10QSB 1 doc1.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Crescent Communications, Inc. (Exact name of registrant as specified in its charter) Commission file number: 0-22711 Nevada 76-0640970 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) (Incorporation or Organization) 701 North Post Oak, Road, Suite 630, Houston, Texas 77024 (Address of Principal Executive Office) (Zip Code) (713) 682-7400 (Registrant's Telephone Number, Including Area Code) BERENS INDUSTRIES, INC. (Former Name) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ] May 3, 2002, the registrant had 4,326,199 shares of Common Stock outstanding. -------------------------------------------------------------------------------- Part I ITEM 1. FINANCIAL STATEMENTS CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) -------------- UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2002 F-1 CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) TABLE OF CONTENTS ------------ PAGE ---- Unaudited Condensed Financial Statements: Unaudited Condensed Balance Sheet as of March 31, 2002 and December 31, 2001 F-3 Unaudited Condensed Statement of Operations for the three months ended March 31, 2002 F-4 Unaudited Condensed Statement of Stockholder's Equity for the three months ended March 31, 2002 F-5 Unaudited Condensed Statement of Cash Flows for the three months ended March 31, 2002 F-6 Notes to Unaudited Condensed Financial Statements F-7 F-2
CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) UNAUDITED CONDENSED BALANCE SHEET -------------- MARCH 31, DECEMBER 31, ASSETS 2002 2001 ------ ------------ -------------- Current assets: Cash and cash equivalents $ 11,148 $ 10,773 Accounts receivable, net of allowance for doubtful accounts of $10,500 and $10,982 at March 31, 2002 and December 31, 2001, respectively 184,492 176,223 Prepaid and other 27,477 21,453 ------------ -------------- Total current assets 223,117 208,449 Property and equipment, net of accumulated depreciation of $85,928 and $57,200 at March 31, 2002 and December 31, 2001, respectively 501,506 529,134 Goodwill 200,346 200,346 Other assets 53,861 46,958 ------------ -------------- Total assets $ 978,830 $ 984,887 ============ ============== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Current liabilities: Current portion of long-term debt $ 46,676 $ 36,350 Current portion of notes payable to related parties 248,685 248,685 Accounts payable 567,858 566,676 Accrued liabilities 277,874 340,712 Deferred revenue 98,778 88,985 ------------ -------------- Total current liabilities 1,239,871 1,281,408 Long-term debt 1,633 34,166 Notes payable to related parties 234,000 100,000 Commitment and contingencies Stockholders' deficit: Common stock, $.001 par value, 50,000,000 shares authorized, 4,326,199 and 4,278,699 shares issued and outstanding at March 31, 2002 and December 31, 2001 4,326 4,278 Series A Convertible Non-Redeemable Preferred stock, $.001 par value, 20,000,000 shares authorized; 600 issued and outstanding at March 31, 2002 and December 31, 2001 1 1 Additional paid-in capital 1,495,334 1,172,784 Receivable from stockholder - (136,976) Deferred compensation (220,008) (257,407) Accumulated deficit (1,776,327) (1,213,367) ------------ -------------- Total stockholders' deficit (496,674) (430,687) ------------ -------------- Total liabilities and stockholders' deficit $ 978,830 $ 984,887 ============ ==============
See accompanying notes. F-3 CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) UNAUDITED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 ----------- Service revenue $ 425,981 Cost of services 308,653 ----------- Gross margin 117,328 Selling, general and administrative expenses 539,419 ----------- Loss from operations (422,091) Interest expense 140,869 ----------- Net loss $ (562,960) =========== Basic and diluted net loss per common share $ (0.13) =========== Weighted average shares outstanding 4,314,324 =========== See accompanying notes. F-4
CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2002 ---------- COMMON STOCK PREFERRED STOCK ADDITIONAL RECEIVABLE ------------------ --------------- PAID-IN FROM DEFERRED ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER COMPENSATION DEFICIT --------- ------- ------ ------- ---------- ------------- -------------- ------------ Balance at December 31, 2001 4,278,699 $ 4,278 600 $ 1 $1,172,784 $ (136,976) $ (257,407) $(1,213,367) Collection of subscription receivable from stockholder - - - - 13,024 136,976 - - Issuance of common stock for compensation 47,500 48 - - 13,937 - - - Value of conversion feature associated with conver- tible debt - - - - 134,000 - - - Compensatory stock options issued to employees and others (788,825 options) - - - - 161,589 - 37,399 - Net loss - - - - - - - (562,960) --------- ------- ------ ------- ---------- ------------- -------------- ------------ Balance at March 31, 2002 4,326,199 $ 4,326 600 $ 1 $1,495,334 $ - $ (220,008) $(1,776,327) ========= ======= ====== ======= ========== ============= ============== ============ TOTAL ---------- Balance at December 31, 2001 $(430,687) Collection of subscription receivable from stockholder 150,000 Issuance of common stock for compensation 13,985 Value of conversion feature associated with conver- tible debt 134,000 Compensatory stock options issued to employees and others (788,825 options) 198,988 Net loss (562,960) ---------- Balance at March 31, 2002 $(496,674) ==========
See accompanying notes. F-5
CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) UNAUDITED CONDENSED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 ---------- Cash flows from operating activities: Net loss $(562,960) Adjustments to reconcile net loss to net cash used in operating activities 303,643 ---------- Net cash used in operating activities (259,317) ---------- Cash flows from investing activities: Capital expenditures (2,101) ---------- Net cash used in investing activities (2,101) ---------- Cash flows from financing activities: Proceeds from notes payable to related parties 134,000 Payments on notes payable (22,207) Collection of receivable from stockholder 150,000 ---------- Net cash provided by financing activities 261,793 ---------- Net decrease in cash and cash equivalents 375 Cash and cash equivalents at beginning of period 10,773 ---------- Cash and cash equivalents at end of period $ 11,148 ==========
See accompanying notes. F-6 CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS ----------- 1. BASIS OF PRESENTATION ----------------------- The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report of Form 10-KSB for the year ended December 31, 2001. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2001, as reported in the Form 10-KSB, have been omitted. 2. REVERSE ACQUISITION -------------------- Effective July 23, 2001, Berens Industries, Inc. ("Berens") acquired Solis Communications, Inc. ("Solis") in a reverse acquisition transaction (the "Transaction") accounted for using the purchase method. Because Solis shareholders emerged from the Transaction with approximately 88% ownership of the combined entity, Berens Industries was the "acquired" company, but remains the surviving legal entity. Prior to the transaction, Berens was a public corporation with certain long-lived assets that had ceased all current operations. Accordingly, the transaction was treated as an issuance of stock by Solis for Berens' net assets and liabilities resulting in a purchase price of $423,220 paid through the assumption of liabilities as follows: Assets acquired ---------------- Cash $ 4,553 Property and equipment 218,324 Goodwill 190,230 Other intangibles 10,113 ---------- $ 423,220 ========== Liabilities assumed -------------------- Note payable to a related party (Yolana Berens) 32,500 Accounts payable 154,606 Payroll liability 45,035 Payroll tax liability 86,114 Liability for asset acquisition 104,965 ---------- $ 423,220 ========== Under the terms of the stock exchange agreement (the "Agreement") that formed the basis of the Transaction, Berens issued 600 shares of new Series A convertible non-redeemable preferred stock for 100% of issued and outstanding shares of Solis. Continued F-7 CRESCENT COMMUNICATIONS, INC. (FORMERLY BERENS INDUSTRIES, INC.) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS, CONTINUED ---------- 2. REVERSE ACQUISITION, CONTINUED -------------------------------- Solis, at the time of the Agreement, was a newly established, closely held corporation that was formed for the purpose of capitalizing on the telecommunications industry downturn. The Company believes that it will achieve its purpose by providing affordable co-location facilities to internet service providers. Subsequent to the Agreement, the Company's stockholders approved a change in the Company's name from Berens Industries, Inc. to Crescent Communications, Inc. 3. STOCKHOLDERS' DEFICIT ---------------------- During the quarter ended March 31, 2001, the Company engaged in various transactions affecting stockholders' deficit, as follows: - Entered into convertible debt agreement with certain stockholders/officers of the Company and recognized interest expense of $134,000 related to the conversion feature. - Collected $150,000 from certain stockholders for a $136,976 subscription receivable and as a capital contribution of $13,024. - Due to cash constraints on the Company, $161,587 of compensatory stock options were issued by the Company to retain and compensate certain key employees. 4. COMPREHENSIVE INCOME --------------------- The Company has adopted Statement of Financial Accounting Standards (ASFAS@) No. 130, Reporting Comprehensive Income, which requires a company to display an amount representing comprehensive income as part of the Company's basic financial statements. Comprehensive income includes such items as unrealized gains or losses on certain investment securities and certain foreign currency translation adjustments. The Company's financial statements include none of the additional elements that affect comprehensive income. Accordingly, comprehensive income and net income are identical. 5. INCOME TAX ----------- The difference between the Federal statutory income tax rate of 34% and the Company's effective rate is primarily attributable to increases in the valuation allowance offset against deferred tax assets associated with the Company's net operating losses. 6. NOTES PAYABLE TO RELATED PARTIES ------------------------------------ The notes payable to related parties are convertible into common shares of the Company's stock at $.05 per share, at the election of the payee, any time prior to repayment of the note. At March 31, 2002 the notes are convertible into 9,653,700 common shares. F-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS This management's Discussion and Analysis as of March 31, 2002 and for the three months ended March 31, 2002, should be read in conjunction with the unaudited condensed financial statements and notes thereto set forth in Item 1 of this report. The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as, "may," "will," "should," "estimates," "predicts," "potential," continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to the risks discussed in our other SEC filings. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. GENERAL We are a Nevada corporation that began operations on July 23, 2001, providing co-location hosting and connectivity systems to small to mid-size businesses in Texas. The Company was formed through a Stock Exchange Agreement ("Agreement") whereby the shareholders of Solis Communications, Inc ("Solis") exchanged all the issued and outstanding shares of Solis for 600 shares of newly issued Series A Convertible Non-Redeemable Preferred Stock of Berens Industries, Inc. ("Berens"). Solis, the ultimate acquirer of Berens in this reverse merger, agreed to contribute $600,000 cash and cash equivalents. Berens was a development stage enterprise involved in the development of an online auction site for exclusive paintings and other art works. At the date of the Agreement, Berens had ceased all activity due to their inability to generate sufficient revenue or obtain additional capital funding. This transaction is exempt from section 4.2 of the Securities Act. On September 17, Berens filed a name change to Crescent Communications, Inc. d.b.a. Crescent Broadband and approved a 5-for-1 reverse stock split to be effective on September 24, 2001. On a fully convertible post-split basis, the former shareholders of Solis beneficially own an aggregate of approximately 28,000,000 shares of common stock, or approximately 87.9% of the outstanding common stock. The Series A Preferred Stock does not receive dividends. Of the $600,000 committed under the Agreement, $105,000 was used to purchase certain assets of Crescent Services Corporation, a Houston, Texas based company that provided broadband and wireless services. The assets were purchased under the review and approval of the court appointed trustee as part of an involuntary petition under Chapter 7 of the U.S. Bankruptcy Code, filed against Crescent in the U.S. Bankruptcy Court in the Southern District of Texas in January 2001. Approximately $165,000 of connectivity assets were contributed by Solis as partial satisfaction of its $600,000 commitment and $194,000 was used to fund working capital requirements. An additional $136,000 remained due under the agreement which was paid by the shareholders of Solis in January 2002 and used for working capital. The Company has incurred a significant loss from operations since inception, and is in a negative working capital and stockholder's deficit position at March 31, 2002. The Company remains dependent on outside sources of funding for continuation of its operations. Based on these factors, our auditors issued a qualified opinion at December 31, 2001 that reflects the significant doubt about the company's ability to continue as a going concern. RESULTS OF OPERATIONS During the three months ended March 31, 2002, the Company's revenue from connectivity systems, web site hosting, engineering services and hardware sales was $425,981 which compares to $367,732 for the prior three month period ended December 31, 2001. Revenue growth for the period was primarily due to increased recurring connectivity revenue and hardware sales, which increased approximately $12,000 and $57,000, respectively from the prior quarter. Cost of sales for the three month period ended March 31, 2002 was $308,653 with a gross margin of $117,328. This compares with cost of sales of $405,802 and a negative gross margin of $(38,070) for the prior three month period ending December 31, 2001. The gross margin percentage increased to approximately 27.5% in the three month period ending March 31, 2002. Cost of sales and the resulting gross margins were favorably impacted by a reduction in non-recurring provisioning and cabling charges to $13,707 compared to $90,520 for the three month periods ending March 31, 2002 and December 31, 2001, respectively. Selling, general and administrative expenses were $569,148 for the three month period ended March 31, 2002 which compares to $665,221 for the prior three month period ended December 31, The Company has issued non-qualified stock options to certain employees and contractors in lieu of cash compensation. These options have been valued based on the difference between the option price and the market price of the Company's stock on the date of the grant and included that amount as a reduction of current earnings. For the three month periods ending March 31, 2002 and December 31, 2001 the Company recorded $196,285 and $108,471 in compensation expense related to the issuance of these options, respectively. No significant capital expenditures were made in the three month period ended March 31, 2002. PLAN OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002 the Company had cash and cash equivalents of $11,148. Operations for the three month period ended March 31, 2001 have been funded by the final payment due from stockholders related to the purchase Agreement of $150,000, newly issued convertible notes payable to stockholders for $134,000 and nonqualified stock options issued to certain employees and contractors in lieu of cash compensation. The Company has continued to take steps to reduce its monthly operating expenses, and based on current monthly revenue growth trends, expects to be cash flow break even from operations by the end of the second quarter of 2002. The Company is seeking additional capital to fund expected operating costs and has engaged in negotiations to merge or sell part or all of the Company. No commitments for any funding have been obtained at this time and the Company continues to negotiate with certain parties to address the operating cash flow shortfalls. We believe this funding may be obtained from public or private offerings of equity securities, debt or convertible debt securities or other sources. Stockholders should assume that any additional funding will likely be dilutive. If we are unable to raise additional funding, we may have to limit our operations to an extent that we cannot presently determine. The effect on our business may include the sale of certain assets, the reduction or curtailment of new customer acquisition, reduction in the scope of current operations or the cessation of business operations. Our ability to achieve profitability will depend upon our ability to raise additional operating capital, continued growth in demand for connectivity services and our ability to execute and deliver high quality, reliable connectivity services. PART II Item 2. Changes in Securities The Company sold certain common shares to accredited private investors for cash under a Private Placement Memorandum pursuant to regulation D, rule 506 small business offering. A total of 450,000 common shares were sold on November 30, 2001 to two accredited investors at the offering price of $.10 per share. No discounts or commissions were paid. The aggregate amount raised under this offering was $45,000. The Company issued options to acquire certain common shares to employees in lieu of cash compensation under section 4.2 of the Securities Act of 1933. The options are exercisable after a vesting period at the employee's election, at an option price of $.10 per share:
Date Issued Title of Securities Vesting Period Options Granted ----------------- ------------------- -------------- --------------- November 6, 2001 Options Seven Months 1,323,800 December 31, 2001 Options Immediate 39,712 February 1, 2002 Options Nine Months 500,000 March 31, 2002 Options Immediate 278,825
SIGNATURES In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Crescent Communications, Inc. Date: May 14 , 2002 --------- ------------------------------ /s/ Manfred Sternberg Manfred Sternberg, Chief Executive Officer Date: May 14 , 2002 --------- ------------------------------ /s/ James Hausman James Hausman Chief Financial Officer