own
5% or more of the Company's outstanding Common Stock.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned of Class
- - ------------------- ------------------ ----------
David J. Clamage 6,650,000 11.4%
1614 15th Street, 2nd Floor
Denver, Colorado 80202
John Hawley Atkinson, Jr. 1,075,000 1.8%
16002 South 13th Place
Phoenix, Arizona 85048
Dennis C. Haynes 2,000,000 3.4%
3064 E. Stella Lane
Phoenix, Arizona 85016
Kenneth R. Shwayder 2,500,000 4.3%
7454 East Jefferson Drive
Denver, Colorado 80237
All officers and directors 13,150,000 22.5%
as a group (4 persons)
Elwood B. Bredell, Jr. 5,000,000 8.5%
1756 Martingale Avenue
Las Osos, California 93402
- - -----------------------
(c) Changes in Control.
There are presently no arrangements of any kind which may at a subsequent
date result in a change in control of the Company.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b) Transactions With Management and Others and Certain Business
Relationships.
The Company has entered into an oral agreement with David J. Clamage, an
officer and director of the Company, pursuant to which the Company subleases
office space from Mr. Clamage for $571 per month on a month-to-month basis and
reimburses Mr. Clamage for expenses incurred by Mr. Clamage on behalf of the
Company. The Board of Directors of the Company believes that the terms of this
rental arrangement with David J. Clamage are fair and reasonable to the Company
and are at least as favorable as those which could have been negotiated with an
unaffiliated party.
For the fiscal years ended April 30, 1996 and 1995, the Company has a
receivable with a related entity owned by David J. Clamage for payments made on
behalf of the related entity for rental and expense obligations incurred.
Repayment will be an offset against future rental and administrative expenses
which the related entity will pay on the Company's behalf. The amounts owed by
that related entity total $5,869 as of April 30, 1996.
(c) Indebtedness of Management.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) List of Financial Statements:
The following is a list of financial statements which, along with the
Independent Auditor's Report, accompany this Form 10-K.
Balance Sheets as of April 30, 1996 and 1995.
Statements of Operations for the years ended April 30, 1996, 1995 and 1994.
Statements of Cash Flows for the years ended April 30, 1996, 1995 and 1994.
Notes to Financial Statements.
(a)(2) Financial Statement Schedules.
None.
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(a)(3) List of Exhibits Required by Item 601 of Regulation S-K.
(3.1) Articles of Incorporation.*
(3.2) Bylaws.*
* These exhibits are incorporated by reference to exhibits filed with the annual
report on Form 10-K for the fiscal year ended April 30, 1994.
(b) 8-K Reports:
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant duly has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: February 24, 1997
COMMERCIAL ACQUISITIONS CORPORATION
By /s/ David J. Clamage
-----------------------------------------
David J. Clamage, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act f 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date Name and Title Signature
- - ---- -------------- ---------
February 24, 1997 Chief Executive Officer,
Principal Executive Officer, /s/ David J. Clamage
Chairman of the Board and ----------------------------
Director David J. Clamage
February 24, 1997 President, Treasurer, Principal
Financial Officer, Principal /s/ John Hawley Atkinson, Jr.
Accounting Officer and -----------------------------
Director John Hawley Atkinson, Jr.
February 24, 1997
/s/ Dennis C. Haynes
Director -----------------------------
Dennis C. Haynes
February 24, 1997
/s/ Kenneth R. Shwayder
Director and Secretary -----------------------------
Kenneth R. Shwayder
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report...................................................2
Balance Sheets - April 30, 1996 and 1995.......................................3
Statements of Operations- For the Years Ended April 30, 1996, 1995, and 1994
and from July 29, 1988 (Inception) Through April 30, 1996.................4
Statement of Stockholders' Equity - From July 29, 1988 (Inception) Through
April 30, 1996............................................................5
Statements of Cash Flows - For the Years Ended April 30, 1996, 1995,
and 1994 and from July 29, 1988 (Inception) Through April 30, 1996........6
Notes to Financial Statements..................................................7
F-1
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INDEPENDENT AUDITOR'S REPORT
The Stockholders and Directors
Commercial Acquisitions Corporation
Denver, Colorado
We have audited the accompanying balance sheets of Commercial Acquisitions
Corporation (a development stage company) as of April 30, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended April 30, 1996 and for the period from
July 29, 1988 (inception) to April 30, 1996. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 provide 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 Acquisitions
Corporation as of April 30, 1996 and 1995, and the results of its opera tions
and its cash flows for each of the three years in the period ended April 30,
1996 and for the period from July 29, 1988 (inception) to April 30, 1996, in
conformity with generally accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
September 9, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
APRIL 30,
---------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash ....................................................................... $ 5,534 $ 1,235
Factored receivables ....................................................... -- 6,827
Notes receivables .......................................................... 3,632 6,601
Advances, related party .................................................... 5,869 14,069
--------- ---------
Total current assets .............................................. 15,035 28,732
EQUIPMENT AND FURNITURE, at cost, less accumulated
depreciation of $5,434 and $5,637, respectively ............................ -- 203
--------- ---------
TOTAL ASSETS ................................................................... $ 15,035 $ 28,935
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
Accounts payable ........................................................... $ -- $ 2,235
STOCKHOLDERS' EQUITY:
Common stock, voting $.0001 par value; 635,000,000 shares
authorized; 58,501,000 shares issued and outstanding .................. 5,850 5,850
Additional paid-in capital ................................................. 331,596 331,596
Deficit accumulated during the development stage ........................... (322,411) (310,746)
--------- ---------
Total stockholders' equity ........................................ 15,035 26,700
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 15,035 $ 28,935
========= =========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE
PERIOD FROM
FOR THE YEARS ENDED JULY 29, 1988
APRIL 30, (INCEPTION) TO
-------------------------------------------- APRIL 30,
1996 1995 1994 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Factoring fees ............... $ 2,882 $ 1,629 $ 5,882 $ 39,152
Interest and other income .... 1,338 7,879 9,779 41,480
------------ ------------ ------------ ------------
Total revenues ...... 4,220 9,508 15,661 80,632
GENERAL AND ADMINISTRATIVE
EXPENSES ...................... (15,885) (33,385) (67,431) (403,043)
------------ ------------ ------------ ------------
NET LOSS ......................... $ (11,665) $ (23,877) $ (51,770) $ (322,411)
============ ============ ============ ============
NET LOSS PER COMMON SHARE ........ $ (.001) $ (.001) $ (.001)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ....... 58,501,000 58,501,000 58,501,000
============ ============ ============
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM JULY 29, 1988 (INCEPTION) THROUGH APRIL 30, 1996
Deficit
Accumulated
COMMON STOCK Additional During the Total
----------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, July 29, 1988 (Inception) ................... -- $ -- $ -- $ -- $ --
Sales of common stock for cash to officers
and/or directors at $.0005 per share in
September 1988 ................................ 11,000,000 1,100 4,400 -- 5,500
Sale of common stock for cash at $.001
per share in October through December
1988 .......................................... 17,500,000 1,750 15,750 -- 17,500
Net loss .......................................... -- -- -- (7,429) (7,429)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1989 .............................. 28,500,000 2,850 20,150 (7,429) 15,571
Sale of common stock through initial public
offering, net of costs ........................ 30,001,000 3,000 242,151 -- 245,151
Net loss .......................................... -- -- -- (27,987) (27,987)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1990 .............................. 58,501,000 5,850 262,301 (35,416) 232,735
Net loss .......................................... -- -- -- (94,650) (94,650)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1991 .............................. 58,501,000 5,850 262,301 (130,066) 138,085
Contribution of consulting services ............... -- -- 32,920 -- 32,920
Net loss .......................................... -- -- -- (72,480) (72,480)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1992 .............................. 58,501,000 5,850 295,221 (202,546) 98,525
Contribution of consulting services ............... -- -- 17,975 -- 17,975
Net loss .......................................... -- -- -- (32,553) (32,553)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1993 .............................. 58,501,000 5,850 313,196 (235,099) 83,947
Contribution of consulting services ............... -- -- 18,400 -- 18,400
Net loss .......................................... -- -- -- (51,770) (51,770)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1994 .............................. 58,501,000 5,850 331,596 (286,869) 50,577
Net loss .......................................... -- -- -- (23,877) (23,877)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1995 .............................. 58,501,000 5,850 331,596 (310,746) 26,700
Net loss .......................................... -- -- -- (11,665) (11,665)
---------- ---------- ---------- ---------- ----------
BALANCES, April 30, 1996 .............................. 58,501,000 $ 5,850 $ 331,596 $ (322,411) $ 15,035
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE
PERIOD FROM
FOR THE YEARS ENDED JULY 29, 1988
APRIL 30, (INCEPTION) TO
------------------------------------ APRIL 30,
1996 1995 1994 1996
---- ---- ---- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ........................... $ (11,665) $ (23,877) $ (51,770) $(322,411)
Adjustments to reconcile net loss to
net cash from operating
activities:
Depreciation ............... 203 1,318 1,318 5,637
Contribution of consulting
services ................. -- -- 18,400 69,295
Bad debt expense ........... -- -- 18,814 18,814
Changes in operating assets
and liabilities:
Decrease (increase) in -
Advances .............. 8,200 6,261 (11,373) (5,869)
(Decrease) increase in -
Accounts payable ...... (2,235) 1,202 1,033 --
--------- --------- --------- ---------
Net cash used in operating activities (5,497) (15,096) (23,578) (234,534)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment and
furniture ....................... -- -- (913) (5,637)
Purchase of factored receivables ... (5,450) (24,121) (17,935) (343,264)
Maturities of factored and notes
receivables ..................... 15,246 35,173 41,371 320,818
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities ............ 9,796 11,052 22,523 (28,083)
CASH FLOWS FROM FINANCING
ACTIVITY -
Proceeds from issuance of common
stock, net ...................... -- -- -- 268,151
--------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH ........ 4,299 (4,044) (1,055) 5,534
CASH, beginning of period .............. 1,235 5,279 6,334 --
--------- --------- --------- ---------
CASH, end of period .................... $ 5,534 $ 1,235 $ 5,279 $ 5,534
========= ========= ========= =========
</TABLE>
- - ---------------------
Conversion of certain factored receivables into notes is described in Note
2.
See accompanying notes to these financial statements.
F-6
<PAGE>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - Commercial Acquisitions Corporation (the Company)
was incorporated in Colorado in 1988, for the purpose of obtaining capital
to seek potentially profitable business opportun ities. In 1991, the
Company's stockholders authorized the Company to enter into the factoring
business, in which the Company purchases accounts receivable with and
without recourse at a discount, and earns income based on contractual
percentages over the number of days the receivable is outstanding. Although
these operations commenced in September 1991, the Company is still
considered to be in the development stage, due to the concentration of fees
with a relatively few customers and the insignificant amount of fees to
date. Most of the Company's factored receivables have been with persons in
the legal and accounting profession.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed by the straight-line method over estimated useful
lives ranging generally from three to five years. Maintenance and repairs
are charged to expense when incurred. Property replacements and betterments
which extend the life of assets are capitalized and subsequently
depreciated.
Revenues - Factoring revenue is recognized when collection of such amount
can be reasonably assured. When factored receivables are converted to
notes, the related factoring income is recognized as interest income over
the term of the note.
Income Taxes - Income taxes are accounted for under the liability method,
whereby current and deferred tax assets and liabilities are determined
based on tax rates and laws enacted as of the balance sheet date. Deferred
tax expense represents the change in the deferred tax asset/liability
balance.
Net Loss Per Common Share - Net loss per common share is computed based
upon the weighted aver age number of shares outstanding. Outstanding
warrants were not included as their effect is anti- dilative.
Concentration of Credit Risks - Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk (whether
on or off balance sheet) that arise from financial instruments exist for
groups of customers or counterparties when they have similar economic
characteristics that would cause their ability to meet contractual
obligations to be similarly effected by changes in economic or other
conditions. The Company has factored receivables with a limited number of
customers as identified in Note 7, who are in similar professions.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Fair Value of Financial Instruments -The estimated fair value for financial
instruments under SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," are determined at discrete points in time based on relevant
market information. These estimates involve uncertainties and cannot be
determined with precision. The estimated fair value of the Company's notes
receivables approximate the carrying recorded amount in the financial
statements.
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
Company's method of determining impairment of long-lived assets. Although
the Company has not performed a detailed analysis of the impact of this new
standard on the Company's financial statements, the Company does not
believe that adoption of the new standard will have a material effect on
the financial statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The
new statement is effective for fiscal years beginning after December 15,
1995. FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the
new method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for
on the fair value method. The Company currently does not intend to adopt
the fair value accounting prescribed by FAS 123, and will be subject only
to the disclosure requirements prescribed by FAS 123. However, the Company
intends to continue its analysis of FAS 123 and may elect to adopt its
provisions in the future.
2. LIQUIDITY AND CONTINUING OPERATIONS:
As of April 30, 1996, the Company has limited working capital and has
incurred losses since its inception. The lack of working capital will
inhibit future factoring activities or other operations unless additional
capital is raised. The Company has no significant continuing obligations
and is pursuing potential merger opportunities with other entities,
however, no formal arrangements have been entered into. Unless the Company
successfully negotiates a merger or raises additional capital, its ability
to continue operations will be impaired.
3. NOTES AND OTHER RECEIVABLES:
During 1994, two notes receivables totaling approximately $18,800 with a
major customer, who also provided contract services, became impaired due to
a disagreement. In fiscal 1995, in an informal agreement, the
chairman/director/major stockholder of the Company agreed to assume and pay
to the Company the outstanding balances of these notes with payments and
interest of 7.5% beginning July 1, 1995. As the notes were considered
impaired at April 30, 1994, they have been fully reserved, and the
resulting bad debt expense was included in general and administration
expense in 1994 for financial statement presentation. No payments have been
made on the impaired notes by the major stockholder.
F-8
<PAGE>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. STOCKHOLDERS' EQUITY:
In 1990, the Company completed the sale of 30,001,000 units at $.01 per
unit in its initial public offering. Each unit consists of one share of
common stock, one Class A Warrant, one Class B Warrant and one Class C
Warrant.
The Class A Warrants are exercisable by the holder to purchase one share of
common stock of the Company at an exercise price of $.02 per share. The
Class B Warrants are exercisable to purchase one share of Common Stock of
the Company at an exercise price of $.04 per share. The Class C Warrants
are exercisable to purchase one share of common stock of the Company at an
exercise price of $.055 per share. The Company's Board of Directors has
extended, and continues to have the right to extend, the exercise periods
and has the right to reduce the exercise prices of the Warrants with the
Warrants currently set to expire in October 1996. During the exercise
period of the Warrants, the Company may call the Warrants for redemption on
20 days prior notice at a redemption price of $.0001 per Warrant.
5. INCOME TAXES:
The Company has net operating loss carryforwards (NOL's) of approximately
$248,000, which results in a deferred tax asset of approximately $93,000. A
valuation allowance has been established for the full amount of the
deferred tax assets. The NOL's expire in the years 2004 through 2009.
6. RELATED PARTY TRANSACTIONS:
The Company rents office space on a month-to-month basis from the
chairman/director/major shareholder. Rent expense for the years ended April
30, 1996, 1995, and 1994 was $6,850 for each year.
For the fiscal years ended 1996 and 1995, the Company has a receivable with
a related entity owned by the chairman/director/major stockholder, for
payments made on behalf of the related entity for rental and expense
obligations incurred. Repayment will be an offset against future rental and
administrative expenses which the related entity will pay on the Company's
behalf. The amounts owed by that related entity total $5,869 as of April
30, 1996.
F-9
<PAGE>
COMMERCIAL ACQUISITIONS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
7. MAJOR CUSTOMERS:
Customers accounting for 10% or more of revenues were as follows:
YEARS ENDING APRIL 30,
------------------------------
Customer 1996 1995 1994
-------- ---- ---- ----
A 31% 35% 84%
B 69% 30% 16%
C -% 35% -%
F-10
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- - ------- ----------- --------
3.1 Articles of Incorporation.* N/A
3.2 Bylaws.* N/A
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-30-1995 APR-30-1996
<PERIOD-START> MAY-01-1994 MAY-01-1995
<PERIOD-END> APR-30-1995 APR-30-1996
<CASH> 1,235 5,534
<SECURITIES> 0 0
<RECEIVABLES> 13,048 3,632
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,732 15,035
<PP&E> 5,840 0
<DEPRECIATION> 5,637 0
<TOTAL-ASSETS> 28,935 15,035
<CURRENT-LIABILITIES> 2,235 0
<BONDS> 0 0
0 0
0 0
<COMMON> 5,860 5,850
<OTHER-SE> 331,596 331,596
<TOTAL-LIABILITY-AND-EQUITY> 28,935 15,035
<SALES> 9,508 4,220
<TOTAL-REVENUES> 9,508 4,220
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 33,385 15,885
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (23,877) 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (23,877) (11,665)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (23,877) (11,665)
<EPS-PRIMARY> (.001) (.001)
<EPS-DILUTED> 0 0
