10QSB 1 a5401281.htm COMMERCE PLANET, INC. COMMERCE PLANET, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

 
(Mark One)
 
 x
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007.
   
 o
TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________


COMMISSION FILE NO. 333-34308

COMMERCE PLANET, INC.
(Exact name of issuer as specified in its charter)
 
UTAH
 
87-0520575
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
30 S. LaPatera Lane, Suite 8 Goleta, CA
 
93117
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number: (805) 964-9126

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 o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes o No x

As of March 31, 2007, the Issuer had 49,879,252 shares of common stock outstanding.

Transitional Small Business Disclosure Format (check one): Yes o No x


 
COMMERCE PLANET, INC.
 
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS

9175 E. KENYON AVENUE, SUITE 100
DENVER, CO 80237
303-796-0099


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Commerce Planet, Inc.
Goleta, California

We have reviewed the accompanying consolidated balance sheet of Commerce Planet, Inc. as of March 31, 2007, and the related consolidated statement of operations, stockholders' equity and cash flows for the three-month period then ended. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). The review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States.

Jaspers + Hall, PC
Denver, CO
May11, 2007
 
1

 
COMMERCE PLANET, INC.
 
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2007 AND DECEMBER 31, 2006
Unaudited
   
March 31
 
December 31
 
ASSETS
 
2007
 
2006
 
Current Assets
 
 
 
 
 
Cash
 
$
5,415,874
 
$
3,659,316
 
Accounts Receivable, net of allowances
   
2,061,925
   
1,567,526
 
Other Receivables
   
3,537,368
   
1,901,470
 
Deferred Tax Asset
   
2,219,183
   
-
 
Prepaid Expenses
   
2,833,346
   
2,347,181
 
 
         
Total Current Assets
   
16,067,696
   
9,475,493
 
 
         
Fixed Assets
         
Equipment
   
915,506
   
792,564
 
Furniture & Fixtures
   
117,321
   
101,091
 
Computers & Software
   
696,215
   
789,628
 
Leasehold Improvements
   
121,168
   
121,168
 
 
         
Total Fixed Assets
   
1,850,210
   
1,804,451
 
Accumulated Depreciation
   
(575,273
)
 
(498,659
)
 
         
Net Fixed Assets
   
1,274,937
   
1,305,792
 
 
         
Other Assets
         
Deposits
   
22,856
   
19,154
 
Long Term Investment
   
100,000
     
Other Assets
   
4,664
   
-
 
 
         
Total Other Assets
   
127,520
   
19,154
 
 
         
TOTAL ASSETS
  $
17,470,153
  $
10,800,439
 
 
         
LIABILITIES & EQUITY
         
Liabilities
         
Current Liabilities
         
 Accounts Payable and Accrued Expenses
  $
2,654,505
  $
2,459,372
 
 Note Payable
   
40,300
   
69,681
 
 Deferred Revenue
   
1,343,852
   
1,017,360
 
Income Tax Payable
   
2,174,593
   
-
 
 Deferred Tax Liability
   
489,964
   
-
 
 
         
Total Current Liabilities
   
6,703,214
   
3,546,413
 
 
         
Total Long Term Liabilities
   
-
   
-
 
 
         
Total Liabilities
   
6,703,214
   
3,546,413
 
 
         
Equity
         
Series D Preferred stock, 100 authorized
             
shares at $0.001 par value, 15 shares issued
             
and 14 shares outstanding at March 31, 2007
             
               
Common stock, 100,000,000 shares authorized
             
shares at $0.001 par value, 49,879,252 shares issued and
             
outstanding at March 31, 2007, and 47,193,839 shares
             
issued and outstanding at December 31, 2006
   
49,879
   
47,420
 
               
Additional Paid in Capital
   
9,164,040
   
9,327,597
 
Deferred Compensation
   
-
   
-
 
Shares to be issued
   
48
   
-
 
Shares to be returned
   
-
   
(227
)
Stock subscription receivable
   
-
   
-
 
Retained Earnings/(Accumulated deficit)
   
1,552,972
   
(2,120,764
)
 
         
Total Equity
   
10,766,939
   
7,254,026
 
 
         
TOTAL LIABILITIES & EQUITY
  $ 
17,470,153
  $
10,800,439
 

See Accountant’s Review Report
2

COMMERCE PLANET, INC.
 
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
Unaudited
   
Three Months Ended March 31
 
Revenue
 
2007
 
2006
 
Membership Revenue
 
$
11,520,366
 
$
3,307,623
 
Upsell Revenue
   
984,357
   
210,521
 
Lead Revenue
   
649,492
   
388,827
 
Fulfillment/Other Revenue
   
81,491
   
25,372
 
 
         
Total Revenue
   
13,235,726
   
3,932,343
 
 
         
Cost of Goods Sold
   
2,556,490
   
687,575
 
 
         
Gross Profit
   
10,679,236
   
3,244,768
 
 
         
Expense
         
Salaries and Personnel Related
   
1,616,629
   
533,213
 
Stock Compensation
   
238,022
   
185,000
 
Advertising
   
3,466,046
   
1,106,616
 
Other Expenses
   
1,273,331
   
885,352
 
 
         
Total Operating Expense
   
6,574,028
   
2,710,181
 
 
         
Net Ordinary Income
   
4,105,209
   
534,587
 
 
         
Other (Income)/Expense
   
(16,499
)
 
340,207
 
 
         
Income/(Loss) before Income taxes
   
4,121,708
   
194,380
 
 
         
Provision for Income Taxes
   
447,972
   
-
 
 
         
Net Income/(Loss)
 
$
3,673,736
 
$
194,380
 
 
         
Basic Net Income/(Loss) Per Common Share
 
$
0.08
 
$
0.00
 
 
         
Diluted Net Income/(Loss) Per Common Share
 
$
0.07
 
$
0.00
 
 
         
Basic Weighted Average
         
Number of Common Shares
   
48,618,228
   
39,445,891
 
 
         
Diluted Weighted Average
         
Number of Common Shares
   
56,349,450
   
43,474,641
 
 
See Accountant’s Review Report
3

COMMERCE PLANET, INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
Unaudited
   
Three Months Ended March 31 
 
 
 
2007
 
2006
 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Income/(Loss)
   
3,673,736
   
194,380
 
 
         
Adjustment to reconcile net loss to net cash
         
(used in) operating activities:
         
Stock issued for services
       
104,668
 
Depreciation and amortization
   
78,755
   
44,733
 
Allowance for doubtful accounts
   
213,989
   
12,500
 
Stock Compensation
   
238,022
   
185,000
 
Amortization of debt interest
   
-
   
214,278
 
Debt conversion feature expense
   
-
   
37,411
 
 
         
CHANGES IN OPERATING ASSETS/LIABILITIES
         
Accounts receivable
   
(604,774
)
 
(170,779
)
Other receivables
   
(1,680,093
)
   
Other assets
   
(534,754
)
 
(912,627
)
Deferred revenue
   
326,492
   
582,983
 
Deferred tax asset
   
(2,219,183
)
   
Accounts payable and accruals
   
160,321
   
396,783
 
Income tax payable
   
2,174,593
     
Deferred tax liability
   
489,964
    -  
 
         
NET CASH FLOWS USED BY OPERATING ACTIVITIES
   
2,316,068
   
689,285
 
 
         
CASH FLOWS FROM INVESTING ACTIVITIES:
         
Purchase of Fixed Assets
   
(45,699
)
 
(11,425
)
Long term investments
   
(100,000
)
   
Acquired Assets
   
14,415
    -  
 
         
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
   
(131,284
)
 
(11,425
)
 
         
CASH FLOWS FROM FINANCING ACTIVITIES:
         
Proceeds from line of credit
   
-
   
68,000
 
Payments on Notes payable
   
(29,380
)
 
(335,248
)
Payment on long-term debt
   
-
   
(166,000
)
Payment to reacquire stock
   
(483,606
)
 
-
 
Issuance of Common Stock
   
84,760
   
191,900
 
 
         
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
   
(428,226
)
 
(241,348
)
 
         
NET INCREASE (DECREASE) IN CASH
   
1,756,558
   
436,512
 
 
         
CASH AT BEGINNING OF PERIOD
   
3,659,316
   
253,856
 
 
         
CASH AT END OF PERIOD
   
5,415,874
   
690,368
 
 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
         
 
         
Cash paid for interest
   
1,461
   
52,880
 
 
         
Cash paid for taxes
   
3,470
   
800
 
 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
         
 
         
Stock issued for services
   
-
   
104,668
 
Stock Compensation
   
238,022
   
185,000
 
 
   
238,022
   
104,668
 

See Accountant’s Review Report
4

Commerce Planet
Consolidated Condensed Statement of Stockholders' Equity

     
Preferred Stock 
   
Common Stock
             
     
 
Shares
Issued 
 
 
Par
0.001 
 
 
Shares
Issued 
 
 
Par
0.001 
 
 
Additional
Paid in
Capital 
 
 
Shares to
be Issued
 
 
BALANCE, December 31, 2005
   
 
   
 
   
39,094,633
 
$
39,096
 
$
8,230,224
 
$
1,843
 
Beneficial Conversion
                   
(799,780
)
   
Exercise of Warrants
           
587,210
   
587
   
151,416
     
Conversion of convertible debentures
           
7,348,488
   
7,348
   
1,314,490
     
Shares returned to Company
           
(1,805,371
)
 
(1,805
)
 
-
     
Shares repurchased
           
(226,500
)
     
(339,055
)
   
Shares issued
   
15
       
78,750
   
78
   
36,280
     
Purchase Interaccurate
           
42,266
   
42
   
58,709
     
Issuance of stock for services
           
300,000
   
300
   
55,950
     
Employee stock, options, and warrants
                   
619,363
     
Payment for stock subscription agreements
                       
(1,843
)
Stock Subscription agreements
           
1,774,363
   
1,774
         
Net Income
                         
BALANCE, December 31, 2006
   
15
   
-
   
47,193,839
   
47,420
   
9,327,597
   
-
 
 
                         
Exercise of Warrants
           
50000
   
50
   
59,662
   
48
 
Shares returned to Company
               
(227
)
       
Shares repurchased
           
(294,500
)
 
(294
)
 
(483,311
)    
Employee stock, options, and warrants
           
2929913
   
2,930
   
260,091
     
Net Income
                         
BALANCE, March 31, 2007
   
15
   
-
   
49,879,252
 
$
49,879
 
$
9,164,039
 
$
48
 
                                       
 
See Accountant’s Review Report
5

Commerce Planet
Consolidated Condensed Statement of Stockholders' Equity
 
     
Shares
to be
returned 
 
 
Deferred
Compensation 
 
 
Stock Sub
Receivable 
 
 
Accumulated
Deficit 
 
 
Total
S/E
 
 
BALANCE, December 31, 2005
 
$
-1,805
 
$
(71,853
)
$
(189,900
)
$
(10,861,869
)
$
(2,854,264
)
Beneficial Conversion
                   
(799,780
)
Exercise of Warrants
                   
152,003
 
Conversion of convertible debentures
                   
1,321,838
 
Shares returned to Company
   
1,805
               
-
 
Shares repurchased
   
(227
)
             
(339,282
)
Shares issued
                   
36,358
 
Purchase Interaccurate
                   
58,751
 
Issuance of stock for services
       
71,853
           
128,103
 
Employee stock, options, and warrants
                   
619,363
 
Payment for stock subscription agreements
           
189,900
       
188,057
 
Stock Subscription agreements
                   
1,774
 
Net Income
               
8,741,105
   
8,741,105
 
BALANCE, December 31, 2006
   
(227
)
 
-
   
-
   
(2,120,764
)
 
7,254,026
 
 
                     
Exercise of Warrants
                   
59,760
 
Shares returned to Company
   
227
               
-
 
Shares repurchased
                   
(483,605
)
Employee stock, options, and warrants
                   
263,002
 
Net Income
               
3,673,736
   
3,873,582
 
BALANCE, March 31, 2007
 
$
-
 
$
-
 
$
-
 
$
1,552,972
 
$
10766938
 
 
See Accountant’s Review Report
 
6

COMMERCE PLANET, INC.
Notes to Financial Statements
March 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was incorporated on March 1, 1994. On December 24, 2003, the Company entered into an Agreement and Plan of Reorganization with NeWave, Inc. a Nevada corporation, pursuant to which the Company agreed that NeWave, Inc. would become the wholly-owned subsidiary subject to the parties to the Agreement meeting certain conditions. The parties to the Agreement satisfied the required conditions to close on January 15, 2004, including transfer of all funds. On January 15, 2004, all outstanding shares of Utah Clay Technology, Inc. common stock were acquired by NeWave, Inc. The purchase price consisted of $150,000 and the assumption of $165,000 in convertible debt for 576,968 shares of NeWave, Inc. dba Onlinesupplier.com's common stock. Although from a legal perspective, NeWave, Inc. acquired NeWave dba Onlinesupplier.com, the transaction is viewed as a recapitalization of NeWave dba Onlinesupplier.com accompanied by an issuance of stock by NeWave dba Onlinesupplier.com for the net assets of NeWave, Inc. This is because NeWave, Inc. did not have operations immediately prior to the transaction, and following the reorganization, NeWave dba Onlinesupplier.com was the operating company. Effective February 11, 2004 the Company changed its name from Utah Clay Technology, Inc. to NeWave, Inc.
 
On June 1, 2006, the Company acquired all of the assets, both fixed and intangible, of Onesource Imaging, a California corporation. The assets were acquired in exchange for our assumption of certain liabilities totaling $52,747. On June 20, 2006, the Company established three wholly-owned subsidiaries, OS Imaging, Inc., Legacy Media, Inc., and Consumer Loyalty Group, Inc. to support its growth and develop new customer relationships. Effective June 22, 2006, the Company changed its name from NeWave, Inc. to Commerce Planet, Inc. On October 3, 2006, the Company acquired the assets of Interaccurate, Inc. including software, intellectual properties, and a web hosting facility for $176,239 in cash and 42,266 shares of common stock. On October 11, 2006 the Company’s subsidiary, Consumer Loyalty Group, executed an agreement with Datascension, Inc., an unrelated party, to establish a Costa Rican call center. The call center began operations on November 27, 2006.

Commerce Planet, through its wholly-owned subsidiaries, offers a comprehensive line of products and services at wholesale prices through its online club memberships as well as online tools and technology to create, manage, and maintain effective website solutions for eCommerce. Additionally, the Company provides businesses with lead generation and order acquisition services, graphic design, printing and fulfillment, as well as secure co-location and data hosting services.

Basis Of Accounting

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles.

Reclassification Of Cost Of Sales And Operating Expenses

In the accompanying condensed statement of operations, all of the Company's operating expenses have been classified as cost of sales, salary expense, stock compensation, advertising expense, and other operating expense. This basis of presentation is different than in prior reports, and all prior period amounts have been changed to comply with the current period classification.

Consolidation of Financial Statements

The accompanying financial statements present results for Commerce Planet, Inc. and its wholly owned subsidiaries, Consumer Loyalty Group, Inc., Legacy Media, Inc., O S Imaging, Inc., and Intaccurate, Inc. on a consolidated basis. All inter-company sales and costs, and receivables and payables have been eliminated in the resulting financial statements.

7

Cash And Cash Equivalents

The Company considers all highly liquid debt instruments, purchased with an original maturity of three months or less, 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 revenue and expenses during the reporting period. The Company defers revenue based on its estimate of the timing of payments within a month, estimates the benefit period of memberships to defer direct-response advertising, identifies services prior to receipt of invoice for accrual purposes, and estimates the useful life of assets to calculate depreciation. Actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally three to seven years.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income (loss).

Basic And Diluted Net Loss Per Share

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock warrants and conversion of convertible shares of preferred stock . In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. At March 31, 2006, there were 4,028,750 warrants outstanding that were eligible for conversion into shares of the Company’s common stock. At March 31, 2007, the Company had 10,136,068 warrants and convertible preferred stock outstanding that were eligible for conversion into shares of the Company’s common stock.

Stock Based Compensation

The Company has adopted the disclosure provisions only of SFAS No. 123 and continues to account for stock based compensation using the intrinsic value method prescribed in accordance with the provisions of APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Common stock issued to employees for compensation is accounted for based on the market price of the underlying stock, generally the average closing price.

8

During the three months ended March 31, 2007, the Company granted 437,102 options to purchase common stock under its employee stock option plan. The equivalent common share conversion for existing warrants to purchase convertible preferred shares and convertible preferred shares issued increased by 441,648 share equivalents based on conversion at 0.4167% of outstanding shares on the day of conversion. Additionally, 2,370,767 common shares were issued to the President of the Company to meet the requirements of his employment contract. The common shares issued to the President of the Company divest over twenty four months beginning on January 1, 2007, according to the terms of his contract, and must be returned or purchased should he terminate his employment during the divesting period. The strike prices on these issues range from $0.0 to $1.78 and each issue was accounted for in accordance with the provisions of APB No. 25.

Fair Value Of Financial Instruments

Statement of financial accounting standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are considered a reasonable estimate of fair value.

Comprehensive Income

Statement of financial accounting standards No. 130, "Reporting Comprehensive Income", (SFAS No. 130), establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company adopted this standard in 1998 and the implementation of this standard did not have a material impact on its financial statements.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payments terms when making estimates of the uncollectibility of the Company's trade accounts receivable balances. If the Company determines that the financial conditions of any of its customers deteriorated, whether due to customer specific or general economic issues, an increase in the allowance will be made. Accounts receivable are written off when all collection attempts have failed.

Inventory

The Company does not carry product inventories. Wholesale goods purchased for individual resale are drop shipped by third party suppliers. Marketing materials and other supplies which are kept on hand are generally expensed as purchased.
 
Revenue Recognition
 
The Company has eight revenue streams:

- Charging its members a monthly fee for the tools and services needed to create and run a successful Internet auction business.

- Offering its customers access to coaching services provided through a third party arrangement with 20-20 Advisors for a monthly fee. The Company began to offer this service in February 2005.

9

- Offering its customers access to discounted value-added services such as: prescription drug plans, roadside assistance, tax and legal services, real estate listing services, and discounted entertainment packages for a monthly fee. These services are currently offered to its customers through third party arrangements with suppliers such as My Computer Club, Inc., West, Inc. and InQ.

- Product sales via its website.

- Providing its customer information to third parties who compensate the Company with a fee for each customer’s contact information acquired, or by sharing the revenues generated from contacting the Company’s customer. Revenues generated by the sale of the Company’s customer information have been related to offers made to customers in a wide variety of industries. Revenues generated from sharing arrangements have primarily been related to the sale of extended business coaching products and services.

- Providing businesses with graphic design and printing services, data merge, mailing and finishing.

- Offering clients fulfillment services including: assembly, pick and pack, mailing, and warehousing and inventory management services.

- Design and implementation of cutting-edge technology for secure electronic payment modules, advanced content search tools, and secure data hosting.

The Company does not provide multiple deliverables to its customers as described in EITF 00-21. Instead, the Company generally uses one revenue stream to develop potential revenues from another source, not from the same source. As such, the Company does not anticipate that the adoption of EITF 00-21 has a material effect on the financial statements.

The Company's revenues earned from membership setup fees and monthly charges are recorded when the credit card transaction is processed and the Company has received confirmation that the credit card processing has been successful. The Company does not recognize the revenues earned related to membership fees charged to credit cards until the collection of the revenue is assured. This is due to the uncertainty surrounding the credit card transactions. Current terms of the onlinesupplier.com membership agreement stipulate that the customer pays a nonrefundable fee between $1.85 and $9.95 to set up an account. The customer then has a fourteen day period to review the Company's offerings. If the customer does not cancel the service within the fourteen day window, a charge of between $29.95 and $59.95 is billed to the customer's credit card on a monthly basis. The membership terms are agreed to under a negative option and the Company will continue to bill the customer on a monthly basis until they cancel their account.

The Company initiates the sale of products for its affiliates during the process of selling the Company's own products, normally when an individual accesses our internet home page or calls the Company's sales or customer service department. The Company's internal system maintains records of each sale of an affiliate's product. The affiliate completes the sales process by fulfilling the particular product. Payments are forwarded to the Company, plus or minus two percent of actual billings, when the affiliate has completed the fulfillment of their product and has approved the cross selling revenue due to the Company. On a historical basis, the Company’s affiliates have generally approved all sales initiated by the Company. The Company recognizes cross selling revenues once it has reconciled its internal records of cross selling sales with the affiliate's records. The Company has several contracts with affiliates. The terms of each contract are varied but in most cases, a minimum/flat amount of revenue is earned per sale based on a certain volume being reached.
 
10

The Company generates leads for Applied Merchant as potential customers of the Company contact the Company's customer service department. The Company can not reasonably determine the actual incremental cost incurred in the process of generating each telephone call from a potential customer. Therefore costs are expensed as incurred.

The Company recognizes income when the products are received by the customer. The Company applies the provisions of SEC Staff Accounting Bulletin ("SAB") No.104, "Revenue Recognition in Financial Statements" which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for the disclosure of revenue recognition policies. The Company's revenue recognition policy for sale of products is in compliance with SAB No. 104. Revenue from the sale of products is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed and collectibility is reasonably assured. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations. The Company accounts for sales returns related to product sales on an individual basis, as they occur. Sales returns related to product sales have not been significant in the past.

Advertising Costs
 
The Company expenses the media costs of advertising the first time the advertising takes place, except for direct-response advertising that is contracted with its advertising partners on a cost per customer acquired basis, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of on line advertising that include reference codes that are used for purchasing the Company’s products and services. The capitalized costs of the advertising are amortized over the three-month period following the receipt of a trial order for the Company’s products and services. At March 31, 2007, and March 31, 2006, capitalized direct-response advertising costs of $2,387,623 and $890,806, respectively, were included in "Prepaid Expenses" in the accompanying Balance Sheets. Advertising expense was $3,466,046 for the three months ended March 31, 2007 and $1,106,616 for the same period in 2006.

Discontinued Operations

During 2005, the Company determined to cease operations at Auction Liquidator, Inc. and Discount Online Warehouse in order to focus its efforts and resources on Onlinesupplier.com. Discontinued operations did not have a material effect on the Company’s financial statements for the period ended March 31, 2007.

NOTE 2 - FEDERAL INCOME TAXES

The Financial Accounting Standards Board (“FASB”) has issued Statement of Financial Accounting Standards Number 109 ("SFAS 109"). "Accounting for Income Taxes", which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

 
 
Mar 31, 2007
 
Deferred tax assets
 
 
 
Net operating loss carryforwards
 
$
1,393,643
 
Depreciation
   
825,541
 
Total deferred tax assets
   
2,219,184
 
         
Deferred tax liabilities
     
Stock based compensation
 
$
479,133
 
Meals
   
10,831
 
Total deferred tax liabilities
   
489,964
 
         
Net deferred tax
 
$
1,729,220
 
 
At March 31, 2007, the Company had net deferred tax of $1,729,220 for federal income tax purposes. Of this total $1,393,643 are net operating loss carryforwards which, if not utilized to offset taxable income, will begin to expire in 2025.

11

 
NOTE 3 - ACCOUNTS RECEIVABLE

As of March 31, 2007, accounts receivable consists of the following:

 
 
Mar 31, 2007
 
Accounts Receivable
 
 
 
Impact Legal
 
$
313,963
 
Merchant Cards
   
1,147,323
 
Other Trade
   
925,735
 
Allowance for Doubtful Accounts
   
(325,096
)
 
     
Total
 
$
2,061,925
 

Merchant cards include multiple merchant card membership and sign-up transactions ranging from $1.00 to $59.95 that were billed but not settled at the end of the period. Other Trade are business partner receivables for upsell and lead sale revenues, excluding Impact Legal, none of which are material.

NOTE 4 - OTHER RECEIVABLES

As of March 31, 2007, other receivables consists of the following:

 
 
Mar 31,
2007
 
Other Receivables
 
 
 
Merchant Card Reserve
 
$
3,758,480
 
Return Provision
   
(264,319
)
Other
   
43,207
 
         
Total
 
$
3,537,368
 
 
12

NOTE 5 - PREPAID EXPENSES

As of March 31, 2007, prepaid expenses consists of the following:

 
 
Mar 31,
2007
 
Prepaid Expenses
 
 
 
Deferred Advertising
 
$
2,387,623
 
Insurance
   
161,890
 
Advertising
   
95,473
 
Other
   
188,360
 
         
Total
 
$
2,833,346
 
 
NOTE 6 - ACCOUNTS PAYABLE & ACCRUED EXPENSES
 
As of March 31, 2007, accounts payable and accrued expenses consists of the following:

 
 
Mar 31, 2007
 
Accounts Payable and Accrued Expenses
 
$
2,077,368
 
Accrued Payroll and Payroll Taxes
 
$
577,137
 
Accrued Interest
   
-
 
 
     
Total
 
$
2,654,505
 
 
NOTE 7 - NOTES PAYABLE

The Company established a Note Payable for the financing of its Directors and Officers Liability Insurance on November 1, 2006. At March 31, 2007 the Notes Payable balance was $40,300 which represents the Company’s entire debt. The total premiums for the policy are $120,088 and $88,875 which were financed after a down payment of $31,212. The balance was financed for 9 months at an annual interest rate of 9.75%.

NOTE 7 - CAPITAL STOCK

Preferred Stock

On August 3, 2006, the Company authorized 100 shares of preferred series “D” stock at par value of $0.001. Shares of preferred stock convert at 0.4167% of outstanding shares of common stock on the day of conversion. As of March 31, 2006, 14 preferred shares were outstanding as follows:
 
Michael Hill
7 shares
Charlie Gugliuzza
7 Shares
 
Common Stock

In January 2004, the Company increased the number of authorized shares of common stock to 300,000,000. The Company effectuated a 3 for 1 forward stock split on February 18, 2005. All shares have been stated to retroactively affect this reverse stock split.
 
13

During the three month period ended March 31, 2007, the following shares of common stock were issued / repurchased by the Company:

Name
 
Transaction Type
 
Date
 
Issued /
(Repurchased)
 
Outstanding at 12/31/06
           
47,193,839
 
Commerce Planet
   
Shares Repurchased
   
01/02/07
   
(2,000
)
Commerce Planet
   
Shares Repurchased
   
01/03/07
   
(15,000
)
Affiliate
   
Warrant Exercise
   
01/09/07
   
50,000
 
Affiliate
   
Stock Award
   
02/16/07
   
2,370,767
 
Affiliate
   
Conversion of preferred stock
   
02/16/07
   
209,146
 
Affiliate
   
Warrant Exercise
   
02/16/07
   
100,000
 
Affiliate
   
Warrant Exercise
   
02/16/07
   
250,000
 
Commerce Planet
   
Shares Repurchased
   
03/09/07
   
(30,500
)
Commerce Planet
   
Shares Repurchased
   
03/12/07
   
(20,000
)
Commerce Planet
   
Shares Repurchased
   
03/14/07
   
(22,000
)
Commerce Planet
   
Shares Repurchased
   
03/19/07
   
(54,500
)
Commerce Planet
   
Shares Repurchased
   
03/20/07
   
(52,500
)
Commerce Planet
   
Shares Repurchased
   
03/21/07
   
(11,000
)
Commerce Planet
   
Shares Repurchased
   
03/27/07
   
(12,000
)
Commerce Planet
   
Shares Repurchased
   
03/28/07
   
(33,000
)
Commerce Planet
   
Shares Repurchased
   
03/29/07
   
(18,500
)
Commerce Planet
   
Shares Repurchased
   
03/30/07
   
(23,500
)
Oustanding at 03/31/07
               
49,879,252
 
 
During the three month period ended March 31, 2007, the Board of Directors approved the issuance of warrants to purchase an aggregate of 878,750 shares of the Company's common stock. Such warrants are exercisable at prices ranging from $0.01 to $2.15 per share, vest over periods up to 24 months, and expire at various times through March 2012. During the three month period ended March 31, 2007, 609,146 warrants and preferred shares were exercised or converted. The average remaining contractual life of all outstanding warrants and convertible stock is 3.5 years.

A summary of warrant activity for the three month period ending March 31, 2007, including preferred share equivalents, is as follows:
 
   
Weighted Average
 
Weighted Average
 
 
 
Issued 
 
Price
 
Exercisable
 
Price
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2006
   
11,633,634
 
$
0.49
   
9,996,722
 
$
0.47
 
 
                 
Granted
   
878,750
 
$
1.59
   
742,492
   
1.11
 
Exercised
   
(609,146
)
 
0.08
   
(609,146
)
 
0.08
 
Outstanding, March 31, 2007
   
11,903,238
 
$
0.59
   
10,136,068
 
$
0.54
 
 
14

NOTE 8 - OTHER INCOME AND EXPENSE

For the three month period ending March 31, 2007, other income and expenses consists of the following:

 
 
March 31,
2007
 
Other Income/Expense
     
Other Income
   
(2,142
)
Interest Income
   
(16,621
)
Interest Expense
   
1,461
 
Other Expense
   
803
 
Other (Income)/Expense
   
(16,499
)

NOTE 9 - LONG TERM INVESTMENTS

During the three month period ending March 31, 2007, the Company made an equity investment in the amount of $100,000 to purchase 1,424,501 shares of Series C Convertible Preferred Stock issued by Content Directions, Inc., D.B.A.Linkstorm. The purchased shares represent 2.4% of the total shares issued and outstanding.

NOTE 10 - COMMITMENTS & CONTINGENCIES

Commitments

Minimum future rental payments under non-cancelable operating leases as of March 31, 2007, for each of the next five years and in the aggregate are as follows:

2007
 
$
214,355
 
2008
 
$
293,229
 
2009
 
$
120,976
 
 
     
Total
 
$
628,560
 
 
The Company entered a two year cost plus agreement on October 11, 2006, with Datascension, Inc., an unrelated party, that enables Consumer Loyalty Group to operate a state of the art call center. The call center became operational on November 27, 2006 and is utilized to support Consumer Loyalty Group customer service and sales efforts at dramatically lowered costs in comparison to their U.S. based counterparts.

The Company’s bank deposits at Bank of America, First Republic Bank, and First Regional Bank all exceed the federally insured limit of $100,000.
 
15

 

You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements, including statements regarding our expansion plans. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our "Risk Factor" section and elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

OVERVIEW
 
Commerce Planet is a publicly-traded media company which trades on the Over-the-Counter Bulletin Board of the National Quotation Service under the ticker symbol "CPNE." We offer media products, lead generation services and marketing tools to our client partners. We offer a turnkey media solution through our network of wholly-owned subsidiaries, Consumer Loyalty Group, Inc., Legacy Media, Inc., OS Imaging, Inc., and Interaccurate, Inc.

Each subsidiary specializes in a specific niche of the media industry. Their combined services are designed to address all the needs of their client partners including: membership loyalty offers, consumer marketing data management, affiliate list management, printing and fulfillment services and Web/Data hosting and software development.
 
CRITICAL ACCOUNTING POLICIES

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results. Our preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Our accounting policies that are the most important to the portrayal of our financial condition and results, and which require the highest degree of management judgment relate to revenue recognition, the provision for uncollectible accounts receivable, property and equipment, advertising and issuance of shares for service.

We estimate the likelihood of customer payment based principally on a customer's credit history and our general credit experience. To the extent our estimates differ materially from actual results, the timing and amount of revenues recognized or bad debt expense recorded may be materially misstated during a reporting period.

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, e.g. computers (5 years), software (3 years), office equipment and furniture (3-7 years).

Leasehold improvements are amortized over the remaining lease term at the date of installation. Expenditures for maintenance and repairs are charged to expense as incurred.
 
16

 
We expense the media costs of advertising the first time the advertising takes place, except for direct-response advertising that is contracted with our advertising partners on a cost per customer acquired basis, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of on line advertising that includes unique reference codes and URL tracking that are used for purchasing our products and services. The capitalized costs of the advertising are amortized over the three-month period following the receipt of a trial order for our products and services.

At March 31, 2007 and March 31, 2006, capitalized direct-response advertising costs of $2,387,623 and $890,806, respectively, were included in "Prepaid Expenses" in the accompanying Balance Sheets. Advertising expense was $3,466,046 for the three months ended March 31, 2007 and $1,106,616 for the same period in 2006.

We account for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.

We recognize r revenue in accordance with the provisions of the SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. Our revenues earned from membership setup fees and monthly charges are recorded when the credit card transaction is processed and the Company has received confirmation that the credit card processing has been successful. Current terms on membership agreements stipulate that the customer pays a nonrefundable fee ranging from $1.95 to $9.95 to setup an account. The customer then has a fourteen day period to review our offerings. If the customer does not cancel the service within the fourteen day window, a charge of $29.95 to $59.95 is billed to the customer's credit card on a monthly basis. The membership terms are agreed to under a negative option and we will continue to bill the customer on a monthly basis until they cancel their account. Bulletin No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for the disclosure of revenue recognition policies. Our revenue recognition policy for sale of products is in compliance with Bulletin No. 104. Revenue from the sale of products is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed and collectibility is reasonably assured. Generally, we extend credit to our customers and do not require collateral. We perform ongoing credit evaluations of our customers and historic credit losses have been within management's expectations.
 
PERIOD ENDED MARCH 31, 2007, AS COMPARED TO PERIOD ENDED MARCH 31, 2006

Revenues
 
We generated net revenues of $13,235,726 for the three months ended March 31, 2007, as compared to $3,932,343 for the three months ended March 31, 2006. The increase year-over-year resulted in growth of 236.6%.

   
Three Months Ended
March 31
     
 
 
2007
 
2006
 
% Change
 
Revenue
 
 
 
 
 
 
 
Membership Revenue
 
$
1,520,386
 
$
3,307,623
   
250.5
%
Upsell Revenue
   
984,357
   
210,521
   
367.6
%
Lead Revenue
   
649,492
   
388,827
   
67.0
%
Fulfillment/Other Revenue
   
81,491
   
25,372
   
221.2
%
                     
Total Revenue
    13,235,726     3,932,343     236.6 %
 
17

 
Membership revenues contributed 87.0% to total revenues for the period ending March 31, 2007 as compared to 84.1% for the same period in 2006 while increasing by 248.3%. Increased memberships year-over-year was the primary contributor to the growth in membership revenues driven by record sign-ups in the fourth quarter of 2006.

Upsell revenues contributed 7.4% to total revenues for the three months ending March 31, 2007 as compared to 5.4% for the same period in 2006 while increasing by 367.6%. We provide access to business partners’ product offerings though our website for which they pay fees. Our growth in memberships over the prior periods and increased website traffic drove higher revenues derived from our partners’ offerings.
 
Lead revenues contributed 4.9% to total revenues for the period ending March 31, 2007 as compared to 9.9% for the same period in 2006 while increasing by 67.0%. Our increasing membership base and website traffic increases the quantity of leads available resulting in higher revenues.

Printing, fulfillment and other revenues contributed 0.6% to total revenues for the period ending March 31, 2007 as compared to 0.7% for the same period in 2006 while increasing by 221.2%. The increases in revenue in this category were driven by the addition of printing and fulfillment services through the acquisition of One Source Imaging.

Costs Of Goods Sold

We incurred costs of sales of $2,556,490 for the three months ended March 31, 2007, as compared to $687,575 for the same period in 2006. Costs of goods sold increased by 271.8% and increased to 19.3% from 17.5% of revenues for the same period last year. The overall increase is primarily due to the increased number memberships generating an increased volume of transaction related costs. Additionally, the rates for transaction related fees as well as higher return and charge back rates resulted in increase in the percentage of costs of good sold proportional to revenue.

Operating Expenses

We incurred costs of $6,574,028 for the three months ended March 31, 2007 as compared to $2,710,181 for the same period in 2006. While operating expenses increased by 142.6% over the prior year period these expenses were spread over much higher revenue resulting in a reduction in operating expenses as a percentage of revenue to 49.7% from 68.9%.
 
   
Three Months Ended March 31
     
   
2007
 
2006
 
% Change
 
Expense
 
 
 
 
 
 
 
Salaries
 
$
1,616,629
 
$
533,213
   
203.2
%
Stock Compensation
   
238,022
   
185,000
   
28.7
%
Advertising
   
3,466,046
   
1,106,616
   
211.4
%
Other Expenses
   
1,273,331
   
885,352
   
43.8
%
 
             
Total Operating Expense
 
$
6,574,028
 
$
2,710,181
   
142.6
%
 
18

 
Expenses for salaries increase by 203.2% during the three months ended March 31, 2007 as compared to the same period in 2005. Salary and related expenses increased as we increased the depth of our management team, and our administrative staff. At the same time, expenses decreased to 12.2% of revenue from 13.6% in the same period last year as result of more efficient operations and the use of our Costa Rica call center operated by Datascension.
 
Expenses for stock compensation increased by 28.7% for the three months ended March 31, 2007 as compared to the same period in 2006 while falling to 1.8% of revenue verses 4.7% in 2006 for the same period. The increase in this non cash expense is due to the issue of stock to management staff as well as the implementation of our stock option plan for salaried staff.

Advertising expense increased by 211.4% from the year earlier period. The higher gross costs of advertising were lower as a percentage of revenue at 26.0% compared to 28.1% for the same period last year.

Other expenses grew 43.8% as compared to the same period last year. We increased our expenses for outside services including legal and professional fees to support our business growth, as well as travel, facilities, depreciation expense, and we increased our provision for doubtful accounts related to an old customer balance. While gross spending increased, other expenses fell to 9.6% of revenue compared to 22.5% for the same period last year.
 
Other Income And Expense

Other income and expense for the three months ended March 31, 2007 provided net other income of $16,499 compared to a net expense of $340,207 for the same period in 2006. The elimination of our convertible debt during 2006 resulted in the reduction in interest expense and our cumulating cash balances are provided interest income.

 
 
Three Months Ended
March 31
 
 
 
2007
 
2006
 
Other (Income)/Expense
         
Other Income
 
$
(2,142
)
$
-
 
Interest Income
   
(16,621
)
 
-
 
Interest Expense
   
1,461
   
340,207
 
Other Expense
   
803
   
-
 
 
 
$
(16,499
)
$
340,207
 
 
19

 
Income Before Income Taxes
 
We had income before income taxes of $4,121,708 for the three months ended March 31, 2007, compared to $194,380 for the same period last year. Non-cash charges to income comprised $530,766 and $598,590 for the three months ended March, 2007 and 2006, are summarized as follows:
 
   
Three Months Ended
March 31
 
 
 
2007
 
2006
 
Stock issued for services
  $    
$
$104,668
 
Depreciation and amortization
   
78,755
   
44,733
 
Allowance for doubtful accounts
   
213989
   
12,500
 
Stock Compensation
   
238,022
   
185,000
 
Amortization of debt interest
       
214,278
 
Debt conversion feature expense
         
37,411
 
 
 
$
530,766
 
$
598,590
 

Income Taxes and Net Income
 
We recognized income tax expense of $447,972 for the three months ended March 31, 2007 resulting in net income of $3,673,736 compared to net income of $194,380 for the same period last year. No income tax expense was booked in 2006 due to the application of our net operating loss carryforwards. Our tax expense is a combination of our estimated tax liability and the recognition of deferred tax assets and liabilities as described in Note 2 in the financial statement section. Unlike prior periods, because of our improved operating results, we expect to have a continuing income tax obligation.

Basic And Diluted Loss Per Share
 
Our basic income per share for the three months ended March 31, 2007 was $0.08 as compared to $0.0 for the same period in 2006. Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share was $0.07 compared to $0.0 per common share for the same period in 2006 and is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock warrants and conversion of convertible debt. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

Material Trends and Uncertainties

Our membership revenues are generated by charging our members a monthly fee for the tools and services needed to create and run a successful Internet auction business. Members sign-up for our services at our website after having been directed to our website by internet advertising campaigns for which we pay a fee for each sign-up. As we closed the year in 2006 and began 2007 we generated record volumes of sign-ups from orders generated through our affiliate networks which partially contributed to membership revenues during the three months ended March 31, 2007. We also experienced a large amount of poor quality sign-ups and a higher than normal level of potential online fraud in conjunction with the record sign-ups resulting in increases in both our return rate and our chargeback rate.

In response, we have reduced our advertising related to these programs as we implement preventative measures and analyze the results of these measures. We expect that our gross transactions will decline but that our return rates and chargeback percentages will return to normal levels, and that the conversion rate from sign-up to billable membership will improve as a result of our actions. It is not clear how much the second quarter’s performance will be impacted by these changes, but revenues generated from this source will likely be reduced at least temporarily.

The higher chargeback volume as a percentage of gross transaction volume is viewed as a potential credit risk by our merchant processing banks. An unfavorable credit risk assessment may result in increased transactional fees and penalties, and higher reserve requirements. We depend on our banking relationships to provide payment processing to all our customers. If chargeback volumes continue at a high rate as compared to gross transaction volume, our merchant processing banks may determine that we are too high a credit risk and decline to continue to provide payment processing services which would impact our ability to bill and collect payment from our membership customers. In addition, processing rates may increase in relation to the increased risk assessed by our processing banks.
 
20

We are aggressively pursuing opportunities to increase traffic at our websites and partner websites to offset these risks and grow long term revenues from memberships as well as, upsell, and lead generation revenues. We expect that increasing our website traffic from sources other than our current affiliate network will improve the volume and quality of sign-ups, and reduce both our return rate and chargeback rate.

Liquidity And Capital Resources

As of March 31, 2007, our Total Current Assets were $16,067,696 and our Total Current Liabilities were $6,703,214. Our Stockholders' Equity at March 31, 2007 was $10,966,785.

During 2006, all of our promissory notes and convertible debt were repaid. During the fourth quarter of 2006 we financed an insurance policy which had a balance of $40,300 which constituted our entire debt at March 31, 2007.

As a result of the higher number of chargebacks as a percentage of billing transactions during the three months ending March 31, 2007 described above, we have been required to increase our merchant card reserves at our merchant processors bank. We deposited $1,000, 000 by wire transfer into our reserve account on May 3, 2007. These funds will be unrestricted and returned if chargeback percentages return to normal levels. We anticipate that the preventative measures we have implemented will cause our chargebacks to return to their previous levels. Merchant reserves are classified on our balance sheet as other receivables.

Because of the favorable results from operations and our expectations that our success will continue we will be required to make tax payments during the quarter ending June 30, 2007. These tax obligations will continue in conjunction with our ongoing profitability in contrast with the prior cumulative loss that resulted in immaterial tax obligations.

We believe that cash generated from operations will be sufficient to fund operations and capital requirements as presently planned over the next twelve months. We anticipate putting a line of credit in place and/or raise funds through the sale of securities to assist with short term cash needs should we identify acquisition opportunities.

Seasonality

Historically, our business has not been susceptible to significant seasonal factors and we anticipate it will not be in the future.

Commitments

Minimum future rental payments under non-cancelable operating leases as of March 31, 2007, for each of the next five years and in the aggregate are as follows:
 
2007
 
$
214,355
 
2008
 
$
293,229
 
2009
 
$
120,976
 
 
     
Total
 
$
628,560
 

We entered a two year cost plus agreement on October 11, 2006, with Datascension, Inc., an unrelated party, that enables Consumer Loyalty Group to operate a state of the art call center. The call center became operational on November 27, 2006 and is utilized to support Consumer Loyalty Group customer service and sales efforts at dramatically lowered costs in comparison to their U.S. based counterparts.
 

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-QSB. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
21

 
 
ITEM 1. LEGAL PROCEEDINGS.

We believe that there are no claims or litigation pending against the company or our officers and directors in their roles as such, the outcome of which could have a material adverse effect on our financial condition or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not sell any unregistered securities in the three month period ending March 31, 2007.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

Not applicable.


No matters were submitted to a vote of security holders during the first quarter of 2007.

ITEM 5. OTHER INFORMATION

Not applicable.
 
ITEM 6. EXHIBITS

EXHIBIT NUMBER
DESCRIPTION
   
2.1
Agreement and Plan of Reorganization between Utah Clay Technology, Inc. and NeWave, Inc., D.B.A. Online Supplier NeWave Shareholders and Dutchess Advisors, Ltd., dated December 24, 2003 (included as Exhibit 2.1 to the Form 8-K filed February 12, 2004, and incorporated herein by reference).
   
3.1
Articles of Incorporation (included as Exhibit 3.(i) to the Form SB-2/A filed April 11, 2000, and incorporated herein by reference).
   
3.2
Amended Articles of Incorporation (included as Exhibit 3.(i) to the Form 10-QSB filed November 14, 2001, and incorporated herein by reference).
   
3.3
Articles of Amendment to Articles of Incorporation, dated January 30, 2004 (included as Exhibit 3.2 to the 10-QSB filed May 24, 2004, and incorporated herein by reference).
   
3.4
By-laws (included as Exhibit 3.(ii) to the Form SB-2/A filed April 11, 2000, and incorporated herein by reference).
   
3.5
Articles of Amendment to the Amended and Restated Articles of Incorporation, dated May 18, 2006 (include as Exhibit 3.1 to the Form 8K filed June 8, 2006, and incorporated herein by reference).
   
3.6
Certificate of Designation of Series C Convertible Preferred Stock (included as Exhibit 4.1 to the 10-KSB filed April 14, 2004, and incorporated herein by reference).
   
3.7
Certificate of Designation for Series D Convertible Preferred Stock (included as Exhibit 3.1 to the Form 8-K filed August 9, 2006, and incorporated herein by reference).
   
3.8
Restated Bylaws (included as Exhibit 3.1 to the Form 8-K filed September 8, 2006, and incorporated herein by reference).
   
4.1
Form Series C Convertible Preferred Stock Purchase Agreement (included as Exhibit 4.2 to the 10-KSB filed April 14, 2004, and incorporated herein by reference).
   
4.2
Warrant Agreement between the Company and Dutchess Private Equities Fund, II, LP, dated April 1, 2004 (included as Exhibit 4.10 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.3
Warrant Agreement between the Company and eFund Capital Partners, dated April 2, 2004 (included as Exhibit 4.11 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.4
Warrant Agreement between the Company and Dutchess Private Equities Fund, II, LP, dated May 5, 2004 (included as Exhibit 4.12 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.5
Warrant Agreement between the Company and eFund Capital Partners, dated May 5, 2004 (included as Exhibit 4.13 to the Form SB-2 filed October 8, 2004,and incorporated herein by reference).
 
22

 
4.6
Warrant Agreement between the Company and Dutchess Private Equities Fund, II, LP, dated July 9, 2004 (included as Exhibit 4.14 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.7
Warrant Agreement between the Company and Dutchess Private Equities Fund, II, LP, dated August 18, 2004 (included as Exhibit 4.18 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.8
Warrant Agreement between the Company and eFund Small Cap Fund, LP, dated August 18, 2004 (included as Exhibit 4.19 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.9
Warrant Agreement between the Company and Dutchess Private Equities Fund, LP, dated September 25, 2004 (included as Exhibit 4.22 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.10
Warrant Agreement between the Company and eFund Small Cap Fund, LP, dated September 25, 2004 (included as Exhibit 4.23 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
4.11
Warrant Agreement between the Company and Dutchess Private Equities Fund, II, LP, dated October 25, 2004 (included as Exhibit 4.26 to the Form 10-KSB filed April 15, 2005, and incorporated herein by reference).
   
4.12
Warrant Agreement between the Company and Dutchess Private Equities Fund, LP, dated November 11, 2004 (included as Exhibit 4.28 to the Form 10-KSB Filed April 15, 2005, and incorporated herein by reference).
   
4.13
Warrant Agreement between the Company and Dutchess Private Equities Fund, LP, dated December 28, 2004 (included as Exhibit 4.30 to the Form 10-KSB filed April 15, 2005, and incorporated herein by reference).
   
4.14
Stock Subscription Agreement between the Company and Gary D. Elliston, dated December 22, 2005, (included as Exhibit 4.51 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.15
Stock Subscription Agreement between the Company and Cliff M. Holloway, dated December 22, 2005, (included as Exhibit 4.52 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.16
Stock Subscription Agreement between the Company and John C. Boutwell, Jr, dated December 22, 2005, (included as Exhibit 4.53 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.17
Stock Subscription Agreement between the Company and Mr. and Mrs. Jack B. Manning, dated December 22, 2005, (included as Exhibit 4.54 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.18
Stock Subscription Agreement between the Company and Stephen Moore, dated December 22, 2005, (included as Exhibit 4.55 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.19
Stock Subscription Agreement between the Company and Monte L. Roach, dated December 22, 2005, (included as Exhibit 4.56 to the Form 10-KSB dated March 21, 2006, and incorporated by reference).
   
4.20
Convertible Promissory Notes between the Company and Ronald Feldman, dated January 9, 2006 (included as Exhibit 4.57 to the Form 10-QSB filed May 8, 2006 and incorporated herein by reference).
 
23

 
4.21
Convertible Promissory Notes between the Company and Ronald Feldman, dated January 9, 2006 (included as Exhibit 4.58 to the Form 10-QSB filed May 8, 2006 and incorporated herein by reference).
   
4.22
Convertible Promissory Notes between the Company and Wakelin McNeel, dated January 6, 2006 (included as Exhibit 4.57 to the Form 10-QSB filed May 8, 2006 and incorporated herein by reference).
   
10.1
2000 Stock Option Plan (included as Exhibit 9 to the Form SB-2/A filed April 11, 2000, and incorporated herein by reference).
   
10.2
Sublease between the Company and Pinnacle Sales Group, LLC, dated August 18, 2003 (included as Exhibit 10.1 to the Form 10-KSB filed April 14, 2004, and incorporated herein by reference).
   
10.3
Sublease Agreement between the Company and Mammoth Moving Inc., dated July 14, 2003 (included as Exhibit 10.2 to the Form 10-KSB filed April 14, 2004, and incorporated herein by reference).
   
10.4
Lead Marketing Agreement between the Company and Vandalay Venture, Group, Inc. d/b/a Applied Merchant, dated June 2004 (included as Exhibit 10.13 to the Form 10-QSB filed August 23, 2004, and incorporated herein by reference).
   
10.5
Standard Multi-Tenant Office Lease between the Company and La Patera Investors, dated April 9, 2004 (included as Exhibit 10.17 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
10.6
ASP Software Subscription Agreement between the Company and Net Chemistry, dated August 11, 2004 (included as Exhibit 10.18 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
10.7
Amendment to Membership Agreement between the Company and Memberworks, dated August 17, 2004 (included as Exhibit 10.21 to the Form SB-2 filed October 8, 2004, and incorporated herein by reference).
   
10.8
Debt Financing Agreement between the Company and Sharon Paugh, dated January 26, 2004 (included as Exhibit 10.26 to the Form SB-2 filed December 9, 2004, and incorporated herein by reference).
   
10.9
Debt Financing Agreement between the Company and Jennifer Strohl, dated March 22, 2004 (included as Exhibit 10.27 to the Form SB-2 filed December 9, 2004, and incorporated herein by reference).
   
10.10
Business Services Agreement between the Company and Luminary Ventures, Inc., dated March 3, 2005 (included as Exhibit 10.1 to the Form S-8 filed April 29, 2005, and incorporated herein by reference).
   
10.11
Corporate Consulting Agreement between the Company and eFund Capital Partners LLC dated November 1, 2005 (included as Exhibit 10.1 to the Form 8-K filed February 17, 2006, and incorporated by reference herein).
   
10.12
Corporate Consulting Agreement between the Company and Olive Tree LLC dated June 28, 2005, as amended on October 25, 2005, October 31, 2005, and January 4, 2006 (included as Exhibit 10.32 to the Form 10-KSB filed March 21 2006, and incorporated herein by reference).
 
24

 
10.13
Corporate Consulting Agreement between the Company and SeaCoast Financial LLC, dated February 7, 2006 (included as Exhibit 10.33 to the Form 10-QSB filed May 8, 2006, and incorporated herein by reference).
   
10.14
Asset Purchase Agreement by and among the Company and Onesource Imaging, Miquel A. Vazquez and Joanie Vazquez dated June 1, 2006 (included as Exhibit 10.1 to the Form 8-K filed June 8, 2006, and incorporated herein by reference).
   
10.15
General Assignment and Bill of Sale between the Company and Onesource Imaging, Inc., dated June 1, 2006 (included as Exhibit 10.2 to the Form 8-K filed June 8, 2006, and incorporated herein by reference).
   
10.16
Executive Employment Agreement between the Company and Miguel Vazquez, dated June 1, 2006 (included as Exhibit 10.3 to the Form 8-K filed June 8, 2006, and incorporated herein by reference).
   
10.17
Employment Offer Letter between the Company and Dave Foucar, dated June 8, 2006 (included as Exhibit 10.1 to the Form 8-K filed June 21, 2006, and incorporated herein by reference).
   
10.18
Employment Agreement between the Company and Michael Hill, dated September 7, 2006 (included as Exhibit 10.1 to the Form 8-K filed September 8, 2006, and incorporated herein by reference).
   
10.19
Employment Agreement between the Company and Charlie Gugliuzza, dated September 7, 2006 (included as Exhibit 10.2 to the Form 8-K filed September 8, 2006, and incorporated herein by reference).
   
14.1
Corporate Code of Conduct and Ethics (included as Exhibit 14.1 to the 10-KSB filed April 14, 2004, and incorporated herein by reference).
   
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
25

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Goleta, State of California on the 14th day of May 2007.

COMMERCEPLANET, INC.
 
/s/ Michael Hill
By: Michael Hill
Title: Chief Executive Officer
 
Date: May 14, 2007
 
 
 
/s/ David Foucar
By: David Foucar
Title: Chief Financial Officer
Principal Accounting Officer
 
Date: May 14, 2007
 
26