Form 10-KSB/A December 31, 2002
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
Amendment
No. 1
(Mark
One)
|
[X]
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
fiscal year ended December 31, 2002.
|
[_]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
transition period from ________ to _________.
Commission
File Number: 0-29963
FINDEX.COM,
INC.
(Name
of
Small Business Issuer in its Charter)
|
Nevada
|
88-0379462
|
|
(State
or other Jurisdiction of
|
(I.R.S.
Employer
|
|
Incorporation
or Organization)
|
Identification
No.)
|
|
11204
Davenport Street, Suite 100, Omaha, Nebraska
|
68154
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(402)
333-1900
(Issuer’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value
(Title
of
Class)
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 [_]
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
Revenues
for the fiscal year ended December 31, 2002 totaled $3,908,694.
As
of
September 27, 2005, the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the average of
the
closing bid and asked prices on such date was approximately
$2,542,000.
At
September 28, 2005, the registrant had outstanding 48,619,855 shares of common
stock, of which there is only a single class.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Transitional
Small Business Disclosure Format (check one):
Yes
__ No
X
Explanatory
Note
We
are
filing this Amendment Number 1 to our Annual Report on Form 10-KSB for the
year
ended December 31, 2002 to restate our financial statements for the year ended
December 31, 2002 to correct certain errors identified during a regulatory
review of our financial statements associated with a certain registration
statement filed with the SEC on November 22, 2004 on Form SB-2 and which is
pending effectiveness as of the date of this filing of Amendment Number 1 to
Form 10-KSB for the year ended December 31, 2002. There was no net effect on
either cash provided by operating activities or cash used by investing and
financing activities for the year ended December 31, 2002 as a result of
corrections to the financial statements for the period covered by the report.
We
entered into a license agreement in June 1999 with Parsons Technology, Inc.
to
manufacture, distribute and sell a variety of software titles, including
those
generated from sales of QuickVerse ®and
Membership Plus ®,
by far
our two largest selling software titles. During
the three month period ended June 30, 2002, we offset the remaining unpaid
installment under the 1999 license ($1,051,785) against the carrying amount
of
such license in accordance with the terms of a then tentative settlement
agreement with The Learning Company (“TLC”), the licensor-assignee at the time.
Although paragraph 6 of Statement of Financial Accounting Standards (“SFAS”) No.
141, Business
Combinations,
which
guides the recognition and measurement of intangible assets, provides that
the
measurement of assets in which the consideration given is cash are measured
by
the amount of cash paid, our management has since concluded that too much
time
had passed between the date of the agreement (June 1999) and the date of
the
tentative settlement (May 2002) for such an offset to be appropriate. Therefore,
we have recognized the extinguishment of the liability owed to TLC as income
in
the statement of operations for the period covered by this report. We have
restated our consolidated balance sheet as of December 31, 2002 and our
consolidated statements of operations, consolidated statements of stockholders’
equity, and consolidated statements of cash flows for the year then
ended.
Also
during the three month period ended June 30, 2002, we had extended the estimated
life of the 1999 license from 10 years to 50 years in accordance with the
terms
of the tentative settlement agreement with TLC. Although the 1999 license,
as
amended, provides for our unlimited and exclusive use of the trademarks related
to the licensed products, and our management has assessed the useful life
of the
1999 license as indefinite (though limited under the applicable contractual
provisions to 50 years) based on the estimated future direct or indirect
cash
flows from the license, as provided by paragraphs 53 and 11 of SFAS No. 142,
Goodwill
and Other Intangible Assets,
our
management has since concluded that a 10 year life is appropriate based,
among
other reasons, on the going concern qualification contained in the audit
report
for the period covered by this report. We have restated our consolidated
balance
sheet as of December 31, 2002 and our consolidated statements of operations,
consolidated statements of stockholders’ equity, and consolidated statements of
cash flows for the year then ended.
Finally,
we had previously, and erroneously, included rebates in sales and marketing
expenses. The more appropriate presentation should have been, and is now,
as a
reduction to revenue, as provided by the Financial Accounting Standard Board’s
(“FASB’s”) Emerging Issues Task Force (“EITF”) Issue No. 01-09, Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of
the
Vendor’s Products).
As
provided by paragraph 12 of EITF Issue No. 01-09, the comparative period
presented for the year ended December 31, 2001 has been reclassified to conform
with the 2002 presentation.
A
discussion of the restatement is included in Note 18 to the financial statements
included within this amendment. Changes have also been made to the following
items in this amendment as a result of the restatement:
This
Amendment Number 1 to Form 10-KSB for the year ended December 31, 2002 does
not
otherwise change or update the disclosures set forth in the Form 10-KSB for
the
year then ended as originally filed and does not otherwise reflect events
occurring after the filing of the Form 10-KSB. For a description of our business
and the risks related to our business, please see our Annual Report on Form
10-KSB/A for the year ended December 31, 2004.
PART
II
The
following discussion should be read together with the consolidated financial
statements of FindEx.com, Inc. and the notes to the consolidated financial
statements included elsewhere in this Form 10-KSB/A.
THE
FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS REGARDING
OUR
EXPECTATIONS FOR OUR BUSINESS AND ITS CAPITAL RESOURCES. THESE EXPECTATIONS
ARE
SUBJECT TO VARIOUS UNCERTAINTIES AND RISKS THAT MAY CAUSE ACTUAL RESULTS TO
DIFFER SIGNIFICANTLY FROM THESE FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION
OF
CERTAIN LIMITATIONS INHERENT IN SUCH STATEMENTS, SEE “FORWARD-LOOKING
STATEMENTS” BELOW.
GENERAL
We
are a
developer, publisher, distributor and supplier of “inspirational” and Christian
faith-based, off-the-shelf software products to individuals and religious and
other spiritual organizations including schools, churches and other faith-based
ministries.
Our
business plan is focused on fulfilling our objective of becoming the premier
provider of Bible study and related software products and content to the
domestic and international markets, through both acquiring established companies
and ongoing internal development of new products and expanded content of
existing products. Our religious software titles are divided among six
categories: (i) QuickVerse/Bible Study, (ii) Financial/Office Management
Products for Churches and other Faith-Based Ministries, (iii) Print &
Graphic Products, (iv) Pastoral Products, (v) Children’s Products, and (vi)
Language Tutorial Products.
At
the
retail level, we sell our software products to thousands of retail stores across
the United States, many of which are members of the CBA. These stores vary
from
small, family-owned Christian bookstores to large chain bookstores such as
LifeWay Christian Stores, Family Christian Stores and Berean Christian Stores.
We face the continuing challenge of reaching these stores on a consistent basis
to keep them informed of new releases, promotional offers, etc. In addition
to
advertising in trade publications and maintaining visibility at CBA trade shows
and events, we believe that it is critical to be in direct personal contact
with
each customer routinely in order to maintain or increase our market position.
Towards that end, our sales representatives are expected to contact each of
our
customers as well as each of the 3,500 independent stores that are not yet
our
customers at least once each calendar quarter and present them with the latest
in our products and promotions. We believe our personalized approach to
marketing provides us with an edge over our competition, which we believe rely
predominantly on advertising to maintain and develop their relations with CBA
customers.
In
addition to retail sales, we also sell our software at the wholesale level
to a
number of distributors around the world. We currently sell to distributors
in
Canada, New Zealand, Australia, Malaysia, South Africa, South Korea, Germany,
the United Kingdom, Singapore and the United States. These distributors, in
turn, sell our QuickVerse/Bible study packages and our Membership Plus packages
into both Christian and large, national secular retail outlets that sell
off-the-shelf consumer software packages, such as Best Buy, CompUSA, Circuit
City, OfficeMax and Staples. In the secular retail market, we continue to be
a
top seller of Bible study software and are developing additional product
offerings and promotions to grow our market share.
On
the
Internet level, we are currently marketing our products through our
www.findex.com, www.quickverse.com, and www.parsonschurch.com Websites. These
sites provide customers across the United States and around the world the
ability to purchase our software. We anticipate Internet orders will continue
to
increase as we expand our software product base and enhance our marketing
efforts in this area.
We
are
also marketing our products directly to the consumer through catalog, email
and
other direct offerings. In the past, we utilized the strength of TLC’s direct
marketing and sales force. We are currently experimenting with various direct
marketing organizations and expanding our efforts internally. We anticipate
an
increase during the upcoming year in our direct marketing sales
initiatives.
Our
Internet, catalog, email and telephone sales are currently fulfilled out of
our
office located in Omaha, Nebraska. Our sales to retail stores and distributors
are currently fulfilled out of a third-party fulfillment house also located
in
Omaha, Nebraska.
We
continue to pursue our objective of becoming the premier provider of Bible
study
and related products and content to the domestic and international markets,
and
to explore additional technologies, products and services that are complementary
to the affinity group we already serve. We have developed two (2) enhanced
releases of our flagship product, QuickVerse, one (1) new product targeted
mainly to the secular market, QuickVerse Essentials, one (1) new version of
QuickVerse for the Palm OS hand-held market, two (2) enhanced releases of our
top financial and data management product, Membership Plus, and one (1) new
financial product, Fund Accounting Plus.
In
October 2001, we released the Complete Bible Resource Library, a software
program that contains Bible translations, Bible reference tools, multimedia
programs, Christian clip-art images and interactive children’s games. In October
2002, we released Fund Accounting Plus, a modular-based fund accounting software
program designed to serve the unique accounting needs of the churches,
para-church organizations and ministries, and non-profit entities. In December
2002, we released QuickVerse PDA, for Palm operating system personal digital
assistants, a software program that contains Bible translations, Bible reference
tools and scripture reading plans for users in an active, fast-paced, mobile
lifestyle. In February 2003, we released an enhanced version of Ministry
Notebook, a software program that contains essential organizational tools for
ministries such as expense tracking, contact management, scheduling, sermon
and
lesson tracking, library inventory and prayer requests. We also added a
distributorship for the Veggie Tales line of software programs. Veggie Tales
are
children’s software programs of interactive adventures with biblical themes. We
are currently researching new opportunities in technology for our existing
software titles and expanding our financial product line.
RESULTS
OF OPERATIONS
Our
software products are highly seasonal. More than 50% of our annual sales are
expected to occur in the five months of September through January; the five
months of April through August are generally our weakest, generating only about
33% of our annual sales.
Our
net
income increased approximately $8,700,000 from a net loss of approximately
$7,600,000 for the twelve months ended December 31, 2001 to a net income of
approximately $1,100,000 for the twelve months ended December 31, 2002. By
excluding our interest, taxes, depreciation, and amortization from net income,
our EBITDA increased approximately $6,300,000 from an EBITDA loss of
approximately $4,800,000 for the twelve months ended December 31, 2001 to EBITDA
earnings of approximately $1,500,000 for the twelve months ended December 31,
2002. These net income and EBITDA results include several non-cash expenses.
For
the year ended December 31, 2002, we recognized expenses of approximately
$146,000 relating to 5,827,280 common shares issued to employees and directors
as a bonus for past service and continued loyalty, $10,250 relating to 205,000
common shares issued to an individual for investor relations services, $4,118
relating to 137,250 common shares issued to Ronald Ardt in settlement under
the
stock subscription agreement dated April 28, 2000, and $8,896 relating to
296,308 common shares issued to Ardt Investment Management, Inc. in compromise
and settlement of an agreement dated April 28, 2000 for consulting and business
valuation services. In addition, we reduced our reserve for sales returns to
approximately 9% of gross sales to reflect lower actual returns resulting from
our focus on sales directly to the consumer and reduced inventory levels in
both
the secular and CBA retail marketplace.
For
the
year ended December 31, 2001, we recognized expenses of $65,000 relating to
500,000 common shares issued to World Trade Partners, Inc. for consulting and
business development services, $33,441 relating to 132,500 common shares issued
to an individual for investor relations services, $43,201 relating to 125,000
warrants issued to Genesis Financial Group, LLC in compromise and settlement
for
consulting services, $50,323 relating to 150,000 warrants issued to Membrado
& Montell, LLC for corporate legal service, and $181,392 relating to 510,000
warrants issued to Swartz Private Equity, LLC in conjunction with an equity
line
of credit. In addition, we wrote off bad debts totaling approximately $2,878,000
and increased our reserve for sales returns to approximately 26% of gross sales
to reflect higher actual returns from the secular retail marketplace and our
lack of inventory for the CBA marketplace.
Revenues
We
recognize software revenue net of estimated returns and allowances for returns,
price discounts and rebates, upon shipment of product, which is when title
passes, provided that collection of the resulting receivable is probable and
we
have no significant obligations. Revenue from inventory out on consignment
is
recognized when the consignee sells the product. Revenue associated with advance
payments from customers is deferred until products are shipped. Revenue for
software distributed electronically via the Internet is recognized upon
delivery.
Product
return reserves are based upon a percentage of total retail and direct sales
for
the period and may increase or decrease as actual returns are processed. Product
returns or price protection concessions that exceed our reserves could
materially adversely affect our business and operating results and could
increase the magnitude of quarterly fluctuations in our operating and financial
results. See “Risk Factors - Product returns that exceed our anticipated
reserves could result in worse than expected operating results.” Product returns
from distributors and Christian bookstores are allowed primarily in exchange
for
new products or for credit towards purchases as part of a stock-balancing
program. These returns are subject to certain limitations that may exist in
the
contract that we have with them. Under certain circumstances, such as
termination or when a product is defective, distributors and bookstores could
receive a cash refund if returns exceed amounts owed. Returns from sales made
directly to the consumer are accepted within 30 days of purchase and are issued
a cash refund.
Software
products are sold separately, without future performance such as upgrades or
maintenance, and are sold with post contract customer support (PCS) services,
customer service and technical support assistance. In connection with the sale
of certain products, we provide a limited amount of free technical support
assistance to our customers. We do not defer the recognition of revenue
associated with sales of these products, since the cost of providing this free
technical support is insignificant. We accrue the estimated associated costs
of
providing this free support upon product shipment. We also offer several plans
under which customers are charged for technical support assistance. For plans
where we collect fees in advance, we recognize revenue over the period of
service, which is generally one year.
Shipping
and handling costs in connection with our software products are expensed as
incurred and included in cost of goods sold.
Gross
revenues increased $844,000 from $3,468,000 for the year ended December 31,
2001
to $4,312,000 for the year ended December 31, 2002. Sales returns and allowances
decreased $231,000 from $607,000 for the year ended December 31, 2001 to
$376,000 for the year ended December 31, 2002 and decreased as a percentage
of
gross sales from approximately 26% for the year ended December 31, 2001 to
approximately 9% for the year ended December 31, 2002. In May 2002, we released
Membership Plus version 7.0, in October 2002, we released Fund Accounting Plus,
and in December 2002, we released QuickVerse PDA for Palm OS hand-held
devices.
We
did
not release any enhanced or new software titles during 2001. In addition,
beginning in late 2001, we refocused our sales efforts targeting the end user
through telemarketing and Internet sales. These refocused efforts resulted
in
more consistent sales during 2002. Sales into the retail market (both CBA and
secular) were down significantly during 2002 with most CBA retailers reporting
double-digit declines in Christmas sales. The decrease in sales returns and
allowances is also attributable to our refocused sales efforts. Incidents of
return are lower for sales direct to the end user than sales into the retail
stores. Also, we significantly decreased our presence in secular retail during
2002 resulting in less exposure for product returns.
Historically,
we have reproduced and distributed the Zondervan NIV Bible pursuant to a content
licensing agreement with The Zondervan Corporation which provides that we will
pay a royalty fee of 10% of net sales on the stand-alone product and $8.00
per
unit on total net units of QuickVerse. The products containing the Zondervan
NIV
Bible, including QuickVerse, accounted for approximately 35% of our revenues
in
fiscal year 2001 but none of our revenues during the twelve months ended
December 31, 2002. Due to our shortage in working capital, we are significantly
in arrears on the royalty payments due under such licensing agreement. On April
5, 2001, we received a notice from The Zondervan Corporation informing us that
they were terminating our rights to the Zondervan NIV Bible under the licensing
agreement. On October 12, 2001, Zondervan was granted a court order in the
United States District Court in the Western District of Michigan ordering FindEx
to cease selling, marketing and manufacturing any product that incorporates
Zondervan’s copyrighted material. As of October 26, 2001 we reached a written
payment agreement with Zondervan whereby they would not enforce the court order
and we would continue to ship products containing Zondervan’s NIV Bible. We
failed to meet our first payment obligation due to Zondervan on November 12,
2001 in accordance with the payment agreement. On November 14, 2001, Zondervan
pursued its enforcement rights under the court order by serving notice that
we
cease selling, marketing and manufacturing all products containing their
copyrighted material. As of the date hereof, we are abiding by the court order.
We are also involved in related court-ordered mediation in connection with
Zondervan’s claim for $1,300,000 in unpaid royalties, which amount we are
disputing. On May 7, 2002, it was agreed among Zondervan, FindEx, and TLC,
another named defendant in the proceeding that FindEx and TLC would submit
to
independent audits in an effort to resolve disputed royalty amounts owed. The
FindEx audit has been completed but a delay in completion of the TLC audit
has
pushed resolution back until later in 2003.Although we hope to be able to
resolve this pending litigation in a way that will allow us to continue to
sell,
market and manufacture Zondervan’s copyrighted material, and not dramatically
impair our cash flow, there can be no assurance as to our ability to achieve
either of these results. Depending on the timing of, and the period over which
it would be required to be paid by us, any judgment for money damages in excess
of $50,000 in this proceeding would have a material adverse effect on our
business, operations, financial condition and ability to operate as a going
concern.
The
provision for sales returns decreased approximately $231,000 from approximately
$607,000 for the twelve months ended December 31, 2001 to approximately $376,000
for the twelve months ended December 31, 2002. We experienced fewer product
returns overall during 2002. This resulted primarily from an increased focus
on
sales direct to the consumer where our return policy provides a much shorter
return window and incidents of product returns are much lower than in the
Christian and secular retail markets. We experienced significantly larger
product returns during the first quarter of 2001 as our secular distributors
returned the excess product after the 2000 Christmas shopping season was
complete. Product returns are typically higher in the secular marketplace than
the Christian marketplace. As the distributors place the products into the
secular retail channel, they monitor the sell-through rates of those products
and generally return quantities of those that aren’t selling as anticipated.
This practice contrasts with the Christian marketplace in that the quantities
ordered are generally smaller and the retailer is willing to hold on to the
products for a longer period of time before making the decision to
return.
Cost
of Sales
Cost
of
sales consists primarily of royalties to third party providers of intellectual
property and the direct costs and manufacturing overhead required to reproduce,
package, fulfill and ship the software products. Direct costs and manufacturing
overhead also include the amortized software development costs. The direct
costs
and manufacturing overhead decreased from 25.6% of gross revenues in 2001 to
15.6% of gross revenues in 2002. This decrease resulted directly from the sharp
decrease in sales of boxed, retail products. Sales direct to the consumer do
not
require the cost of a retail box nor the additional packaging and shipping
materials. The decrease can also be attributable to an improvement in cash
flow
and available working capital. Materials were purchased in larger quantities
again resulting in lower unit costs. In addition, during 2001, some of our
older
inventory was sold to a software liquidator at margins much lower than normal.
However, fulfillment costs from a third-party warehouse increased approximately
$20,000 as we combined our corporate office and “direct” fulfillment into one
facility tasking our “retail” fulfillment to an outside entity. The overall
direct costs and manufacturing overhead percentage is expected to continue
at
the 2002 levels as working capital remains more consistent. Royalties to third
party providers of intellectual property also decreased from 14.1% of gross
revenues in 2001 to 3.7% of gross revenues in 2002. The decrease in royalties
reflects our focus on selling product upgrades and non-royalty titles. Upgrade
sales, e.g. from QuickVerse version 6 to QuickVerse version 7, are subject
to
royalties only on the content additions of the upgraded version. The royalty
rate as a percentage of gross sales is expected to increase in the future as
a
new version of QuickVerse is released. Upgrade sales will continue to be subject
to royalties only on content additions and sales to new users are expected
to
increase significantly.
Software
development costs, consisting primarily of direct and indirect labor and related
overhead charges, capitalized during the twelve months ended December 31, 2002
were $357,539. Accumulated amortization of these development costs included
in
cost of sales totaled $77,036 for 2002. The company did not incur capitalizable
development costs during 2001.
Sales,
General And Administrative
Operating
expenses for 2002 include approximately $169,000 in non-cash expenses with
approximately $388,000 in non-cash expenses for stock and warrants issued for
services and approximately $2,660,000 in non-cash bad debt expense (see “RESULTS
OF OPERATIONS” above) for 2001. Sales expenses increased approximately $125,000
from approximately $666,000 for 2001 to approximately $791,000 for 2002.
Included in 2002 Sales expenses, Commissions to a third-party telemarketing
firm
increased approximately $439,000 as we experienced twelve months of
telemarketing activity compared with a little more than one month of
telemarketing activity for 2001; Advertising decreased approximately $163,000
and Marketing and Customer Service costs decreased approximately $151,000 as
our
sales efforts refocused towards the consumer instead of the retail
store.
Research
and development costs include salaries and benefits of personnel and third
parties conducting research and development of software products. Research
and
development expenses increased in 2002 reflecting development of Membership
Plus
7.0, Fund Accounting Plus, and QuickVerse PDA with no significant development
in
2001. Research and development expenses are expected to increase in future
periods as we add new products and Versions to our product mix.
Personnel
costs decreased approximately $340,000 from 2001 to 2002 primarily from the
capitalization of direct and indirect labor and related overhead charges as
software development costs (see ‘Cost of Sales’ above). As previously indicated
(see ‘Results of Operations’ above), personnel costs include approximately
$146,000 in non-cash expenses related to 5,827,280 restricted common shares
issued to employees and directors as an incentive and retention bonus program.
It is anticipated that personnel costs will increase in future periods as
operating capital is available to fund full staffing of our product development
team and expansion of the technical support and direct marketing staff.
Corporate services decreased approximately $69,000 from a reduction in business
consulting and valuation services contracts. Investor Services decreased
approximately $269,000 as we did not renew our investor services contracts.
Legal costs decreased approximately $238,000 from a decrease in consultation
provided regarding our disputes with TLC and Zondervan. It is anticipated that
legal costs will be higher when the disputes with TLC and Zondervan are finally
resolved. Rent expense decreased approximately $35,000 from the relocation
of
our corporate office and the consolidation of our corporate office with our
fulfillment center. Travel costs decreased approximately $42,000 as we reduced
our sales staff and refocused our sales efforts towards the direct
consumer.
We
did
not pursue any acquisitions during 2001 or 2002 and, thus, did not incur any
acquisition costs. We do not expect to pursue acquisitions during 2003 but
do
expect future acquisition costs as we pursue our business plan for growth by
acquiring companies that are synergistic with our current product line and
customer base.
Bad
debt
expense decreased approximately $2,656,000 during 2002 as we wrote off a note
receivable in the amount of $240,000 with 711.net and net accounts receivable
from TLC of approximately $2,400,000 during 2001
Income
Tax Benefits
Our
effective tax rate differs from the statutory federal rate due to differences
between income and expense recognition prescribed by the Internal Revenue Code
and Generally Accepted Accounting Principles. We utilize different methods
and
useful lives for depreciating property and equipment. Amortization of the
software license agreement is on a straight-line basis over the estimated life
for financial reporting while deductible when paid for income tax purposes.
Changes in estimates (reserves) are recognized as expense for financial
reporting but are not deductible for income tax purposes.
We
have
recognized a net deferred tax asset whose realization depends on generating
future taxable income. Because of this uncertainty, we have recorded a valuation
allowance to offset the net deferred tax asset. The resulting deferred tax
liability reflects income taxes payable in future periods on the net deductible
differences related to the software license agreement. We currently have net
operating loss carryforwards, for income tax purposes, of approximately
$9,750,000. The carryforwards are the result of income tax losses generated
in
1996 ($33,000 expiring in 2011), 1997 ($77,000 expiring in 2012), 1998 ($54,000
expiring in 2018), 2000 ($4,418,000 expiring in 2020) and 2001 ($5,168,000
expiring in 2021). We will need to achieve a minimum annual taxable income,
before deduction of operating loss carryforwards, of approximately $540,000
to
fully utilize the current loss carryforwards. We believe this is achievable
through careful expense management and continued introduction of new products
and enhanced Versions of our existing products.
Management
expects the deductible temporary differences (reserves) to reverse sometime
beyond the next fiscal year.
LIQUIDITY
AND CAPITAL RESOURCES
To
date,
FindEx has funded its purchase of the Parsons Church Division primarily through
operations. Since inception, we have raised approximately $2,250,000 in net
proceeds from equity financings to fund the acquisition and working capital
needs. We have focused on fulfilling the software license obligation and have
been unable to meet our royalty and trade debt obligations. In addition, the
dispute with TLC over specific performance provisions of and payments due on
the
TLC Distribution Agreement has also lead to the shortage of working
capital.
As
of
December 31, 2002, FindEx had $770,290 in current assets, $5,233,743 in current
liabilities and a retained deficit of $8,830,146. We had net income before
income taxes of $845,857 for the year ended December 31, 2002. Operating
expenses for 2002 included approximately $169,000 in non-cash expenses for
stock
issued for services (see “RESULTS OF OPERATIONS” above). Positive cash flow from
operations for 2002 was approximately $542,000 compared to negative cash flow
from operations of approximately $65,500 for 2001.
Net
cash
provided by operating activities was $541,517 and used by operating activities
was $65,500, for the years ended December 31, 2002 and 2001, respectively.
The
increase in cash provided was primarily due to an increase in sales directly
to
the consumer.
Net
cash
used in investing activities was $414,648 and $17,415 for the years ended
December 31, 2002 and 2001, respectively. The increase in cash used relates
primarily to acquisition of equipment, capitalizing costs associated with
software development and website development costs. Net cash used by financing
activities was $95,358 and provided by financing activities was $68,287 for
the
years ended December 31, 2002 and 2001, respectively. For the year 2002, cash
used by financing activities represented the net decrease in the amount owed
under an accounts receivable factoring arrangement, payments made to Ronald
Ardt
for reimbursement of the original investment of Thomas Ardt and Betty Wolfe,
and
payments made on the note payable to Cedar Graphics, Inc.
On
March
19, 2001, we entered into an Accounts Receivable Financing Agreement with
Alliance Financial Capital, Inc. (“AFC”). Pursuant to this agreement, AFC agrees
to purchase selected accounts receivable on a discounted basis, including,
without limitation, full power to collect, compromise, sue for, assign, or
in
any manner enforce collection thereof. The agreement provides for advances
of
60% toward the purchase of the invoices with a credit line of $250,000. The
terms call for 40% to be held in a reserve account from the collection of each
invoice. Invoices not paid by the customer within 90 days of shipment are
required to be repurchased by us out of the reserve account. The agreement
carries a 12-month term with a minimum monthly fee equal to one half of one
percent (.5%). The term renews automatically in 12-month increments unless
a
written request for termination is received by AFC at least 30 days before
the
renewal date. During the year ended December 31, 2002, we transferred accounts
receivable totaling $399,556 to AFC under this agreement receiving cash advances
of $239,734. Collected funds (less the amount advanced and appropriate fees)
were disbursed to the company throughout the year. At December 31, 2002, the
balance of accounts transferred remaining open was $9,804 securing debt of
$6,277.
We
do not
currently have adequate funds available to fund our operations over the next
twelve months. In order to maintain the current level of operations, we will
need to secure additional funding sources to meet its operating expenses. Such
funding sources may include, but are not limited to, funding pursuant to private
placements of common or convertible equities, placement of debt with banks,
private or public investors, or other lending institutions.
Although
there can be no assurance, we believe that through a combination of outside
sources of capital and revenues generated from direct-to-consumer sales, we
will
have sufficient sources of capital to meet our operating needs. However, any
substantial delays in receipt of or failure to obtain such capital and delays
in
product releases will prevent us from operating as a going concern, given our
limited revenues and capital reserves.
CAUTIONARY
STATEMENTS AND RISK FACTORS
Several
of the matters discussed in this document contain forward-looking statements
that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ from those
projected or forecast are included in the statements below. In addition to
other
information contained in this report, readers should carefully consider the
following cautionary statements and risk factors.
WE
ARE CURRENTLY INVOLVED IN A LAWSUIT THE OUTCOME OF WHICH COULD SERIOUSLY IMPAIR
OUR ABILITY TO OPERATE AS A GOING CONCERN.
We
are
currently involved in court-ordered mediation in connection with a claim by
The
Zondervan Corporation
for
$1,300,000 in unpaid royalties, which amount we are disputing. Depending on
the
timing of, and the period over which it would be required to be paid by us,
any
judgment for money damages in excess of $50,000 in this proceeding would have
a
material adverse effect on our business, operations, financial condition and
ability to operate as a going concern. [See Item 3. Legal Proceedings -
Zondervan Claim]
A
LEGAL CLAIM HAS BEEN MADE AGAINST US CLAIMING A NUMBER OF OUR COMMON SHARES
EXCEEDING 50% OF OUR TOTAL CURRENT OUTSTANDING COMMON SHARES.
On
September 6, 2002, Swartz Private Equity, LLC provided notice to us that it
was
making a demand under the Equity Line Agreement for the termination fee provided
thereunder. In accordance with Swartz’s calculations, they were owed $150,000
payable in cash or common stock within 10 days of the termination. At the time
of such notice, and had such amount been paid in common stock, it would have
required 3.75 million shares. Shortly thereafter, such claim rose to over 9
million shares. In addition, Swartz further demanded another warrant for an
additional 219,127 shares of our common stock pursuant to the Commitment Warrant
and the Warrant Anti-Dilution Agreement. Although certain settlement discussions
have ensued, at this point, the prospects for settlement seem highly uncertain.
There can be no assurance that this matter will be able to be settled on terms
that will not have a direct or indirect material adverse effect on our liquidity
and financial condition. Further, if litigated, there can be no assurance that
(i) the resources devoted to defending any such claim will not have a negative
impact on FindEx’s ability to manage other aspects of its business, and (ii) any
outcome thereof will not have a direct or indirect material adverse effect
on
our liquidity and financial condition. In either case, any result which
obligates FindEx to make any payment to Swartz in the form of common shares
as
opposed to cash (which FindEx may simply be unable to pay) would have a dilutive
effect on the shareholdings of all other FindEx shareholders, which, depending
on the value attributable to such stock in any such circumstance, could be
potentially very significant. [See Item 3. Legal Proceedings - Swartz Private
Equity].
WE
HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE TO DELAYS
IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS.
We
cannot
be certain that we will be able to meet our planned release dates for our new
software releases. If we cannot release an important new product during the
scheduled quarter, our revenues would likely be reduced in that quarter. In
the
past, we have experienced significant delays in our introduction of some new
products. For instance, delays in duplication, packaging and distribution caused
our QuickVerse Version 7.0 to begin arriving at retailers over the 2000
Thanksgiving holiday. As a result, we experienced fewer sales of these products
than we would have if the products were in stores before the holiday selling
season began, which had a materially adverse effect on our operating results
for
the 2000 fourth quarter. It is likely in the future that delays will continue
to
occur and that some new products will not be released in accordance with our
internal development schedule or the expectations of public market analysts
and
investors.
WE
ARE DELINQUENT IN THE PAYMENT OF PAYROLL TAXES.
We
are
currently delinquent in the payment of approximately $298,000 of payroll taxes,
interest and assessed penalties. In August 2002, the Internal Revenue Service
filed a federal tax lien in connection with this liability. On February 28,
2003
we entered into an installment agreement with the Internal Revenue Service
for
payment of this debt. In addition to the installment payments, the Internal
Revenue Service has imposed certain conditions on us in order to continue in
the
agreement, one of which requires us to remain current on all future payroll
tax
deposits and reporting. There can be no assurances that we will be able to
continue to meet the conditions established by the Internal Revenue Service,
and
any failure to do so may result in consequences to the company which could
have
a material adverse effect on our financial condition and results of
operations.
IF
WE ARE UNABLE TO COMPLETE A SIGNIFICANT EQUITY FINANCING, WE MAY BE REQUIRED
TO
DEFER COMPLETION OF FUTURE SOFTWARE UPDATES AND REDUCE OVERHEAD SIGNIFICANTLY.
We
believe we will need to obtain equity financing in an amount of $2-5 million
within fiscal year 2003 in order to continue our product development, increase
our sales and fund our working capital requirements. Our ability to obtain
additional equity financing will be dependent on a number of factors, certain
of
which are to some degree outside of our control, including for example economic
conditions, any potential investors’ completion of due diligence, entry into
definitive agreements with one or more interested investors, and/or the
effectiveness of a registration statement covering shares to be issued and/or
the resold to investors. There can be no assurance that any such financing
can
be obtained or, if obtained, that it will be available on terms favorable to
us.
WE
HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR POTENTIAL
FOR
FUTURE SUCCESS.
We
began
to introduce our products and services during 1999. Although we have generated
revenue from operations, we have a very limited operating history on which
you
can evaluate our potential for future success. Rather than relying on historical
financial information to evaluate our company, you should evaluate our company
in light of the expenses, delays, uncertainties, and complications typically
encountered by early-stage businesses, many of which will be beyond our control.
Early-stage businesses commonly face risks such as the following:
| § |
lack
of sufficient capital,
|
| § |
unanticipated
problems, delays, and expenses relating to product development and
implementation,
|
| § |
lack
of intellectual property,
|
| § |
licensing
and marketing difficulties,
|
| § |
technological
changes, and
|
| § |
uncertain
market acceptance of products and
services.
|
THE
LOSS OF ANY OF OUR KEY EXECUTIVES OR OUR FAILURE TO ATTRACT, INTEGRATE, MOTIVATE
AND RETAIN ADDITIONAL KEY EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR
BUSINESS.
Our
success depends to a large degree upon the skills of our senior management
team
and key employees and upon our ability to identify, hire, and retain additional
sales, marketing, technical, and financial personnel. The loss of any of our
key
executives or the failure to attract, integrate, motivate, and retain additional
key employees could have a material adverse effect on our business. We may
be
unable to retain our existing key personnel or attract and retain additional
key
personnel. Competition for these personnel in the software and technology
industry is intense and identifying personnel with experience in this industry
is even more difficult. We are in a relatively new market, and there are a
limited number of people with the appropriate combination of skills needed
to
provide the services that our customers require. We depend particularly upon
the
services of Steven Malone, our Chief Executive Officer and
President.
PRODUCT
RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN WORSE THAN EXPECTED
OPERATING RESULTS.
At
the
time we ship our products to retailers we establish reserves, including reserves
that estimate the potential for future product returns. Product returns or
price
protection concessions that exceed our reserves could increase the magnitude
of
quarterly fluctuations in our operating and financial results. Furthermore,
if
we incorrectly assess the creditworthiness of customers who receive our products
on credit, we could be required to significantly increase the reserves
previously established. We cannot be certain that any future write-offs will
not
occur or that amounts written off will not have a material adverse effect on
our
business and depress the market price of our common stock. Actual returns to
date have been within management’s estimates.
IF
WE CANNOT OBTAIN CD-ROM MANUFACTURING AND PACKAGING SERVICES ON A TIMELY BASIS,
WE MAY NOT BE ABLE TO TIMELY DELIVER OUR CD-ROM PRODUCTS TO DISTRIBUTORS AND
RETAILERS AND OUR SALES WILL BE ADVERSELY AFFECTED.
We
use
third party vendors to press CD-ROM disks, assemble purchased product
components, and print product packaging and user manuals in connection with
the
retail distribution of our software. We do not have contractual agreements
with
any of our third party vendors, which may result in our inability to secure
adequate services in a timely manner. If we cannot obtain adequate manufacturing
services, we will not be able to timely produce and deliver our CD-ROM products
to distributors and retail stores for ultimate sale to consumers, which will
adversely affect our sales and operating results.
FLUCTUATIONS
IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS IN REVENUE AND STOCK
PRICE VOLATILITY.
We
operate in an industry that is subject to significant fluctuations in operating
results from quarter to quarter, which may lead to unexpected reductions in
revenues and stock price volatility. Factors that may influence our quarterly
operating results include:
| § |
the
introduction or enhancement of software products and technology by
us and
our competitors;
|
| § |
our
ability to produce and distribute retail packaged Versions of our
software
in advance of peak retail selling seasons;
and
|
| § |
our
ability to create appealing content within our software
products.
|
Additionally,
a majority of the unit sales for our products typically occurs in the quarter
in
which the product is introduced. As a result, our revenues may increase
significantly in a quarter in which a major product introduction occurs and
may
decline in following quarters.
ERRORS
OR DEFECTS IN OUR SOFTWARE PRODUCTS MAY CAUSE A LOSS OF MARKET ACCEPTANCE AND
RESULT IN FEWER SALES OF OUR PRODUCTS.
Our
products are complex and may contain undetected errors or defects when first
introduced or as new Versions are released. In the past, we have discovered
software errors in some of our new products and enhancements after their
introduction into the market. Because our products are complex, we anticipate
that software errors and defects will be present in new products or releases
in
the future. While to date these errors have not been material, future errors
and
defects could result in adverse product reviews and a loss of, or delay in,
market acceptance of our products.
TO
DEVELOP PRODUCTS THAT CONSUMERS DESIRE, WE MUST MAKE SUBSTANTIAL INVESTMENTS
IN
RESEARCH AND DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL DEVELOPMENTS
THAT ARE TYPICAL IN OUR INDUSTRY.
The
Bible-study, inspirational content, and entertainment software markets are
subject to rapid technological developments. To develop products that consumers
and church and other faith-based organizations desire, we must continually
improve and enhance our existing products and technologies and develop new
products and technologies that incorporate these technological developments.
We
cannot be certain that we will have the financial and technical resources
available to make these improvements. We must make these improvements while
remaining competitive in terms of performance and price. This will require
us to
make substantial investments in research and development, often times well
in
advance of the widespread release of the products in the market and any revenues
these products may generate.
OUR
PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM UNAUTHORIZED USE
BY
OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS AND ADVERSELY AFFECT OUR
SALES.
Our
ability to compete with other Bible and inspirational content software companies
depends in part upon our proprietary technology. Unauthorized use by others
of
our proprietary technology could result in an increase in competing products
and
a reduction in our sales. We rely on trademark, trade secret and copyright
laws
to protect our technology. We cannot be certain, however, that these precautions
will provide meaningful protection from unauthorized use by others. If we must
pursue litigation in the future to enforce our intellectual property rights,
to
protect our trade secrets, or to determine the validity and scope of the
proprietary rights of others, we may not prevail and will likely make
substantial expenditures and divert valuable resources. In addition, many
foreign countries’ laws may not protect us from improper use of our proprietary
technologies outside of the United States. We may not have adequate remedies
if
our proprietary rights are breached or our trade secrets are
disclosed.
NEW
INTERNET ACCESS DEVICES MAY CHANGE THE WAY INFORMATION IS DISPLAYED REQUIRING
US
TO CHANGE OUR PRODUCTS.
Recent
increases in the use of internet devices to access inspirational content and
the
continued development of internet devices as a medium for the delivery of
network-based information, content, and services may require us to change our
products. Our success depends on our ability to understand the method upon
which
our search engines operate and our ability to service new and emerging devices
to access the Internet, such as browser phones, personal digital assistants,
and
other wireless devices. To the extent these new Internet access devices change
the way that information is displayed to the end user or causes a change in
the
medium that is searched, we may be required to revise the methodology of our
products. We cannot predict the impact that these new devices will have on
our
services, and any such required revisions may result in loss of revenue and
goodwill, increased expenses, and reduced operating margins.
IF
OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT MAY BE BROUGHT
AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND JUDGMENTS
AND
REDESIGN OR DISCONTINUE SELLING OUR PRODUCT.
We
believe that our products do not infringe any valid existing proprietary rights
of third parties. Any infringement claims, however, whether or not meritorious,
could result in costly litigation or require us to enter into royalty or
licensing agreements. If we are found to have infringed the proprietary rights
of others, we could be required to pay damages, redesign the products or
discontinue their sale. Any of these outcomes, individually or collectively,
could have a material adverse effect on our business and financial
condition.
WE
FACE ADDITIONAL RISKS AS A RESULT OF OUR INTERNATIONAL SALES.
We
currently sell through distributors to many foreign countries. Many of these
distributors are not United States companies, and we therefore face certain
risks associated with doing business outside of the United States. We also
plan
to further expand our services to international markets. Expanding into overseas
operations may cost more than we expect. We also may be unsuccessful in
expanding our presence in international markets, and we might lose all or part
of our investment in those operations. As we expand into international
operations, we will be increasingly subject to various risks associated with
international operations in addition to the other business risks described
in
this memorandum. These risks include the following:
| § |
management
of a multi-national organization,
|
| § |
compliance
with local laws and regulatory requirements, as well as changes in
those
laws and requirements,
|
| § |
restrictions
on the repatriation of funds,
|
| § |
employment
and severance issues,
|
| § |
the
business and financial condition of any overseas business
partners,
|
| § |
political
and economic conditions abroad, and
|
| § |
the
possibility of - expropriation or nationalization of assets, - supply
disruptions, - currency controls, - exchange rate fluctuations,
or
|
| § |
changes
in tax laws, tariffs, and freight
rates.
|
Our
inability to manage these and other risks effectively could increase our
expenses or decrease our opportunities to generate revenue.
FORWARD-LOOKING
STATEMENTS
This
report on Form 10-KSB/A includes “forward-looking statements” within the meaning
of SECTION 27A of the Securities Act of 1933 and SECTION 21E of the Securities
Exchange Act of 1934. These forward-looking statements may relate to such
matters as anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. To comply
with the terms of the safe harbor, we caution readers that a variety of factors
could cause our actual results to differ materially from the anticipated results
or other expressed in our forward-looking statements. These risks and
uncertainties, many of which are beyond our control, include (i) the sufficiency
of our existing capital resources and our ability to raise additional capital
to
fund cash requirements for future operations, (ii) uncertainties involved in
the
rate of growth and acceptance of the Internet, (iii) adoption by the Christian
community of electronic technology for gathering information, facilitating
e-commerce transactions, and providing new products, websites, and services,
(iv) volatility of the stock market, particularly within the technology sector,
and the ability to use our capital stock as a currency for acquisitions, and
(v)
general economic conditions. Although we believe that the expectations reflected
in these forward-looking statements are reasonable, we cannot give any assurance
that such expectations reflected in these forward-looking statements will prove
to have been correct.
We
cannot
guarantee any future results, levels of activity, performance or achievements.
Except as required by law, we undertake no obligation to update any of the
forward-looking statements in this Form 10-KSB/A after the date of this
report.
INDEPENDENT
AUDITOR’S REPORT
To
the
Board of Directors and Stockholders of FindEx.com, Inc.:
We
have
audited the accompanying consolidated balance sheets of FindEx.com, Inc. as
of
December 31, 2002 and 2001 and the related consolidated statements of
operations, stockholders’ equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall consolidated financial statement presentation.
We
believe that our audits provide a reasonable basis for our opinion
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of FindEx.com,
Inc. as of December 31, 2002 and 2001 and the results of its operations and
cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 16 to
the
financial statements, the Company has negative working capital and total
liabilities in excess of total assets. These factors raise substantial doubt
about the ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 16. The financial statements
do not
include any adjustments that might result from the outcome of this
uncertainty.
As
discussed in Note 18 to the consolidated financial statements, there were
errors
in reporting the Company’s settlement agreement for the software license, there
was an error in the overstatement of trade payables and an error in reporting
classifications in the balance sheet and statements of operations that were
discovered by management as a result of a regulatory review. Accordingly,
the
consolidated financial statements have been restated to correct the
errors.
/s/
Chisholm & Associates
Chisholm
& Associates
North
Salt Lake, Utah
February
14, 2003 except for notes 3, 5, 8, 10, 11 and 18 dated September 23,
2005
|
Findex.com,
Inc.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2002 and 2001
|
|
|
|
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Assets
|
|
Current
assets:
|
|
Cash
and cash equivalents
|
|
|
|
Unrestricted
cash
|
|
$
|
9,235
|
|
$
|
(6,645
|
)
|
|
Restricted
cash
|
|
|
29,416
|
|
|
13,785
|
|
|
Total
cash and cash equivalents
|
|
|
38,651
|
|
|
7,140
|
|
|
Accounts
receivable, trade (Note 2)
|
|
|
228,241
|
|
|
460,170
|
|
|
Inventories
(Note 3)
|
|
|
416,700
|
|
|
646,246
|
|
|
Other
current assets
|
|
|
86,698
|
|
|
21,468
|
|
|
Total
current assets
|
|
|
770,290
|
|
|
1,135,024
|
|
|
Property
and equipment, net (Note 4)
|
|
|
93,053
|
|
|
92,185
|
|
|
Software
license, net (Note 5)
|
|
|
3,272,798
|
|
|
3,776,306
|
|
|
Software
development costs, net
|
|
|
280,502
|
|
|
---
|
|
|
Other
assets
|
|
|
28,553
|
|
|
12,558
|
|
|
Total
assets
|
|
$
|
4,445,196
|
|
$
|
5,016,073
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
Current
liabilities:
|
|
License
fees payable
|
|
$
|
---
|
|
$
|
1,051,785
|
|
|
Notes
payable (Note 6)
|
|
|
749,999
|
|
|
749,000
|
|
|
Current
maturities of long-term debt (Note 7)
|
|
|
56,999
|
|
|
---
|
|
|
Accrued
royalties
|
|
|
2,130,613
|
|
|
2,082,694
|
|
|
Accounts
payable, trade
|
|
|
1,071,563
|
|
|
1,422,574
|
|
|
Reserve
for rebates
|
|
|
413,687
|
|
|
443,477
|
|
|
Payroll
taxes payable
|
|
|
340,571
|
|
|
193,049
|
|
|
Other
current liabilities
|
|
|
470,311
|
|
|
853,936
|
|
|
Total
current liabilities
|
|
|
5,233,743
|
|
|
6,796,515
|
|
|
Long-term
note payable (Note 7)
|
|
|
49,045
|
|
|
71,322
|
|
|
Deferred
income taxes, net (Note 8)
|
|
|
943,613
|
|
|
1,147,043
|
|
|
Commitments
and contingencies (Note 14)
|
|
Stockholders’
equity (Note 9):
|
|
Preferred
stock, $.001 par value
|
|
|
|
5,000,000
shares authorized
|
|
|
|
Series
A: 11,400 shares issued and outstanding
|
|
|
11
|
|
|
11
|
|
|
Series
B: 40,000 shares issued and outstanding
|
|
|
40
|
|
|
40
|
|
|
Common
stock, $.001 par value
|
|
|
|
50,000,000
shares authorized
|
|
|
|
19,811,438
and 11,231,600 shares issued and outstanding
|
|
|
19,811
|
|
|
11,231
|
|
|
Paid-in
capital
|
|
|
7,029,079
|
|
|
6,893,720
|
|
|
Retained
(deficit)
|
|
|
(8,830,146
|
)
|
|
(9,903,809
|
)
|
|
Total
stockholders’ equity
|
|
|
(1,781,205
|
)
|
|
(2,998,807
|
)
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
4,445,196
|
|
$
|
5,016,073
|
|
|
|
|
See
accompanying notes.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
Years
Ended December 31
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
| |
|
Revenues,
net of reserves and allowances
|
|
$
|
3,908,346
|
|
$
|
2,575,316
|
|
|
Cost
of sales
|
|
|
834,472
|
|
|
1,374,789
|
|
|
Gross
profit
|
|
|
3,073,874
|
|
|
1,200,527
|
|
|
Operating
expenses:
|
|
Sales
and marketing
|
|
|
790,680
|
|
|
666,188
|
|
|
General
and administrative
|
|
|
1,798,015
|
|
|
2,726,448
|
|
|
Bad
debt expense
|
|
|
3,284
|
|
|
2,659,994
|
|
|
Amortization
expense
|
|
|
505,040
|
|
|
505,593
|
|
|
Depreciation
expense
|
|
|
38,850
|
|
|
29,156
|
|
|
Total
operating expenses
|
|
|
3,135,869
|
|
|
6,587,379
|
|
|
Loss
from operations
|
|
|
(61,995
|
)
|
|
(5,386,852
|
)
|
|
Interest
income
|
|
|
55
|
|
|
12,601
|
|
|
Other
income (Note 18)
|
|
|
1,067,767
|
|
|
2,389
|
|
|
Gain
on sale of property and equipment
|
|
|
137
|
|
|
---
|
|
|
Interest
expense
|
|
|
(160,107
|
)
|
|
(88,368
|
)
|
|
Income
(loss) before income taxes
|
|
|
845,857
|
|
|
(5,460,230
|
)
|
|
Provision
for income taxes (Note 8)
|
|
|
227,806
|
|
|
(2,140,123
|
)
|
|
Net
income (loss)
|
|
$
|
1,073,663
|
|
$
|
(7,600,353
|
)
|
|
|
|
Net
earnings (loss) per share (Note 10):
|
|
Basic
|
|
$
|
0.06
|
|
$
|
(0.71
|
)
|
|
Diluted
|
|
$
|
0.06
|
|
$
|
(0.71
|
)
|
| |
|
Weighted
average shares outstanding (Note 10):
|
|
Basic
|
|
|
17,607,104
|
|
|
10,744,519
|
|
|
Diluted
|
|
|
19,871,789
|
|
|
10,744,519
|
|
|
|
|
See
accompanying notes.
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
Preferred
Stock
|
Common
Stock
|
|
Paid-In
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
Series
B
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
|
Balance,
December 31, 2000 (Restated)
|
|
$
|
15
|
|
$
|
40
|
|
|
10,509,609
|
|
$
|
10,509
|
|
$
|
6,486,881
|
|
$
|
(2,299,256
|
)
|
$
|
4,198,189
|
|
|
April
30 Reverse merger & reorganization
|
|
|
|
Conversion
of preferred stock
|
|
|
(4
|
)
|
|
---
|
|
|
36,000
|
|
|
36
|
|
|
---
|
|
|
---
|
|
|
32
|
|
|
Preferred
Series A common stock dividend
|
|
|
---
|
|
|
---
|
|
|
5,104
|
|
|
5
|
|
|
4,163
|
|
|
(4,200
|
)
|
|
(32
|
)
|
|
Common
stock issued for cash
|
|
|
---
|
|
|
---
|
|
|
48,387
|
|
|
48
|
|
|
14,952
|
|
|
---
|
|
|
15,000
|
|
|
Common
stock issued for services
|
|
|
---
|
|
|
---
|
|
|
632,500
|
|
|
633
|
|
|
112,808
|
|
|
---
|
|
|
113,441
|
|
|
Common
stock warrants issued for services
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
274,916
|
|
|
---
|
|
|
274,916
|
|
|
Net
loss December 31, 2001
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(7,600,353
|
)
|
|
(7,600,353
|
)
|
|
Balance,
December 31, 2001 (Restated)
|
|
$
|
11
|
|
$
|
40
|
|
|
11,231,600
|
|
$
|
11,231
|
|
$
|
6,893,720
|
|
$
|
(9,903,809
|
)
|
$
|
(2,998,807
|
)
|
|
Common
stock settlement for prior cash received
|
|
|
---
|
|
|
---
|
|
|
2,184,000
|
|
|
2,184
|
|
|
(2,184
|
)
|
|
---
|
|
|
---
|
|
|
Common
stock issued for services
|
|
|
---
|
|
|
---
|
|
|
6,465,838
|
|
|
6,466
|
|
|
162,473
|
|
|
---
|
|
|
168,939
|
|
|
Refund
on stock subscription
|
|
|
---
|
|
|
---
|
|
|
(70,000
|
)
|
|
(70
|
)
|
|
(24,930
|
)
|
|
---
|
|
|
(25,000
|
)
|
|
Net
income, December 31, 2002 (Restated)
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
1,073,663
|
|
|
1,073,663
|
|
|
Balance,
December 31, 2002 (Restated)
|
|
$
|
11
|
|
$
|
40
|
|
|
19,811,438
|
|
$
|
19,811
|
|
$
|
7,029,079
|
|
$
|
(8,830,146
|
)
|
$
|
(1,781,205
|
)
|
| |
|
See
accompanying notes.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
Years
Ended December 31
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
Cash
received from customers
|
|
$
|
3,989,733
|
|
$
|
3,274,383
|
|
|
Cash
paid to suppliers and employees
|
|
|
(3,339,964
|
)
|
|
(3,301,061
|
)
|
|
Interest
paid
|
|
|
(108,355
|
)
|
|
(21,142
|
)
|
|
Interest
received
|
|
|
55
|
|
|
17,945
|
|
|
Income
taxes (paid) refunded
|
|
|
48
|
|
|
(35,625
|
)
|
|
Net
cash provided (used) by operating activities
|
|
|
541,517
|
|
|
(65,500
|
)
|
|
Cash
flows from investing activities:
|
|
Acquisition
of property and equipment
|
|
|
(43,581
|
)
|
|
(14,215
|
)
|
|
Proceeds
from sale of property and equipment
|
|
|
4,000
|
|
|
---
|
|
|
Website
development costs
|
|
|
(18,978
|
)
|
|
---
|
|
|
Capitalized
software development costs
|
|
|
(357,539
|
)
|
|
---
|
|
|
Deposits
(paid) refunded
|
|
|
1,450
|
|
|
(3,200
|
)
|
|
Net
cash (used) by investing activities
|
|
|
(414,648
|
)
|
|
(17,415
|
)
|
|
Cash
flows from financing activities:
|
|
Proceeds
from (payments on) line of credit, net
|
|
|
(21,934
|
)
|
|
28,214
|
|
|
Payments
made on long-term notes payable
|
|
|
(48,424
|
)
|
|
---
|
|
|
Proceeds
from issuance of stock
|
|
|
---
|
|
|
15,000
|
|
|
Refund
on stock subscription
|
|
|
(25,000
|
)
|
|
---
|
|
|
Addition
to license agreements
|
|
|
---
|
|
|
25,073
|
|
|
Net
cash provided (used) by financing activities
|
|
|
(95,358
|
)
|
|
68,287
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
31,511
|
|
|
(14,628
|
)
|
|
Cash
and cash equivalents, beginning of year
|
|
|
7,140
|
|
|
21,768
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
38,651
|
|
$
|
7,140
|
|
|
|
|
Reconciliation
of net income (loss) to cash flows from operating
activities:
|
|
Net
income (loss)
|
|
$
|
1,073,663
|
|
$
|
(7,600,353
|
)
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
provided
(used) by operating activities:
|
|
|
|
Software
development costs amortized
|
|
|
77,037
|
|
|
---
|
|
|
Stock
and warrants issued for services
|
|
|
168,939
|
|
|
388,357
|
|
|
Provision
for bad debts
|
|
|
3,284
|
|
|
2,659,994
|
|
|
Depreciation
& amortization
|
|
|
543,890
|
|
|
534,749
|
|
|
Gain
on sale of property and equipment
|
|
|
(137
|
)
|
|
---
|
|
|
Debt
forgiveness
|
|
|
(1,051,786
|
)
|
|
---
|
|
|
Change
in assets and liabilities:
|
|
|
|
Decrease
in accounts receivable
|
|
|
228,645
|
|
|
335,819
|
|
|
(Increase)
decrease in inventories
|
|
|
229,546
|
|
|
(28,344
|
)
|
|
(Increase)
in refundable income taxes
|
|
|
(46,577
|
)
|
|
(1,548
|
)
|
|
(Increase)
decrease in prepaid expenses
|
|
|
(21,925
|
)
|
|
18,199
|
|
|
Decrease
in note receivable
|
|
|
---
|
|
|
240,000
|
|
|
Increase
in accrued royalties
|
|
|
47,919
|
|
|
483,221
|
|
|
Increase
(decrease) in accounts payable
|
|
|
(267,864
|
)
|
|
404,554
|
|
|
Increase
(decrease) in income taxes payable
|
|
|
3,272
|
|
|
(42,556
|
)
|
|
Increase
(decrease) in deferred taxes
|
|
|
(203,430
|
)
|
|
2,148,602
|
|
|
Increase
(decrease) in other liabilities
|
|
|
(242,959
|
)
|
|
393,806
|
|
|
Net
cash provided (used) by operating activities
|
|
$
|
541,517
|
|
$
|
(65,500
|
)
|
|
|
|
See
accompanying notes.
|
FindEx.com,
Inc.
Notes
to Consolidated Financial Statements
December
31, 2002 and 2001
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
FindEx.com,
Inc. (“FindEx” or the “company”) was incorporated under the laws of the State of
Delaware on December 26, 1995, as FinSource, Ltd. In April 1999, the company
merged with FINdex Acquisition Corporation (“FAC”), a Delaware corporation, in a
stock for stock transaction. On April 30, 1999, the company was acquired by
EJH
Entertainment, Inc. (“EJH”), a Nevada corporation, in a stock for stock
transaction and the name of the company was changed to FindEx.com, Inc. Both
the
merger with FAC and the acquisition by EJH were treated as reorganization
mergers with the surviving company and accounting history being that of
FinSource (the accounting acquirer).
FindEx
is
a retail, wholesale and Internet supplier of personal computer software products
to business and religious organizations and individuals around the world. In
July 1999, the company completed an exclusive license agreement with Parsons
Technology, Inc. (“Parsons”), a subsidiary of TLC, formerly Mattel Corporation,
for the Parsons Church Division of Mattel. In so doing, FindEx obtained the
exclusive right to market, sell and continue to develop several Bible study
software products. The company develops and publishes church and Bible study
software products designed to simplify biblical research and streamline church
office tasks.
ACCOUNTING
METHOD
The
company recognizes income and expenses on the accrual basis of
accounting.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of the company and its
wholly owned subsidiaries after eliminations.
USE
OF ESTIMATES
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the
accompanying notes. Significant estimates used in the consolidated financial
statements include the estimates of (i) doubtful accounts, sales returns, price
protection and rebates, (ii) provision for income taxes and realizability of
the
deferred tax assets, (iii) the life and realization of identifiable intangible
assets, and (iv) provisions for obsolete inventory. The amounts FindEx will
ultimately incur or recover could differ materially from current
estimates.
CONCENTRATIONS
Financial
instruments that potentially subject FindEx to concentrations of credit risk
consist of cash and cash equivalents and accounts receivable. FindEx places
its
cash and cash equivalents at well-known, quality financial institutions. FindEx
sells a majority of its products to end-users through distributors, Christian
book stores, Internet and direct marketing efforts. Although FindEx attempts
to
prudently manage and control accounts receivable and performs ongoing credit
evaluations in the normal course of business, the company generally requires
no
collateral on its product sales.
During
the years ended December 31, 2002 and 2001, the company had one major customer
that individually accounted for 10% or more of the annual sales. Sales to
Customer A accounted for 5% and 17%, respectively, of consolidated revenue
for
the years ended December 31, 2002 and 2001. Accounts receivable relating to
Customer A were $507 as of December 31, 2002.
During
the years ended December 31, 2002 and 2001, nine vendors provided purchases
individually of 10% or more of the total product and material purchases as
follows: Vendor A accounted for 33% and 11%, respectively, Vendor B accounted
for 16% and 2%, respectively, Vendor C accounted for 14% and 4%, respectively,
Vendor D accounted for 12% and -0-%, respectively, Vendor E accounted for 10%
and -0-%, respectively, Vendor F accounted for -0-% and 23%, respectively,
Vendor G accounted for 2% and 21%, respectively, Vendor H accounted for -0-%
and
14%, respectively, and Vendor I accounted for -0-% and 12%, respectively.
Accounts payable relating to Vendors A, B, C, D, E, F, G, H, and I were $24,416,
$-0-, $8,138, $22,097, $287, $-0-, $163,102, $-0-, and $-0-, respectively,
as of
December 31, 2002.
ROYALTY
AGREEMENTS
FindEx
has entered into certain agreements whereby it is obligated to pay royalties
for
content of software published. FindEx generally pays royalties based on a
percentage of sales on respective products or on a fee per unit sold basis.
The
company expenses software royalties as product costs during the period in which
the related revenues are recorded.
CASH
AND CASH EQUIVALENTS
FindEx
considers all highly liquid investments purchased with an original maturity
of
three months or less to be cash equivalents.
RESTRICTED
CASH
Restricted
cash represents cash that, under the terms of our Accounts Receivable Financing
Agreement, has been set aside for the repurchase of invoices assigned to our
lender.
INVENTORY
Inventory,
including out on consignment, consists primarily of software media, manuals
and
related packaging materials and is recorded at the lower of cost or market
value, determined on a first-in, first-out basis.
SOFTWARE
DEVELOPMENT COSTS
In
accordance with SFAS No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed,
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized
until
the product is available for general release to customers. Capitalized costs
are
then amortized on a straight-line basis over the estimated product life, or
on
the ratio of current revenues to total projected product revenues, whichever
is
greater. Total capitalized software development costs at December 31, 2002
were
$357,539, less accumulated amortization of $77,037. Research and development
costs incurred and charged to expense were $51,668 and $-0- for the years ended
December 31, 2002 and 2001, respectively.
PROPERTY
AND EQUIPMENT
Property
and equipment are recorded at cost. Furniture, fixtures and computer equipment
are depreciated over five years using the straight-line method. Software is
depreciated over three years using the straight-line method. Expenditures for
maintenance, repairs and other renewals of items are charged to expense when
incurred.
ACCOUNTING
FOR LONG-LIVED ASSETS
The
company reviews property and equipment for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured by comparison of its carrying amount
to
future net cash flows the assets are expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its fair market value.
Property and equipment to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
INTANGIBLE
ASSETS (Restated)
In
accordance with SFAS No. 142, Goodwill
and Other Intangible Assets,
intangible assets with an indefinite useful life are not amortized. Intangible
assets with a finite useful life are amortized on the straight-line method
over
the estimated useful lives.
REVENUE
RECOGNITION
The
company recognizes software revenue net of estimated returns and allowances
for
returns, price discounts and rebates, upon shipment of product, which is when
title passes, provided that collection of the resulting receivable is probable
and we have no significant obligations. Revenue from inventory out on
consignment is recognized when the consignee sells the product. Revenue
associated with advance payments from customers is deferred until products
are
shipped. Revenue for software distributed electronically via the Internet is
recognized upon delivery.
Product
returns from distributors and Christian bookstores are allowed primarily in
exchange for new products or for credit towards purchases as part of a
stock-balancing program. These returns are subject to certain limitations that
may exist in the contract. Under certain circumstances, such as termination
or
when a product is defective, distributors and bookstores could receive a cash
refund if returns exceed amounts owed. Returns from sales made directly to
the
consumer are accepted within 30 days of purchase and are issued a cash
refund.
Software
products are sold separately, without future performance such as upgrades or
maintenance, and are sold with postcontract customer support (“PCS”) services,
customer service and technical support assistance. In connection with the sale
of certain products, we provide a limited amount of free technical support
assistance to our customers. We do not defer the recognition of revenue
associated with sales of these products, since the cost of providing this free
technical support is insignificant. We accrue the estimated associated costs
of
providing this free support upon product shipment. We also offer several plans
under which customers are charged for technical support assistance. For plans
where we collect fees in advance, we recognize revenue over the period of
service, generally one year.
The
company maintains an allowance for potential credit losses and an allowance
for
anticipated returns on products sold to distributors, Christian bookstores,
and
direct customers. The allowance for sales returns is estimated based on a
calculation of forecast sales to the end-user in relation to estimated current
channel inventory levels.
Shipping
and handling costs in connection with our software products are expensed as
incurred and included in cost of goods sold.
ADVERTISING
Advertising
costs, including direct response advertising costs, are charged to operations
as
incurred. The company has determined that direct response advertising costs
are
insignificant. Total advertising costs for the years ended December 2002 and
2001 were approximately, $278,000 and $615,000, respectively.
STOCK-BASED
COMPENSATION
As
permitted under SFAS No. 123, Accounting
for Stock-based Compensation,
and
amended under SFAS No. 148, Accounting
for Stock-based Compensation-Transition and Disclosure,
the
company has elected to follow the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting
for Stock Issued to Employees,
in
accounting for stock-based awards to employees (see Note 11) and, accordingly,
does not recognize compensation cost.
INCOME
TAXES
The
company utilizes SFAS No. 109, Accounting
for Income Taxes.
SFAS
No. 109 requires the use of the asset and liability method of accounting for
income taxes. Under this method, deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis
of
the company’s assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
EARNINGS
(LOSS) PER SHARE
The
company follows SFAS No. 128, Earnings
Per Share,
to
calculate and report basic and diluted earnings per share (“EPS”). Basic EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed by giving effect to all dilutive potential common shares that were
outstanding during the period. For the company, dilutive potential common shares
consist of the incremental common shares issuable upon the exercise of stock
options and warrants for all periods, convertible notes payable and the
incremental common shares issuable upon the conversion of convertible preferred
stock.
In
the
case of a net loss, it is assumed that no incremental shares would be issued
because they would be anti-dilutive. In addition, certain options and warrants
are considered antidilutive because the exercise prices were above the average
market price during the period. Anti-dilutive shares are not included in the
computation of diluted EPS, in accordance with SFAS No. 128.
COMPREHENSIVE
INCOME (LOSS)
The
company has adopted SFAS No. 130, Reporting
Comprehensive Income.
SFAS
No. 130 establishes standards of reporting and displaying comprehensive income
and its components of net income and “other comprehensive income” in a full set
of general-purpose financial statements. “Other comprehensive income” refers to
revenues, expenses, gains and losses that are not included in net income, but
rather are recorded directly in stockholders’ equity. The adoption of this
Statement had no impact on the company’s net income or loss or stockholders’
equity.
TRANSFER
OF FINANCIAL ASSETS
The
company has adopted SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
SFAS
No. 140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities and provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of this standard did not
have a material effect on the company’s results of operations or financial
position.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Unless
otherwise indicated, the fair values of all reported assets and liabilities
which represent financial instruments (none of which are held for trading
purposes) approximate the carrying values of such instruments because of the
short maturity of those instruments.
NOTE
2 - ACCOUNTS RECEIVABLE, TRADE
At
December 31, 2002 and 2001, accounts receivable consisted of the following
(see
Note 1 - Concentrations):
| |
|
|
2002
|
|
|
2001
|
|
|
Trade
receivables
|
|
$
|
236,241
|
|
$
|
469,170
|
|
|
Less:
Allowance for doubtful accounts
|
|
|
8,000
|
|
|
9,000
|
|
|
Accounts
receivable, trade
|
|
$
|
228,241
|
|
$
|
460,170
|
|
During
the year ended December 31, 2002, we transferred accounts receivable totaling
$399,556 to a lender for cash advances of $239,734. As accounts are paid, the
collected funds (less the amount advanced and appropriate fees) are disbursed
to
the company (see Note 1 - Restricted Cash). The transfer agreement includes
a
repurchase requirement and, accordingly, the proceeds were accounted for as
a
secured borrowing. At December 31, 2002, the balance of receivables transferred
and included in trade receivables was $9,804. The remaining secured borrowing
balance of $6,277 is included in accrued expenses.
NOTE
3 - INVENTORIES (Restated)
At
December 31, 2002 and 2001, inventories consisted of the following:
| |
|
|
2002
|
|
|
2001
|
|
|
Raw
materials
|
|
$
|
121,000
|
|
$
|
91,000
|
|
|
Finished
goods
|
|
|
295,700
|
|
|
555,246
|
|
|
Inventories
|
|
$
|
416,700
|
|
$
|
646,246
|
|
NOTE
4 - PROPERTY AND EQUIPMENT, net
At
December 31, 2002 and 2001, property and equipment consisted of the
following:
| |
|
|
2002
|
|
|
2001
|
|
|
Computer
equipment
|
|
$
|
60,770
|
|
$
|
54,213
|
|
|
Computer
software
|
|
|
34,628
|
|
|
16,731
|
|
|
Office
equipment
|
|
|
24,099
|
|
|
20,428
|
|
|
Office
furniture and fixtures
|
|
|
49,845
|
|
|
35,858
|
|
|
Warehouse
equipment
|
|
|
23,150
|
|
|
28,923
|
|
| |
|
|
192,492
|
|
|
156,153
|
|
|
Less:
Accumulated depreciation
|
|
|
99,439
|
|
|
63,968
|
|
|
Property
and equipment, net
|
|
$
|
93,053
|
|
$
|
92,185
|
|
NOTE
5 - SOFTWARE LICENSE, net (Restated)
In
July
1999, we completed an exclusive license agreement with Parsons for the perpetual
and fully-paid up right and license to publish, use, distribute and sublicense
the programs incorporating the trademarks (i.e. QuickVerse, Membership Plus)
throughout the world and also in the licensed media, for sale, resale and/or
license to churches or other places of worship, religious schools and companies
or individuals for which the majority of sales revenue is derived from sales
of
religious, Christian or Bible products (the “Church Channel”). In addition, the
license agreement provided us the non-exclusive, perpetual and fully-paid up
right and license to publish, use, distribute and sublicense the programs
incorporating the trademarks throughout the world and also in the licensed
media, for sale, resale and/or license into all channels other than the Church
Channel. This original license agreement carried a 10 year economic
life.
During
the year ended December 31, 2002 we reached tentative settlement in a dispute
with TLC which called for the extension of the term of the license from 10
years
to 50 years. Management has decided to retain the 10 year economic
life.
As
required by SFAS No. 142, management periodically evaluates the remaining useful
life of the license agreement and revises the amortization period if it is
determined that the useful life is longer or shorter than originally estimated.
Amortization expense, determined using the straight-line method, has been
calculated using the original 10 year economic life. The software license is
tested for impairment annually during the fourth quarter.
At
December 31, 2002 and 2001, the software license consisted of the
following:
| |
|
|
2002
|
|
|
2001
|
|
|
Software
license cost
|
|
$
|
5,135,574
|
|
$
|
5,135,574
|
|
|
Less:
Accumulated amortization
|
|
|
1,862,776
|
|
|
1,359,268
|
|
|
Software
license, net
|
|
$
|
3,272,798
|
|
$
|
3,776,306
|
|
Amortization
expense related to this intangible asset was $503,508 for both years.
Amortization expense for the next five years is expected to be $503,508 each
year. See Note 18 - Restatement and Reclassification.
NOTE
6 - NOTES PAYABLE
At
December 31, 2002 and 2001, notes payable consisted of the
following:
| |
|
|
2002
|
|
|
2001
|
|
|
Demand
note payable to a corporation, with interest at 9%.
Unsecured.
|
|
$
|
650,000
|
|
$
|
650,000
|
|
| |
|
|
|
|
|
|
|
|
Note
payable to a corporation, due May 31, 2003, with interest compounded
monthly at 1.5%. Unsecured. Convertible at the option of the holder
into
666,667 and 660,000 restricted shares of common stock,
respectively.
|
|
|
33,333
|
|
|
33,000
|
|
| |
|
Note
payable to a corporation, due May 31, 2003, with interest compounded
monthly at 1.5%. Unsecured. Convertible at the option of the holder
into
666,667 and 660,000 restricted shares of common
stock, respectively.
|
|
|
33,333
|
|
|
33,000
|
|
| |
|
Note
payable to a corporation, due May 31, 2003, with interest compounded
monthly at 1.5%. Unsecured. Convertible at the option of the holder
into
666,667 and 660,000 restricted shares of common stock, respectively.
|
|
|
33,333
|
|
|
33,000
|
|
|
Notes
payable
|
|
$
|
749,999
|
|
$
|
749,000
|
|
NOTE
7 - LONG-TERM NOTE PAYABLE
On
January 31, 2002, the company refinanced $154,468 of trade accounts payable
by
issuing a long-term note payable to a corporation. The term note is unsecured
and due October 2004 in monthly installments of $5,285, including interest
at
8%.
Principal
maturities at December 31, 2002 are as follows:
|
2003
|
|
$
|
56,999
|
|
|
2004
|
|
|
49,045
|
|
| |
|
$
|
106,044
|
|
NOTE
8 - INCOME TAXES (Restated)
The
provision (benefit) for taxes on income for the years ended December 31
consisted of the following:
| |
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
---
|
|
$
|
---
|
|
|
State
|
|
|
(27,648
|
)
|
|
---
|
|
| |
|
|
(27,648
|
)
|
|
---
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(159,522
|
)
|
|
1,744,841
|
|
|
State
|
|
|
(40,636
|
)
|
|
395,282
|
|
| |
|
|
(200,158
|
)
|
|
2,140,123
|
|
|
Total
tax provision (benefit)
|
|
$
|
(227,806
|
)
|
$
|
2,140,123
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. The company’s total deferred tax
liabilities, deferred tax assets, and deferred tax asset valuation allowances
at
December 31, 2002 are as follows:
| |
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Current
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
102,000
|
|
$
|
170,000
|
|
|
State
|
|
|
24,000
|
|
|
40,000
|
|
|
Reserve
for sales returns
|
|
|
|
|
|
|
|
|
Federal
|
|
|
19,630
|
|
|
76,591
|
|
|
State
|
|
|
4,619
|
|
|
18,021
|
|
|
Reserve
for technical support costs
|
|
|
|
|
|
|
|
|
Federal
|
|
|
15,251
|
|
|
58,625
|
|
|
State
|
|
|
3,588
|
|
|
13,794
|
|
|
Reserve
for rebates payable
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,398
|
|
|
8,636
|
|
|
State
|
|
|
1,976
|
|
|
2,032
|
|
|
Accrued
compensation costs
|
|
|
|
|
|
|
|
|
Federal
|
|
|
34,235
|
|
|
36,565
|
|
|
State
|
|
|
8,055
|
|
|
8,604
|
|
|
Reserve
for bad debts
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,720
|
|
|
3,060
|
|
|
State
|
|
|
640
|
|
|
720
|
|
| |
|
|
225,112
|
|
|
436,648
|
|
|
Less
valuation allowance for deferred tax assets
|
|
|
225,112
|
|
|
436,648
|
|
|
Net
Current Deferred Tax Assets
|
|
|
---
|
|
|
---
|
|
|
Non-Current
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,664,236
|
|
$
|
3,151,933
|
|
|
State
|
|
|
718,584
|
|
|
727,109
|
|
|
Reorganization
Costs
|
|
|
|
|
|
|
|
|
Federal
|
|
|
22,100
|
|
|
---
|
|
|
State
|
|
|
5,200
|
|
|
---
|
|
|
State
deferred tax liabilities
|
|
|
|
|
|
|
|
|
Federal
|
|
|
69,618
|
|
|
74,285
|
|
| |
|
|
3,479,738
|
|
|
3,953,327
|
|
|
Less
valuation allowance for deferred tax assets (Restated)
|
|
|
3,479,738
|
|
|
3,953,327
|
|
|
Net
Non-Current Deferred Tax Assets
|
|
|
---
|
|
|
---
|
|
| |
|
|
|
|
|
|
|
|
Non-Current
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Software
license fees
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(761,654
|
)
|
|
(922,936
|
)
|
|
State
|
|
|
(176,881
|
)
|
|
(217,162
|
)
|
|
Property
and equipment, net
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,111
|
)
|
|
(5,622
|
)
|
|
State
|
|
|
(967
|
)
|
|
(1,323
|
)
|
|
Net
Non-Current Deferred Tax Liability
|
|
|
(943,613
|
)
|
|
(1,147,043
|
)
|
| |
|
|
|
|
|
|
|
|
Net
Deferred Tax Asset (Liability)
|
|
$
|
(943,613
|
)
|
$ |
(1,147,043
|
)
|
Those
amounts have been presented in the company’s financial statements as
follows:
|
Non-current
deferred tax liability (Restated)
|
|
$
|
(943,613
|
)
|
$ |
(1,147,043
|
)
|
The
valuation allowance for deferred tax assets was decreased by $685,125 during
the
year ended December 31, 2002.
At
December 31, 2002, the company has available net operating loss carryforwards
of
approximately $9,750,000 for federal income tax purposes that expire in 2021.
The federal carryforwards resulted from losses generated in 1996 through 2001.
The company also has net operating loss carryforwards available for state income
tax purposes ranging from approximately $25,000 to approximately $841,000 that
expire in 2021.
The
reconciliation of income tax computed at statutory rates of income tax benefits
is as follows:
| |
|
|
2002
|
|
|
2001
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Expense
at Federal statutory rate - 34%
|
|
$
|
287,591
|
|
$ |
(1,856,478
|
)
|
|
State
tax effects
|
|
|
(68,284
|
)
|
|
395,282
|
|
|
Nondeductible
expenses
|
|
|
6,850
|
|
|
868
|
|
|
Taxable
temporary differences
|
|
|
251,837
|
|
|
169,465
|
|
|
Deductible
temporary differences
|
|
|
(20,675
|
)
|
|
80
|
|
|
Deferred
tax asset valuation allowance
|
|
|
(685,125
|
)
|
|
3,430,906
|
|
|
Income
tax benefit
|
|
$ |
(227,806
|
)
|
$
|
2,140,123
|
|
NOTE
9 - STOCKHOLDERS’ EQUITY
COMMON
STOCK
On
January 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 12,500 common shares valued
at $.45 per share.
On
February 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 12,500 common shares valued
at $.42 per share.
On
March
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.68
per share.
On
April
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.30
per share.
On
May
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.27
per share.
On
June
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.23
per share.
On
July
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.13
per share.
On
July
15, 2001, FindEx converted 3,600 shares of Preferred Series A into 36,000 common
shares. In addition, FindEx converted $4,200 unpaid accumulated Preferred Series
A dividends into 5,103 common shares.
On
August
15, 2001, pursuant to a consulting agreement with an individual to provide
investor relations services, FindEx issued 10,750 common shares valued at $.089
per share.
On
September 5, 2001, pursuant to a stock subscription agreement with a company,
FindEx issued 48,387 common shares in exchange for cash of $15,000.
On
September 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 10,750 common shares valued
at $.17 per share.
On
October 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 10,750 common shares valued
at $.13 per share.
On
October 25, 2001, pursuant to a consulting agreement with a company for
strategic planning and development and enhancement of sales opportunities,
FindEx issued 500,000 common shares valued at $.13 per share.
On
November 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 10,750 common shares valued
at $.06 per share.
On
December 15, 2001, pursuant to a consulting agreement with an individual to
provide investor relations services, FindEx issued 10,750 common shares valued
at $.04 per share.
On
March
7, 2002, pursuant to a settlement agreement, the company issued an additional
six common shares for each common share originally issued under the stock
subscription agreement dated April 28, 2000. A total of 2,175,000 common shares
were issued under this settlement agreement. On March 27, 2002, the company
rescinded 60,000 common shares issued pursuant to this settlement agreement
after learning the original investors were unaccredited. On September 20, 2002,
the company issued 9,000 common shares correcting an error in the March
issuance.
On
March
27, 2002, the company rescinded 10,000 common shares pursuant to the stock
subscription agreement dated April 28, 2000 after learning the original
investors were unaccredited. The company returned $25,000 plus interest at
10%
to the original investors.
On
April
1, 2002, the company issued 5,891,760 restricted common shares to the employees
and Board of Directors as additional compensation pursuant to an incentive
and
retention bonus program. On August 7, 2002, the company rescinded 64,480
restricted common shares previously issued to part-time employees under the
incentive and retention bonus program. These shares were valued at $.025 per
share.
On
July
23, 2002, pursuant to settlement of an agreement with an individual for investor
relations services, the company issued 205,000 common shares valued at $.05
per
share.
On
September 20, 2002, pursuant to a settlement agreement, the company issued
an
additional six common shares for each common share originally issued in lieu
of
cash commission under the stock subscription agreement dated April 28, 2000.
A
total of 137,250 common shares were issued under this settlement agreement.
These shares were valued at $.03 per share.
On
November 15, 2002, pursuant to settlement of an agreement with a company for
consulting and valuation services, the company issued 296,308 common shares
valued at $.03 per share.
CONVERTIBLE
PREFERRED STOCK (SERIES A)
The
rights, preferences and privileges of the preferred shareholders are as
follows:
Dividends
Holders
of Series A Preferred Stock (the Preferred Stock) are entitled to receive common
stock dividends of $.50 per share per annum, in preference to any payment of
cash dividends declared or paid on shares of common stock. Dividends on
Preferred Stock are fully cumulative and are payable as determined by the Board
of Directors. As of December 31, 2002, no dividends have been declared.
Liquidation
Holders
of Preferred Stock are entitled to liquidation preferences over common
shareholders to the extent of $10.00 per share of Preferred Stock, plus all
declared but unpaid dividends. If funds are sufficient to make a complete
distribution to the preferred shareholders, such shareholders will share in
the
distribution of the company assets on a pro rata basis in proportion to the
aggregate preferential amounts owed each shareholder. After payment has been
made to the preferred shareholders, any remaining assets and funds are to be
distributed equally among the holders of the Common Stock based upon the number
of shares of the Common Stock held by each.
Conversion
Each
share of Convertible Preferred Stock shall be convertible at the option of
the
holder thereof, at any time prior to the close of business on the date fixed
by
the Corporation for redemption or conversion of such shares as herein provided,
into fully paid and nonassessable shares of common stock and such other
securities and property as hereinafter provided, initially at the rate of 10
shares of common stock for each full share of convertible Preferred Stock.
Redemption
At
the
election of the Board of Directors, the company may redeem all or part of the
shares of the Preferred Stock (pro rata based upon the total number of shares
of
the Preferred Stock held by each holder) by paying in cash a sum per share
equal
to $10.00 plus accrued and unpaid dividends per annum.
Voting
Rights
The
holder of each share of Preferred Stock is not entitled to vote except as
required by law.
CONVERTIBLE
PREFERRED STOCK (SERIES B)
The
rights, preferences and privileges of the preferred shareholders are as
follows:
Dividends
The
holders are entitled to receive cash dividends at the rate of $1.60 per annum
per share, and not more, which shall be fully cumulative, shall accrue without
interest from the date of first issuance and shall be payable quarterly in
arrears on March 15, June 15, September 15, and December 15 of each year
commencing September 15, 1999, to holders of record as they appear on the stock
books of the corporation on such record dates, not more than 60 nor less than
10
days preceding the payment dates for such dividends, as are fixed by the Board
of Directors. As of December 31, 2002, no dividends have been declared.
Liquidation
The
holders are entitled to a liquidation preference of an amount equal to the
dividends accrued and unpaid, whether or not declared, without interest, and
a
sum equal to $20.00 per share, and not more, before any payment shall be made
or
any assets distributed to the holders of Common Stock or any other class or
series of the Corporation’s capital stock ranking junior as to liquidation
rights to the Convertible Preferred Stock.
Conversion
Each
share of convertible Preferred Stock shall be convertible at the option of
the
holder thereof, at any time prior to the close of business on the date fixed
by
the Corporation for redemption of such share as herein provided, into fully
paid
and nonassessable shares of Common Stock and such other securities and property
as hereinafter provided, initially at the rate of one (1) share of Common Stock
for each full share of Convertible Preferred Stock.
Redemption
Subject
to restrictions, shares of the Series shall be redeemable at the option of
the
Corporation at any time at the redemption price of $20.00 per share plus, in
each case, an amount equal to the dividends accrued and unpaid thereon to the
redemption date. The Corporation may not redeem any shares of Preferred Stock
unless the current market value of the Corporation’s Common Stock, as defined,
immediately prior to the redemption date is not less than $18.00 per
share.
Voting
Rights
The
holder of each share of Preferred Stock is not entitled to vote, except as
required by law.
WARRANTS
On
February 19, 2001, in compromise and settlement of a consulting agreement,
FindEx issued warrants to purchase 100,000 common shares exercisable at $.50
per
share. The warrants are currently exercisable and expire in February 2008.
The
fair value of the warrants is estimated on the date of grant using the
Black-Scholes option-pricing model. In association with the warrants, the
company recognized $39,501 of consulting expense. These warrants were repriced
on October 5, 2001.
On
March
7, 2001, pursuant to an agreement with a law firm to provide corporate legal
services, FindEx issued warrants to purchase 100,000 common shares exercisable
at $.01 per share. The warrants are currently exercisable and expire in March
2006. The fair value of the warrants is estimated on the date of grant using
the
Black-Scholes option-pricing model. In association with the warrants, the
company recognized $36,859 of legal expense.
On
March
26, 2001, pursuant to an investment agreement with an institutional private
equity investor, FindEx issued a warrant to purchase 510,000 common shares
exercisable at $.23 per share. The warrant is currently exercisable for 300,000
shares with the balance vesting upon satisfaction of certain conditions and
will
expire in March 2007. The fair value of the warrant is estimated on the date
of
grant using the Black-Scholes option-pricing model. In association with the
warrant, the company recognized $181,392 of professional fees.
On
May
11, 2001, pursuant to an agreement with a law firm to provide corporate legal
services, FindEx issued warrants to purchase 50,000 common shares exercisable
at
$.01 per share. The warrants are currently exercisable and expire in May 2006.
The fair value of the warrants is estimated on the date of grant using the
Black-Scholes option-pricing model. In association with the warrants, the
company recognized $13,464 of legal expense.
On
October 5, 2001, in compromise and settlement of a consulting agreement, we
cancelled warrants issued on February 19, 2001 to purchase 100,000 common shares
exercisable at $.50 per share and issued warrants to purchase 125,000 common
shares at $.148 per share. The warrants are currently exercisable and expire
in
February 2008. The fair value of the warrants is estimated on the date of grant
using the Black-Scholes option-pricing model. This has been treated as a
re-pricing of the original warrants and an additional warrant for 25,000 common
shares. In connection with the issuance of the additional warrants, we
recognized consulting fees of $3,700. The net effects of the re-pricing are
negligible.
NOTE
10 - EARNINGS PER COMMON SHARE (Restated)
Earnings
per common share are computed by dividing net income (loss) by the weighted
average number of common shares and common stock equivalents outstanding during
the year. Common stock equivalents are the net additional number of shares
that
would be issuable upon the exercise of the outstanding common stock options
(see
Note 11), assuming that the company reinvested the proceeds to purchase
additional shares at market value.
The
following table shows the amounts used in computing EPS and the effect on income
(loss) and the average number of shares of dilutive potential common
stock:
|
For
the Year Ended December 31, 2002
|
|
|
Income
(Loss) (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per-share
Amount
|
|
|
Net
Income (Restated)
|
|
$
|
1,073,663
|
|
|
|
|
|
|
|
|
Less
preferred stock dividends
|
|
|
---
|
|
|
|
|
|
|
|
|
Income
available to common stockholders-basic earnings per share
|
|
|
1,073,663
|
|
|
17,607,104
|
|
$
|
0.06
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Convertible
notes payable
|
|
|
24,912
|
|
|
2,000,000
|
|
|
|
|
|
Convertible
Preferred Series A
|
|
|
---
|
|
|
114,000
|
|
|
|
|
|
Convertible
Preferred Series B
|
|
|
---
|
|
|
40,000
|
|
|
|
|
|
Warrants
|
|
|
---
|
|
|
110,685
|
|
|
|
|
|
Income
available to common stockholders-diluted earnings per
share
|
|
$
|
1,098,575
|
|
|
19,871,789
|
|
$
|
0.06
|
|
|
For
the Year Ended December 31, 2001
|
|
|
Income
(Loss) (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per-share
Amount
|
|
|
Net
Loss
|
|
$ |
(7,600,353
|
)
|
|
|
|
|
|
|
|
Less
preferred stock dividends
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
Loss
available to common stockholders-basic earnings per share
|
|
|
(7,604,553
|
)
|
|
10,744,519
|
|
$ |
(0.71
|
)
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Convertible
notes payable
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Convertible
Preferred Series A
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Convertible
Preferred Series B
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Warrants
|
|
|
---
|
|
|
---
|
|
|
|
|
|
Loss
available to common stockholders-diluted earnings per
share
|
|
$ |
(7,604,553
|
)
|
|
10,744,519
|
|
$ |
(0.71
|
)
|
A
total
of 4,308,200 and 4,012,200 dilutive potential securities for the years ended
December 31, 2002 and 2001, respectively, have been excluded from the
computation of diluted earnings per share, as their inclusion would be
anti-dilutive.
NOTE
11 - STOCK-BASED COMPENSATION (Restated)
The
Stock
Incentive Plan (the “Plan”) authorizes the issuance of various forms of
stock-based awards including incentive and nonqualified stock options, stock
appreciation rights attached to stock options, and restricted stock awards
to
directors, officers and other key employees of the company. Stock options are
granted at an exercise price as determined by the Board at the time the Option
is granted and shall not be less than the par value of such shares of Common
Stock. Stock options vest quarterly over three years and have a term of ten
years. At December 31, 2002, 6,306,550 shares were available for future issuance
under the Plan.
The
company applies APB Opinion No. 25 and related interpretations in accounting
for
its stock options. Accordingly, no compensation cost has been recognized for
outstanding stock options. Had compensation cost for the company’s outstanding
stock options been determined based on the fair value at the grant date for
those options consistent with SFAS No. 123, the company’s net income and primary
and diluted earnings per share would have differed as reflected by the pro
forma
amounts indicated below:
|
|
|
|
As
reported
|
|
|
Proforma
|
|
|
Net
income (Restated)
|
|
$
|
1,073,663
|
|
$
|
979,241
|
|
|
Basic
income per share (Restated)
|
|
$
|
0.06
|
|
$
|
0.06
|
|
|
Diluted
income per share (Restated)
|
|
$
|
0.06
|
|
$
|
0.05
|
|
Activity
under the company’s stock option plan is summarized as follows:
|
|
|
|
|
|
Outstanding
Options
|
|
|
|
|
Shares
Available for Grant
|
|
|
Number
of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Balance
at December 31, 2000
|
|
|
7,638,800
|
|
|
1,361,200
|
|
$
|
3.18
|
|
|
Granted
|
|
|
(2,207,000
|
)
|
|
2,207,000
|
|
$
|
0.13
|
|
|
Exercised
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
Forfeited
(canceled unvested options only)
|
|
|
---
|
|
|
(429,349
|
)
|
$
|
3.33
|
|
|
Canceled
|
|
|
749,348
|
|
|
(749,348
|
)
|
$
|
4.54
|
|
|
Balance
at December 31, 2001
|
|
|
6,181,148
|
|
|
2,818,852
|
|
$
|
0.42
|
|
|
Granted
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
Exercised
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
Forfeited
(canceled unvested options only)
|
|
|
---
|
|
|
(63,750
|
)
|
$
|
0.16
|
|
|
Canceled
|
|
|
125,402
|
|
|
(125,402
|
)
|
$
|
0.39
|
|
|
Balance
at December 31, 2002
|
|
|
6,306,550
|
|
|
2,693,450
|
|
$
|
0.42
|
|
The
following table summarizes information about stock options outstanding at
December 31, 2002.
|
Outstanding
Options
|
Exercisable
Options
|
|
Range
of Exercise Prices
|
|
|
Outstanding
at December 31, 2002
|
|
|
Weighted-Average
Remaining Contractual Life (Years)
|
|
|
Weighted-Average
Exercise Price
|
|
|
Exercisable
at December 31, 2002
|
|
|
Weighted-Average
Exercise Price
|
|
|
$0.00
to $1.10
|
|
|
2,693,450
|
|
|
8.3
|
|
$
|
0.4183
|
|
|
2,043,533
|
|
$
|
0.5013
|
|
NOTE
12 - RENTAL AND LEASE INFORMATION
The
company leases office space/warehouse facilities under an operating lease with
a
third-party with terms extending through 2007. The company is responsible for
all taxes, insurance and utility expenses associated with this leases. There
is
no lease renewal option contained in the lease. Rental expense for the years
ended December 31, 2002 and 2001 amounted to $118,621 and $144,240,
respectively.
At
December 31, 2002, the future minimum rental payments required under this lease
are as follows:
|
2003
|
|
$
|
62,370
|
|
|
2004
|
|
|
64,191
|
|
|
2005
|
|
|
65,491
|
|
|
2006
|
|
|
65,491
|
|
|
2007
|
|
|
27,288
|
|
| |
|
$
|
284,831
|
|
NOTE
13 - SUPPLEMENTAL CASH FLOW INFORMATION
The
company incurred the following non-cash investing and financing activities
during the years ended December 31, 2002 and 2001, respectively:
| |
|
|
2002
|
|
|
2001
|
|
|
Common
stock and warrants issued for services
|
|
$
|
168,939
|
|
$
|
388,357
|
|
|
Common
stock dividend
|
|
|
---
|
|
|
4,200
|
|
|
Conversion
of preferred stock to common stock
|
|
|
---
|
|
|
32
|
|
NOTE
14 - COMMITMENTS AND CONTINGENCIES
The
company is subject to legal proceedings and claims that arise in the ordinary
course of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the financial
position of the company.
On
November 14, 2001, The Zondervan Corporation elected to enforce a court order
and served notice that we cease selling, marketing and manufacturing all
products containing their copyrighted material. We are abiding by the court
order and are no longer shipping products containing Zondervan’s copyrighted
material. We are continuing negotiations with Zondervan to reach a settlement
that will allow us to resume shipment of those products. Company management
believes the amount of any potential loss cannot be reasonably
estimated.
The
company has reached tentative settlement in a dispute with TLC over various
provisions of several agreements, including the software license agreement
(see
Note 5). Ultimate disposition of this tentative settlement is contingent upon
settlement of negotiations with The Zondervan Corporation. Company management
believes the amount of any potential loss cannot be reasonably
estimated.
NOTE
15 - RISKS AND UNCERTAINTIES
The
company’s future operating results may be affected by a number of factors. The
company is dependent upon a number of major inventory and intellectual property
suppliers. If a critical supplier had operational problems or ceased making
material available to the company, operations could be adversely affected.
The
company is also dependent upon a few major customers. If any of these customers
experienced operational problems or ceased placing orders with the company,
operations could also be adversely affected.
NOTE
16 - GOING CONCERN
The
accompanying financial statements have been prepared assuming the company will
continue as a going concern. The company has a negative current ratio and total
liabilities in excess of total assets. Those factors, as well as uncertainty
in
securing financing for continued operations, create an uncertainty about the
company’s ability to continue as a going concern. Management of the company has
developed a plan to reduce its liabilities through sales of new releases of
the
company’s flagship software titles. The ability of the company to continue as a
going concern is dependent on the acceptance of the plan by the company’s
creditors and the plan’s success. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE
17 - SUBSEQUENT EVENTS
On
February 6, 2003, the company was notified by our credit card merchant services
provider of their need to maintain a $50,000 reserve for disputed credit card
charges and sales returns. The reserve requirement was based on the company’s
financial and credit history and will be established through April
2003.
On
February 28, 2003, the Internal Revenue Service approved the company’s request
to pay back payroll taxes in monthly installments of $10,000 through May 5,
2003. The monthly installments increase to $45,000 beginning June 5, 2003 and
continuing through November 5, 2003.
NOTE
18 - RESTATEMENT AND RECLASSIFICATION
The
company has restated its financial statements for the year ended December 31,
2002 to reflect issues identified during a regulatory review of its financial
statements associated with a certain registration statement filed with the
SEC
on November 22, 2004 on Form SB-2 and which is pending effectiveness as of
the
date of this filing of Amendment Number 1 to Form 10-KSB for the year ended
December 31, 2002. Management and the board of directors concluded these
restatements were necessary to reflect the changes described below. There was
no
net effect on cash provided by operating activities or cash used by investing
and financing activities as a result of these errors.
During
the three month period ended June 30, 2002, the company offset the remaining
unpaid installment ($1,051,785) against the carrying amount of the 1999 software
license in accordance with the terms of the tentative settlement agreement
with
TLC, the licensor-assignee at the time. Although paragraph 6 of SFAS No.
141,
Business
Combinations,
which
guides the recognition and measurement of intangible assets, provides that
the
measurement of assets in which the consideration given is cash are measured
by
the amount of cash paid, our management has since concluded that too much
time
had passed between the date of the agreement (June 1999) and the date of
the
tentative settlement (May 2002) for such an offset to be appropriate. Therefore,
the company recognized the extinguishment of the liability owed to TLC as
income
in the statement of operations. The company has restated the consolidated
balance sheet as of December 31, 2002 and the consolidated statements of
operations, consolidated statements of stockholders’ equity, and consolidated
statements of cash flows for the year then ended.
Also
during the three month period ended June 30, 2002, the company extended the
estimated life of the 1999 software license from 10 years to 50 years in
accordance with the terms of the tentative settlement agreement with TLC.
Although the 1999 software license, as amended provides for our unlimited
and
exclusive use of the trademarks related to the licensed products, and our
management has assessed the useful life of the 1999 software license as
indefinite (though limited under the applicable contractual provisions to
50
years) based on the estimated future direct or indirect cash flows from the
license, as provided by paragraphs 53 and 11 of SFAS No. 142, Goodwill
and Other Intangible Assets,
our
management has since concluded that a 10 year life is appropriate based,
among
other reasons, on the going concern qualification contained in the audit
report
for the period covered by this report. The company has restated the consolidated
balance sheet as of December 31, 2002 and the consolidated statements of
operations, consolidated statements of stockholders’ equity, and consolidated
statements of cash flows for the year then ended.
Finally,
the company had previously and erroneously, included rebates in sales and
marketing expenses. The more appropriate presentation should have been, and
is
now, as a reduction to revenue, as provided by EITF Issue No. 01-09,
Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of
the
Vendor’s Products).
As
provided by paragraph 12 of EITF Issue No. 01-09, the comparative period
presented for the year ended December 31, 2001 has been reclassified to conform
with the 2002 presentation.
A
summary
of the effects of these changes is as follows:
|
Findex.com,
Inc.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2002
|
|
|
|
|
|
As
Previously
Reported
|
|
|
As
Restated
|
|
|
Change
|
|
|
|
Assets
|
|
Current
assets:
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
38,651
|
|
$
|
38,651
|
|
$
|
---
|
|
|
|
Accounts
receivable, trade
|
|
|
|
|
|
228,241
|
|
|
228,241
|
|
|
---
|
|
|
|
Inventories
|
|
|
|
|
|
697,202
|
|
|
416,700
|
|
|
(280,502
|
)
|
(d)
|
|
Other
current assets
|
|
|
|
|
|
86,698
|
|
|
86,698
|
|
|
---
|
|
|
|
Total
current assets
|
|
|
|
|
|
1,050,792
|
|
|
770,290
|
|
|
(280,502
|
)
|
|
|
Property
and equipment, net
|
|
93,053
|
|
|
93,053
|
|
|
---
|
|
|
|
Software
license, net
|
|
2,557,395
|
|
|
3,272,798
|
|
|
715,403
|
|
(a)
|
|
Software
development costs, net
|
|
---
|
|
|
280,502
|
|
|
280,502
|
|
(d)
|
|
Other
assets
|
|
28,553
|
|
|
28,553
|
|
|
---
|
|
|
|
Total
assets
|
|
|
|
|
$
|
3,729,793
|
|
$
|
4,445,196
|
|
$
|
715,403
|
|
|
| |
|
Liabilities
and stockholders’ equity
|
|
Current
liabilities:
|
|
Accounts
payable, trade
|
|
|
|
|
$
|
1,170,510
|
|
$
|
1,071,563
|
|
$
|
(98,947
|
)
|
(b)
|
|
Notes
payable
|
|
|
|
|
|
749,999
|
|
|
749,999
|
|
|
---
|
|
|
|
Accrued
royalties
|
|
|
|
|
|
2,130,613
|
|
|
2,130,613
|
|
|
---
|
|
|
|
Accrued
expenses
|
|
|
|
|
|
1,224,569
|
|
|
1,224,569
|
|
|
---
|
|
|
|
Current
maturities of long-term debt
|
|
|
|
|
|
56,999
|
|
|
56,999
|
|
|
---
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
5,332,690
|
|
|
5,233,743
|
|
|
(98,947
|
)
|
|
|
Long-term
note payable
|
|
49,045
|
|
|
49,045
|
|
|
---
|
|
|
|
Deferred
income taxes, net
|
|
1,084,894
|
|
|
943,613
|
|
|
(141,281
|
)
|
(c)
|
|
Stockholders’
equity:
|
|
|
Preferred
stock, $.001 par value
|
|
|
|
|
|
51
|
|
|
51
|
|
|
---
|
|
|
|
Common
stock, $.001 par value
|
|
|
|
|
|
19,811
|
|
|
19,811
|
|
|
---
|
|
|
|
Paid-in
capital
|
|
|
|
|
|
7,029,079
|
|
|
7,029,079
|
|
|
---
|
|
|
|
Retained
(deficit)
|
|
|
|
|
|
(9,785,777
|
)
|
|
(8,830,146
|
)
|
|
955,631
|
|
|
|
Total
stockholders’ equity
|
|
|
|
|
|
(2,736,836
|
)
|
|
(1,781,205
|
)
|
|
955,631
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
|
|
|
$
|
3,729,793
|
|
$
|
4,445,196
|
|
$
|
715,403
|
|
|
| |
|
(a)
Increased
by $1,051,785 reclassification of forgiven final installment payment
and
decreased by $224,256
additional amortization from reducing the estimated useful life from
50
years to 10 years.
|
|
(b)
Decreased
by $98,947 from 2000 overstatement of trade payable to third-party
rebate
processor.
|
|
(c)
Decreased
from reclassification of forgiven final installment payment and additional
amortization
from reducing the estimated useful life of the software
license.
|
|
(d)
Reclassification
of capitalized software development costs from inventory to an intangible
asset.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
December
31, 2001
|
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
Change
|
|
|
|
Assets
|
|
Current
assets:
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
7,140
|
|
$
|
7,140
|
|
$
|
---
|
|
|
|
Accounts
receivable, trade
|
|
|
|
|
|
460,170
|
|
|
460,170
|
|
|
---
|
|
|
|
Inventories
|
|
|
|
|
|
646,246
|
|
|
646,246
|
|
|
---
|
|
|
|
Other
current assets
|
|
|
|
|
|
21,468
|
|
|
21,468
|
|
|
---
|
|
|
|
Total
current assets
|
|
|
|
|
|
1,135,024
|
|
|
1,135,024
|
|
|
---
|
|
|
|
Property
and equipment, net
|
|
92,185
|
|
|
92,185
|
|
|
---
|
|
|
|
Software
license, net
|
|
3,776,306
|
|
|
3,776,306
|
|
|
---
|
|
|
|
Other
assets
|
|
12,558
|
|
|
12,558
|
|
|
---
|
|
|
|
Total
assets
|
|
|
|
|
$
|
5,016,073
|
|
$
|
5,016,073
|
|
$
|
---
|
|
|
| |
|
Liabilities
and stockholders’ equity
|
|
Current
liabilities:
|
|
License
fees payable
|
|
|
|
|
$
|
1,051,785
|
|
$
|
1,051,785
|
|
$
|
---
|
|
|
|
Notes
payable
|
|
|
|
|
|
749,000
|
|
|
749,000
|
|
|
---
|
|
|
|
Accrued
royalties
|
|
|
|
|
|
2,082,694
|
|
|
2,082,694
|
|
|
---
|
|
|
|
Accounts
payable, trade
|
|
|
|
|
|
1,521,520
|
|
|
1,422,574
|
|
|
(98,946
|
)
|
(a)
|
|
Reserve
for rebates
|
|
|
|
|
|
443,477
|
|
|
443,477
|
|
|
---
|
|
|
|
Payroll
taxes payable
|
|
|
|
|
|
193,049
|
|
|
193,049
|
|
|
---
|
|
|
|
Other
current liabilities
|
|
|
|
|
|
853,936
|
|
|
853,936
|
|
|
---
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
6,895,461
|
|
|
6,796,515
|
|
|
(98,946
|
)
|
|
|
Long-term
note payable
|
|
71,322
|
|
|
71,322
|
|
|
---
|
|
|
|
Deferred
income taxes, net
|
|
1,147,043
|
|
|
1,147,043
|
|
|
---
|
|
|
|
Stockholders’
equity:
|
|
|
Preferred
stock, $.001 par value
|
|
|
|
|
|
51
|
|
|
51
|
|
|
---
|
|
|
|
Common
stock, $.001 par value
|
|
|
|
|
|
11,231
|
|
|
11,231
|
|
|
---
|
|
|
|
Paid-in
capital
|
|
|
|
|
|
6,893,720
|
|
|
6,893,720
|
|
|
---
|
|
|
|
Retained
(deficit)
|
|
|
|
|
|
(10,002,755
|
)
|
|
(9,903,809
|
)
|
|
98,946
|
|
(a)
|
|
Total
stockholders’ equity
|
|
|
|
|
|
(3,097,753
|
)
|
|
(2,998,807
|
)
|
|
98,946
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
|
|
|
$
|
5,016,073
|
|
$
|
5,016,073
|
|
$
|
---
|
|
|
| |
|
(a)
Decreased
by $98,946 from 2000 overstatement of trade payable to third-party
rebate
processor.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the Year Ended December 31, 2002
|
|
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
Change
|
|
|
| |
|
|
Revenues,
net of reserves and allowances
|
$
|
3,908,694
|
|
$
|
3,908,346
|
|
$
|
(348
|
)
|
(a)
|
|
Cost
of sales
|
|
814,225
|
|
|
834,472
|
|
|
20,247
|
|
(b)
|
|
Gross
profit
|
|
|
|
|
|
3,094,469
|
|
|
3,073,874
|
|
|
(20,595
|
)
|
|
|
Operating
expenses:
|
|
|
Sales
and marketing
|
|
|
|
|
|
811,275
|
|
|
790,680
|
|
|
(20,595
|
)
|
(a)(b)
|
|
General
and administrative
|
|
|
|
|
|
1,798,015
|
|
|
1,798,015
|
|
|
---
|
|
|
|
Bad
debt expense
|
|
|
|
|
|
3,284
|
|
|
3,284
|
|
|
---
|
|
|
|
Amortization
expense
|
|
|
|
|
|
168,658
|
|
|
505,040
|
|
|
336,382
|
|
(c)
|
|
Depreciation
expense
|
|
|
|
|
|
38,850
|
|
|
38,850
|
|
|
---
|
|
|
|
Total
operating expenses
|
|
|
|
|
|
2,820,082
|
|
|
3,135,869
|
|
|
315,787
|
|
|
|
Earnings
from operations
|
|
274,387
|
|
|
(61,995
|
)
|
|
(336,382
|
)
|
|
|
Other
income
|
|
16,172
|
|
|
1,067,958
|
|
|
1,051,786
|
|
(d)
|
|
Other
expenses, net
|
|
(160,106
|
)
|
|
(160,106
|
)
|
|
---
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
130,453
|
|
|
845,857
|
|
|
715,404
|
|
|
|
Provision
for income taxes
|
|
86,525
|
|
|
227,806
|
|
|
141,281
|
|
(e)
|
|
Net
income
|
|
|
|
|
$
|
216,978
|
|
$
|
1,073,663
|
|
$
|
856,685
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
Basic
|
|
|
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.05
|
|
|
|
Diluted
|
|
|
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.05
|
|
|
|
|
|
|
Weighted
average shares outstanding (Note 14):
|
|
|
Basic
|
|
|
|
|
|
17,607,104
|
|
|
17,607,104
|
|
|
---
|
|
|
|
Diluted
|
|
|
|
|
|
19,741,104
|
|
|
19,871,789
|
|
|
130,685
|
|
(f)
|
|
|
|
|
(a)
Decrease
from reclassification of rebates from sales and
marketing.
|
|
(b)
Increase
from reclassification of fulfillment expenses from sales and
marketing.
|
|
(c)
Increase
from reducing the estimated useful life of the software license from
50
years to 10 years.
|
|
(d)
Increased
by $1,051,786 reclassification of forgiven final installment
payment.
|
|
(e)Increased
from recalculation of deferred income taxes resulting from
reclassification of forgiveness of final
installment of the software license and reduction of the estimated
useful
life from 50 years to 10 years.
|
|
(f)
Increase
from correction of calculation of dilutive
warrants.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the Year Ended December 31, 2001
|
|
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
Change
|
|
|
| |
|
|
|
|
|
Revenues,
net of reserves and allowances
|
$
|
2,755,658
|
|
$
|
2,575,316
|
|
$
|
(180,342
|
)
|
(a)
|
|
Cost
of sales
|
|
1,374,759
|
|
|
1,374,789
|
|
|
30
|
|
(b)
|
|
Gross
profit
|
|
|
|
|
|
1,380,899
|
|
|
1,200,527
|
|
|
(180,372
|
)
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales
and marketing
|
|
|
|
|
|
821,525
|
|
|
666,188
|
|
|
(155,337
|
)
|
(a)
|
|
General
and administrative
|
|
|
|
|
|
2,751,483
|
|
|
2,726,448
|
|
|
(25,035
|
)
|
(c)
|
|
Bad
debt expense
|
|
|
|
|
|
2,659,994
|
|
|
2,659,994
|
|
|
---
|
|
|
|
Amortization
expense
|
|
|
|
|
|
505,593
|
|
|
505,593
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
|
|
|
29,156
|
|
|
29,156
|
|
|
---
|
|
|
|
Total
operating expenses
|
|
|
|
|
|
6,767,751
|
|
|
6,587,379
|
|
|
(180,372
|
)
|
|
|
Earnings
from operations
|
|
(5,386,852
|
)
|
|
(5,386,852
|
)
|
|
---
|
|
|
|
Other
income
|
|
14,990
|
|
|
14,990
|
|
|
---
|
|
|
|
Other
expenses, net
|
|
(88,368
|
)
|
|
(88,368
|
)
|
|
---
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
(5,460,230
|
)
|
|
(5,460,230
|
)
|
|
---
|
|
|
|
Provision
for income taxes
|
|
(2,140,123
|
)
|
|
(2,140,123
|
)
|
|
---
|
|
|
|
Net
income
|
|
|
|
|
$
|
(7,600,353
|
)
|
$
|
(7,600,353
|
)
|
$
|
---
|
|
|
|
|
|
|
|
|
|
Net
earnings per share:
|
|
|
|
|
|
Basic
|
|
|
|
|
$
|
(0.71
|
)
|
$
|
(0.71
|
)
|
$
|
---
|
|
|
|
Diluted
|
|
|
|
|
$
|
(0.71
|
)
|
$
|
(0.71
|
)
|
$
|
---
|
|
|
| |
|
|
|
|
|
Weighted
average shares outstanding (Note 14):
|
|
|
|
|
|
Basic
|
|
|
|
|
|
10,744,519
|
|
|
10,744,519
|
|
|
---
|
|
|
|
Diluted
|
|
|
|
|
|
10,744,519
|
|
|
10,744,519
|
|
|
---
|
|
|
|
|
|
|
|
|
|
(a)
Decrease
from reclassification of rebates from sales and
marketing.
|
|
(b)
Increase
from reclassification of fulfillment expense from sales and
marketing.
|
|
(c)
Decreaes
from reclassification of commission expense to sales and
marketing.
|
|
Findex.com,
Inc.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the Year Ended December 31, 2002
|
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
Change
|
|
|
|
Cash
flows from operating activities:
|
|
Cash
received from customers
|
|
|
|
|
$
|
3,969,806
|
|
$
|
3,989,733
|
|
$
|
19,927
|
|
(a)
|
|
Cash
paid to suppliers and employees
|
|
|
|
|
|
(3,677,576
|
)
|
|
(3,339,964
|
)
|
|
337,612
|
|
(b)
|
|
Interest
paid
|
|
|
|
|
|
(108,355
|
)
|
|
(108,355
|
)
|
|
---
|
|
|
|
Interest
received
|
|
|
|
|
|
55
|
|
|
55
|
|
|
---
|
|
|
|
Income
taxes refunded
|
|
|
|
|
|
48
|
|
|
48
|
|
|
---
|
|
|
|
Net
cash provided by operating activities
|
|
|
|
|
|
183,978
|
|
|
541,517
|
|
|
357,539
|
|
|
|
Cash
flows from investing activities:
|
|
Acquisition
of property and equipment
|
|
|
|
|
|
(43,581
|
)
|
|
(43,581
|
)
|
|
---
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
|
|
|
4,000
|
|
|
4,000
|
|
|
---
|
|
|
|
Deposits
refunded
|
|
|
|
|
|
1,450
|
|
|
1,450
|
|
|
---
|
|
|
|
Capitalized
software development costs
|
|
|
|
|
|
---
|
|
|
(357,539
|
)
|
|
(357,539
|
)
|
(c)
|
|
Website
development costs
|
|
|
|
|
|
(18,978
|
)
|
|
(18,978
|
)
|
|
---
|
|
|
|
Net
cash (used) by investing activities
|
|
|
|
|
|
(57,109
|
)
|
|
(414,648
|
)
|
|
(357,539
|
)
|
|
|
Cash
flows from financing activities:
|
|
Proceeds
from (payments on) line of credit, net
|
|
|
|
|
|
(21,934
|
)
|
|
(21,934
|
)
|
|
---
|
|
|
|
Payments
made on long-term notes payable
|
|
|
|
|
|
(48,424
|
)
|
|
(48,424
|
)
|
|
---
|
|
|
|
Refund
on stock subscription
|
|
|
|
|
|
(25,000
|
)
|
|
(25,000
|
)
|
|
---
|
|
|
|
Net
cash (used) by financing activities
|
|
|
|
|
|
(95,358
|
)
|
|
(95,358
|
)
|
|
---
|
|
|
|
Net
increase in cash and cash equivalents
|
|
31,511
|
|
|
31,511
|
|
|
---
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
7,140
|
|
|
7,140
|
|
|
---
|
|
|
|
Cash
and cash equivalents, end of year
|
|
|
|
|
$
|
38,651
|
|
$
|
38,651
|
|
$
|
---
|
|
|
|
|
|
|
Reconciliation
of net income to cash flows from operating activities:
|
|
|
Net
income
|
|
|
|
|
$
|
216,978
|
|
$
|
1,073,663
|
|
$
|
856,685
|
|
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
Stock
and warrants issued for services
|
|
|
|
|
|
168,939
|
|
|
168,939
|
|
|
---
|
|
|
|
Software
development costs amortized
|
|
|
|
|
|
---
|
|
|
77,037
|
|
|
77,037
|
|
(d)
|
|
Depreciation
& amortization
|
|
|
|
|
|
207,508
|
|
|
543,890
|
|
|
336,382
|
|
(e)
|
|
Gain
on disposal of property and equipment
|
|
|
|
|
|
(137
|
)
|
|
(137
|
)
|
|
---
|
|
|
|
Bad
debt expense
|
|
|
|
|
|
3,284
|
|
|
3,284
|
|
|
---
|
|
|
|
Debt
forgiveness
|
|
|
|
|
|
---
|
|
|
(1,051,786
|
)
|
|
(1,051,786
|
)
|
(f)
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
|
|
|
228,645
|
|
|
228,645
|
|
|
---
|
|
|
|
(Increase)
in refundable income taxes
|
|
|
|
|
|
(46,577
|
)
|
|
(46,577
|
)
|
|
---
|
|
|
|
(Increase)
decrease in inventories
|
|
|
|
|
|
(50,956
|
)
|
|
229,546
|
|
|
280,502
|
|
(c)
|
|
Increase
in prepaid expenses
|
|
|
|
|
|
(21,925
|
)
|
|
(21,925
|
)
|
|
---
|
|
|
|
Increase
in accrued royalties
|
|
|
|
|
|
47,919
|
|
|
47,919
|
|
|
---
|
|
|
|
(Decrease)
in accounts payable
|
|
|
|
|
|
(267,864
|
)
|
|
(267,864
|
)
|
|
---
|
|
|
|
Increase
in income taxes payable
|
|
|
|
|
|
3,272
|
|
|
3,272
|
|
|
---
|
|
|
|
(Decrease)
in deferred taxes
|
|
|
|
|
|
(62,149
|
)
|
|
(203,430
|
)
|
|
(141,281
|
)
|
(g)
|
|
(Decrease)
in other liabilities
|
|
|
|
|
|
(242,959
|
)
|
|
(242,959
|
)
|
|
---
|
|
|
|
Net
cash provided by operating activities
|
|
|
|
|
$
|
183,978
|
|
$
|
541,517
|
|
$
|
357,539
|
|
|
|
|
|
|
(a)
Increase
from reclassifying cash received from deferred revenue.
|
|
(b)
Increased
by $357,539 reclassified as capitalized software development costs
and
decreased by $19,927
reclassification of cash received from deferred
revenue.
|
|
(c)
Reclassification
of capitalized software development costs as an investment activity
from
an operating
activity.
|
|
(d)
Increase
from separating software development costs amortized.
|
|
(e)
Increase
from reducing the estimated useful life of the software license from
50
years to 10 years.
|
|
(f)
Increased
by $1,051,786 reclassification of forgiven final installment
payment.
|
|
(g)
Decreased
from reclassification of forgiven final installment payment and additional
amortization
from reducing the estimated useful life of the software
license.
|
Signatures
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
FINDEX.COM,
INC
|
| |
|
| |
By:/s/
Steven Malone
|
| |
Name:
Steven Malone
|
| |
Title:
President and Chief Executive
Officer
|
Date:
September 28, 2005
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report
has
been signed below by the following persons on behalf of the registrant and
in
the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
| |
|
|
|
/s/
Steven Malone
|
Chairman
of the Board, President and Chief Executive Officer (principal
executive
officer)
|
September
28, 2005
|
|
Steven
Malone
|
|
|
| |
|
|
|
/s/
John Kuehne
|
Chairman
of the Audit Committee
|
September
28, 2005
|
|
John
A. Kuehne
|
|
|
| |
|
|
|
/s/
Henry M. Washington
|
Director
|
September
28, 2005
|
|
Henry
M. Washington
|
|
|
| |
|
|
|
/s/
Kirk R. Rowland
|
Chief
Financial Officer (principal financial and accounting
officer)
|
September
28, 2005
|
|
Kirk
R. Rowland
|
|
|