FindEx.com, Inc. Form 10-QSB March 31, 2007
U.
S. SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2007
Commission
file number: 0-29963
FINDEX.COM,
INC.
(Name
of
small business issuer in its charter)
|
Nevada
|
88-0379462
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|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
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Identification
No.)
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| |
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11204
Davenport Street, Suite 100, Omaha, Nebraska
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68154
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|
(Address
of principal executive offices)
|
(Zip
Code)
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(402)
333-1900
(Issuer’s
telephone number)
NA.
(Former
name, former address and former fiscal year, if changed since last
report)
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 [_]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
[_] No [X]
At
May
21, 2007, the registrant had outstanding 49,788,317 shares of common stock,
of
which there is only a single class.
Transitional
Small Business Disclosure Format (check one): Yes __ No X
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Page
Number
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F-1
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1
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12
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13
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13
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13
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13
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13
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13
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Findex.com,
Inc.
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|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
December
31, 2006
|
|
|
Assets
|
|
Current
assets:
|
|
Cash
and cash equivalents
|
|
$
|
54,494
|
|
$
|
48,672
|
|
|
Accounts
receivable, trade, net
|
|
|
404,772
|
|
|
318,000
|
|
|
Inventory
|
|
|
158,123
|
|
|
145,344
|
|
|
Other
current assets
|
|
|
170,482
|
|
|
213,162
|
|
|
Total
current assets
|
|
|
787,871
|
|
|
725,178
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|
|
Property
and equipment, net
|
|
|
79,647
|
|
|
86,638
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|
Software
license, net
|
|
|
1,132,892
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|
1,258,769
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Capitalized
software development costs, net
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|
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493,981
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|
|
491,695
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|
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Restricted
cash
|
|
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40,000
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|
|
---
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|
|
Other
assets
|
|
|
489,012
|
|
|
493,565
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|
|
Total
assets
|
|
$
|
3,023,403
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|
$
|
3,055,845
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|
|
|
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Liabilities
and stockholders’ equity
|
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Current
liabilities:
|
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Accounts
payable, trade
|
|
$
|
598,168
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$
|
693,260
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|
|
Accrued
royalties
|
|
|
746,468
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|
|
649,763
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|
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Derivative
liabilities
|
|
|
500,324
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|
|
526,868
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|
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Other
current liabilities
|
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618,054
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|
561,111
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Total
current liabilities
|
|
|
2,463,014
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|
2,431,002
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Long-term
obligations
|
|
|
21,795
|
|
|
80,568
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Commitments
and contingencies (Note 7)
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Stockholders’
equity:
|
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Common
stock
|
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49,788
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|
|
49,788
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Paid-in
capital
|
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7,592,884
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7,592,884
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Retained
(deficit)
|
|
|
(7,104,078
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)
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(7,098,397
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)
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Total
stockholders’ equity
|
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538,594
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|
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544,275
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Total
liabilities and stockholders’ equity
|
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$
|
3,023,403
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$
|
3,055,845
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|
|
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See
accompanying notes.
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Findex.com,
Inc.
|
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
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|
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Three
Months Ended
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|
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March
31,
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2007
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2006
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| |
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Revenues,
net of reserves and allowances
|
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$
|
1,155,493
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$
|
1,098,791
|
|
|
Cost
of sales
|
|
|
495,358
|
|
|
484,468
|
|
|
Gross
profit
|
|
|
660,135
|
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|
614,323
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|
Operating
expenses:
|
|
Sales
and marketing
|
|
|
190,704
|
|
|
190,924
|
|
|
General
and administrative
|
|
|
345,328
|
|
|
473,386
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Other
operating expenses
|
|
|
150,323
|
|
|
145,883
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|
|
Total
operating expenses
|
|
|
686,355
|
|
|
810,193
|
|
|
Loss
from operations
|
|
|
(26,220
|
)
|
|
(195,870
|
)
|
|
Other
expenses, net
|
|
|
(8,830
|
)
|
|
(1,932
|
)
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|
Registration
rights penalties
|
|
|
---
|
|
|
(49,314
|
)
|
|
Gain
(loss) on valuation adjustment of derivatives
|
|
|
26,544
|
|
|
(608,872
|
)
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|
Loss
before income taxes
|
|
|
(8,506
|
)
|
|
(855,988
|
)
|
|
Income
tax (provision) benefit
|
|
|
2,825
|
|
|
(30,808
|
)
|
|
Net
loss
|
|
|
(5,681
|
)
|
|
(886,796
|
)
|
|
Retained
deficit at beginning of year
|
|
|
(7,098,397
|
)
|
|
(7,752,097
|
)
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|
Retained
deficit at end of period
|
|
$
|
(7,104,078
|
)
|
$
|
(8,638,893
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)
|
|
|
| |
|
Net
loss per share:
|
|
Basic
|
|
$
|
0.00
|
|
$
|
(0.02
|
)
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Diluted
|
|
$
|
0.00
|
|
$
|
(0.02
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)
|
|
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|
Weighted
average shares outstanding:
|
|
Basic
|
|
|
49,788,317
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|
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48,619,855
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Diluted
|
|
|
49,788,317
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|
48,619,855
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|
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See
accompanying notes.
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Findex.com,
Inc.
|
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
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Three
Months Ended March 31,
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2007
|
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2006
|
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Cash
flows from operating activities:
|
|
Cash
received from customers
|
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$
|
1,099,252
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$
|
1,138,412
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Cash
paid to suppliers and employees
|
|
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(899,692
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)
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(1,135,406
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)
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Other
operating activities, net
|
|
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(6,996
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)
|
|
3,872
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Net
cash provided by operating activities
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|
|
192,564
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|
|
6,878
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|
Cash
flows from investing activities:
|
|
Software
development costs
|
|
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(109,705
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)
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(63,231
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)
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Deposits
paid
|
|
|
(40,000
|
)
|
|
---
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Other
investing activities, net
|
|
|
(4,568
|
)
|
|
(7,342
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)
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|
Net
cash used by investing activities
|
|
|
(154,273
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)
|
|
(70,573
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)
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Cash
flows from financing activities:
|
|
Payments
made on long-term notes payable
|
|
|
(32,469
|
)
|
|
(2,197
|
)
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|
Net
cash used by financing activities
|
|
|
(32,469
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)
|
|
(2,197
|
)
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,822
|
|
|
(65,892
|
)
|
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Cash
and cash equivalents, beginning of year
|
|
|
48,672
|
|
|
119,560
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
54,494
|
|
$
|
53,668
|
|
|
|
|
Reconciliation
of net loss to cash flows from operating activities:
|
|
Net
loss
|
|
$
|
(5,681
|
)
|
$
|
(886,796
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
provided
by operating activities:
|
|
|
|
Software
development costs amortized
|
|
|
107,419
|
|
|
184,128
|
|
|
(Gain)
loss on fair value adjustment of derivatives
|
|
|
(26,544
|
)
|
|
608,872
|
|
|
Bad
debts provision
|
|
|
5,785
|
|
|
---
|
|
|
Depreciation
& amortization
|
|
|
144,538
|
|
|
145,883
|
|
|
Change
in assets and liabilities:
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(92,557
|
)
|
|
65,357
|
|
|
(Increase)
decrease in inventories
|
|
|
(12,779
|
)
|
|
52,554
|
|
|
Decrease
in refundable taxes
|
|
|
---
|
|
|
5,764
|
|
|
Decrease
in prepaid expenses
|
|
|
42,956
|
|
|
62,241
|
|
|
Increase
(decrease) in accrued royalties
|
|
|
96,705
|
|
|
(19,841
|
)
|
|
(Decrease)
in accounts payable
|
|
|
(95,092
|
)
|
|
(134,771
|
)
|
|
Increase
in income taxes payable
|
|
|
2,050
|
|
|
---
|
|
|
(Decrease)
increase in deferred taxes
|
|
|
(2,825
|
)
|
|
30,808
|
|
|
Increase
(decrease) in other liabilities
|
|
|
28,589
|
|
|
(107,321
|
)
|
|
Net
cash provided by operating activities
|
|
$
|
192,564
|
|
$
|
6,878
|
|
|
|
|
See
accompanying notes.
|
Findex.com,
Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2007
(Unaudited)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for interim
financial information and with the instructions to Form 10-QSB and Item 310
of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by Generally Accepted Accounting Principles for complete
financial statements. The accompanying unaudited condensed consolidated
financial statements reflect all adjustments that, in the opinion of management,
are considered necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The results
of
operations for such periods are not necessarily indicative of the results
expected for the full fiscal year or for any future period. The accompanying
financial statements should be read in conjunction with the audited consolidated
financial statements of Findex.com, Inc. included in our Form 10-KSB for the
fiscal year ended December 31, 2006.
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, and (iii) the life and realization of identifiable
intangible assets. The amounts we will ultimately incur or recover could differ
materially from current estimates.
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, and adjusted on a per-item, basis.
ACCOUNTING
FOR LONG-LIVED ASSETS
We
review
property and equipment and intangible assets 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 our 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
In
accordance with Statement of Financial Accounting Standards (“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. Our software license is amortized over a ten-year
useful life.
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 and marketability has been established, generally with release
of a
beta version for customer testing. Once the point of technological feasibility
and marketability is reached, direct production costs (including labor directly
associated with the development projects), indirect costs (including allocated
fringe benefits, payroll taxes, facilities costs, and management supervision),
and other direct costs (including costs of outside consultants, purchased
software to be included in the software product being developed, travel
expenses, material and supplies, and other direct costs) are capitalized until
the product is available for general release to customers. We amortize
capitalized costs on a product-by-product basis. Amortization for each period
is
the greater of the amount computed using (i) the straight-line basis over the
estimated product life (generally from 12 to 18 months), or (ii) the ratio
of
current revenues to total projected product revenues. Total cumulative
capitalized software development costs were $1,824,587, less accumulated
amortization of $1,330,606 at March 31, 2007.
Capitalized
software development costs are stated at the lower of amortized costs or net
realizable value. Recoverability of these capitalized costs is determined at
each balance sheet date by comparing the forecasted future revenues from the
related products, based on management’s best estimates using appropriate
assumptions and projections at the time, to the carrying amount of the
capitalized software development costs. If the carrying value is determined
not
to be recoverable from future revenues, an impairment loss is recognized equal
to the amount by which the carrying amount exceeds the future revenues. To
date,
no capitalized costs have been written down to net realizable
value.
SFAS
No.
2, Accounting
for Research and Development Costs,
established accounting and reporting standards for research and development.
In
accordance with SFAS No. 2, costs we incur to enhance our existing products
after general release to the public (bug fixes) are expensed in the period
they
are incurred and included in research and development costs. Research and
development costs incurred prior to determination of technological feasibility
and marketability and after general release to the public and charged to expense
were $29,581 and $52,232 for the three months ended March 31, 2007 and 2006,
respectively, included in general and administrative expenses.
We
capitalize costs related to the development of computer software developed
or
obtained for internal use in accordance with the American Institute of Certified
Public Accountants Statement of Position (“SOP”) 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use.
Software obtained for internal use has generally been enterprise level business
and finance software that we customize to meet our specific operational needs.
We have not sold, leased, or licensed software developed for internal use to
our
customers and have no intention of doing so in the future.
We
capitalize costs related to the development and maintenance of our website
in
accordance with Financial Accounting Standard Board’s (“FASB’s”) Emerging Issues
Task Force (“EITF”) Issue No. 00-2, Accounting
for Website Development Costs.
Under
EITF Issue No. 00-2, costs expensed as incurred are as follows:
| |
▪
|
planning
the website,
|
| |
▪
|
developing
the applications and infrastructure until technological feasibility
is
established,
|
| |
▪
|
developing
graphics such as borders, background and text colors, fonts, frames,
and
buttons, and
|
| |
▪
|
operating
the site such as training, administration and
maintenance.
|
Capitalized
costs include those incurred to:
| |
▪
|
obtain
and register an Internet domain name,
|
| |
▪
|
develop
or acquire software tools necessary for the development
work,
|
| |
▪
|
develop
or acquire software necessary for general website
operations,
|
| |
▪
|
develop
or acquire code for web applications,
|
| |
▪
|
develop
or acquire (and customize) database software and software to integrate
applications such as corporate databases and accounting systems into
web
applications,
|
| |
▪
|
develop
HTML web pages or templates,
|
| |
▪
|
install
developed applications on the web server,
|
| |
▪
|
create
initial hypertext links to other websites or other locations within
the
website, and
|
| |
▪
|
test
the website applications.
|
We
amortize website development costs on a straight-line basis over the estimated
life of the site, generally 36 months. Total cumulative website development
costs, included in other assets on our condensed consolidated balance sheets,
were $108,582, less accumulated amortization of $79,672 at March 31,
2007.
REVENUE
RECOGNITION
We
derive
revenues from the sale of packaged software products, product support and
multiple element arrangements that may include any combination of these items.
We recognize software revenue for software products and related services in
accordance with SOP 97-2, Software
Revenue Recognition,
as
modified by SOP 98-9,
Modification of SOP 97-2, With Respect to Certain Transactions.
We
recognize revenue when persuasive evidence of an arrangement exists (generally
a
purchase order), we have delivered the product, the fee is fixed or determinable
and collectibility is probable.
In
some
situations, we receive advance payments from our customers. We defer revenue
associated with these advance payments until we ship the products or offer
the
support.
In
accordance with EITF Issue No. 01-9, Accounting
for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s
Product,
we
generally account for cash considerations (such as sales incentives - rebates
and coupons) that we give to our customers as a reduction of revenue rather
than
as an operating expense.
Product
Revenue
We
typically recognize revenue from the sale of our packaged software products
when
we ship the product. We sell some of our products on consignment to a limited
number of resellers. We recognize revenue for these consignment transactions
only when the end-user sale has occurred. Revenue for software distributed
electronically via the Internet is recognized when the customer has been
provided with the access codes that allow the customer to take immediate
possession of the software on its hardware and evidence of the arrangement
exists (web order).
Some
of
our software arrangements involve multiple copies or licenses of the same
program. These arrangements generally specify the number of simultaneous users
the customer may have (multi-user license), or may allow the customer to use
as
many copies on as many computers as it chooses (a site license). Multi-user
arrangements, generally sold in networked environments, contain fees that vary
based on the number of users that may utilize the software simultaneously.
We
recognize revenue when evidence of an order exists and upon delivery of the
authorization code to the consumer that will allow them the limited simultaneous
access. Site licenses, generally sold in non-networked environments, contain
a
fixed fee that is not dependent on the number of simultaneous users. Revenue
is
recognized when evidence of an order exists and the first copy is delivered
to
the consumer.
Many
of
our software products contain additional content that is “locked” to prevent
access until a permanent access code, or “key,” is purchased. We recognize
revenue when evidence of an order exists and the customer has been provided
with
the access code that allows the customer immediate access to the additional
content. All of the programs containing additional locked content are fully
functional and the keys are necessary only to access the additional content.
The
customer’s obligation to pay for the software is not contingent on delivery of
the “key” to access the additional content.
We
reduce
product revenue for estimated returns and price protections that are based
on
historical experience and other factors such as the volume and price mix of
products in the retail channel, trends in retailer inventory and economic trends
that might impact customer demand for our products. We also reduce product
revenue for the estimated redemption of end-user rebates on certain current
product sales. Our rebate reserves are estimated based on the terms and
conditions of the specific promotional rebate program, actual sales during
the
promotion, the amount of redemptions received and historical redemption trends
by product and by type of promotional program. We did not offer any rebate
programs to our customers during the three months ended March 31, 2007 and
2006
and maintain a reserve for rebate claims remaining unpaid from 2000 and
2001.
Service
Revenue
We
offer
several technical support plans and recognize support revenue over the life
of
the plans, generally one year.
Multiple
Element Arrangements
We
also
enter into certain revenue arrangements for which we are obligated to deliver
multiple products or products and services (multiple elements). For these
arrangements, which include software products, we allocate and defer revenue
for
the undelivered elements based on their vendor-specific objective evidence
(“VSOE”) of fair value. VSOE is generally the price charged when that element is
sold separately.
In
situations where VSOE exists for all elements (delivered and undelivered),
we
allocate the total revenue to be earned under the arrangement among the various
elements, based on their relative fair value. For transactions where VSOE exists
only for the undelivered elements, we defer the full fair value of the
undelivered elements and recognize the difference between the total arrangement
fee and the amount deferred for the undelivered items as revenue (residual
method). If VSOE does not exist for undelivered items that are services, we
recognize the entire arrangement fee ratably over the remaining service period.
If VSOE does not exist for undelivered elements that are specified products,
we
defer revenue until the earlier of the delivery of all elements or the point
at
which we determine VSOE for these undelivered elements.
We
recognize revenue related to the delivered products or services only if (i)
the
above revenue recognition criteria are met, (ii) any undelivered products or
services are not essential to the functionality of the delivered products and
services, (iii) payment for the delivered products or services is not contingent
upon delivery of the remaining products or services, and (iv) we have an
enforceable claim to receive the amount due in the event that we do not deliver
the undelivered products or services.
Shipping
and Handling Costs
We
record
the amounts we charge our customers for the shipping and handling of our
software products as product revenue and we record the related costs as cost
of
sales on our condensed consolidated statements of operations.
Customer
Service and Technical Support
Customer
service and technical support costs include the costs associated with performing
order processing, answering customer inquiries by telephone and through
websites, email and other electronic means, and providing technical support
assistance to our customers. In connection with the sale of certain products,
we
provide a limited amount of free technical support assistance to customers.
We
do not defer the recognition of any revenue associated with sales of these
products, since the cost of providing this free technical support is
insignificant. The technical support is provided within one year after the
associated revenue is recognized and free product enhancements (bug fixes)
are
minimal and infrequent. We accrue the estimated cost of providing this free
support upon product shipment and include it in cost of sales.
INCOME
TAXES
We
utilize 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
our 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
PER SHARE
We
follow
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 shares of common stock outstanding for the period. Diluted
EPS
is computed by giving effect to all dilutive potential shares of common stock
that were outstanding during the period. For us, dilutive potential shares
of
common stock consist of the incremental shares of common stock issuable upon
the
exercise of stock options and warrants for all periods, convertible notes
payable and the incremental shares of common stock issuable upon the conversion
of convertible preferred stock.
When
discontinued operations, extraordinary items, and/or the cumulative effect
of an
accounting change are present, income before any of such items on a per share
basis represents the “control number” in determining whether potential shares of
common stock are dilutive or anti-dilutive. Thus, the same number of potential
shares of common stock used in computing diluted EPS for income from continuing
operations is used in calculating all other reported diluted EPS amounts. 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 anti-dilutive 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.
RECLASSIFICATIONS
Certain
accounts in our 2006 financial statements have been reclassified for comparative
purposes to conform with the presentation in our 2007 financial
statements.
NOTE
2 - GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles in the
United States applicable to a going concern. As of March 31, 2007, we had a
year-to-date net loss of ($5,681), and negative working capital of $1,675,143
and $1,705,824, and an accumulated deficit of $7,104,078 and $7,098,397 as
of
March 31, 2007 and December 31, 2006, respectively. Although these factors
raise
substantial doubt as to our ability to continue as a going concern through
December 31, 2007, we have taken several actions to mitigate against this risk.
These actions include potentially selling some of our intangible assets and
pursuing mergers and acquisitions that will provide profitable operations and
positive operating cash flow.
NOTE
3 - INVENTORIES
At
March
31, 2007, inventories consisted of the following:
|
Raw
materials
|
|
$
|
92,000
|
|
|
Finished
goods
|
|
|
66,123
|
|
|
Inventories
|
|
$
|
158,123
|
|
NOTE
4 - DERIVATIVES
At
March
31, 2007, our derivative liability consisted of the following:
|
Warrant
A
|
|
$
|
65
|
|
|
Warrant
B
|
|
|
267,003
|
|
|
Warrant
C
|
|
|
233,256
|
|
|
Derivatives
|
|
$
|
500,324
|
|
In
May
2004, we issued a three-year warrant (Warrant A) to purchase up to 600,000
shares of our common stock to a consultant. This warrant may be exercised on
a
cashless basis at the option of the warrant holder at a price per share of
$0.15. We will receive up to $90,000 from the warrant holder upon the exercise
of this warrant. This warrant has been accounted for as a liability according
to
the guidance of EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock,
and the
guidance of EITF 00-19-2, Accounting
for Registration Payment Arrangements.
The
fair value of the warrant has been determined using the Black-Scholes valuation
method with the assumptions listed in the table below. See Note
9.
In
November 2004, we issued two five-year warrants to purchase up to an aggregate
of 21,875,000 shares of our common stock in connection with a certain Stock
Purchase Agreement completed with a New York-based private investment
partnership on July 19, 2004. The first warrant (Warrant B) entitles the holder
to purchase up to 10,937,500 shares of our common stock at a price of $0.18
per
share, and the second warrant (Warrant C) entitles the holder to purchase up
to
10,937,500 additional shares of our common stock at a price of $0.60 per share.
Each warrant is subject to standard adjustment provisions and each provides
for
settlement in registered shares of our common stock and may, at the option
of
the holder, be settled in a cashless, net-share settlement. The warrant holder
is prevented from electing a cashless exercise so long as there is in effect
a
registration statement covering the shares underlying these warrants. The
maximum number of shares of our common stock to be received for each warrant
in
a net-share settlement would be 10,937,500 but the actual number of shares
settled would likely be significantly less and would vary based on the last
reported sale price (as reported by Bloomberg) of our common stock on the date
immediately preceding the date of the exercise notice. These warrants are
accounted for as a liability according to the guidance of EITF 00-19 and the
fair value of each warrant has been determined using the Black-Scholes valuation
method with the assumptions listed in the table below.
|
|
|
|
Warrant
A
|
|
|
|
Warrant
B
|
|
|
|
Warrant
C
|
|
|
Expected
term - years
|
|
|
.08
|
|
|
|
2.61
|
|
|
|
2.61
|
|
|
Stock
price at March 31, 2007
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
stock price volatility
|
|
|
235
|
%
|
|
|
212
|
%
|
|
|
212
|
%
|
|
Risk-free
interest rate
|
|
|
4.60
|
%
|
|
|
4.34
|
%
|
|
|
4.34
|
%
|
The
warrants are revalued at each balance sheet date by using the parameters above,
reducing the expected term to reflect the passing of time, and using the stock
price at the balance sheet date. Net fair value adjustments included in other
income and expenses on the consolidated statements of operations were an income
adjustment of $26,544 for the three months ended March 31, 2007, and an expense
adjustment of ($608,872) for the three months ended March 31, 2006.
NOTE
5 - INCOME TAXES
The
provision (benefit) for taxes on net loss for the three months ended March
31,
2007 and 2006 consisted of the following:
| |
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
Federal
|
|
$
|
---
|
|
$
|
---
|
|
|
State
|
|
|
---
|
|
|
---
|
|
|
|
|
|
---
|
|
|
---
|
|
|
Deferred:
|
|
Federal
|
|
|
(2,850
|
)
|
|
31,844
|
|
|
State
|
|
|
25
|
|
|
(1,036
|
)
|
| |
|
|
(2,825
|
)
|
|
30,808
|
|
|
Total
tax provision (benefit)
|
|
$
|
(2,825
|
)
|
$
|
30,808
|
|
NOTE
6 - EARNINGS PER COMMON SHARE
The
following table shows the amounts used in computing earnings per common share
and the average number of shares of dilutive potential common
stock:
|
For
the Three Months Ended March 31,
|
|
|
2007
|
|
|
2006
|
|
|
Net
loss
|
|
$
|
(5,681
|
)
|
$
|
(886,796
|
)
|
|
Preferred
stock dividends
|
|
|
---
|
|
|
---
|
|
|
Net
loss available to common shareholders
|
|
$
|
(5,681
|
)
|
$
|
(886,796
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
49,788,317
|
|
|
48,766,009
|
|
|
Dilutive
effect of:
|
|
Convertible
debt
|
|
|
---
|
|
|
---
|
|
|
Stock
options
|
|
|
---
|
|
|
---
|
|
|
Warrants
|
|
|
---
|
|
|
---
|
|
|
Diluted
weighted average shares outstanding
|
|
|
49,788,317
|
|
|
48,766,009
|
|
NOTE
7 - COMMITMENTS AND CONTINGENCIES
We
are
subject to legal proceedings and claims that arise in the ordinary course of
our
business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect our financial statements
taken as a whole.
Our
employment agreements with our management team each contain a provision for
an
annual bonus equal to 1% of our income (loss) from operations adjusted for
other
income and interest expense (4% total). We accrue this bonus on a quarterly
basis. Our management team consists of our Chief Executive Officer (with a
base
annual salary of $150,000), our Chief Financial Officer (with a base annual
salary of $110,000), our Chief Technology Officer (with a base annual salary
of
$150,000) and our Vice President of Sales (with a base annual salary of
$110,000). In addition to the bonus provisions and annual base salary, each
employment agreement provides for payment of all accrued base salaries ($10,980
included in Other current liabilities at March
31,
2007),
bonuses ($30,542 included in other current liabilities at March
31,
2007),
and
any vested deferred vacation compensation ($35,709 included in other current
liabilities at March
31,
2007)
for
termination by reason of disability. The agreements also provide for severance
compensation equal to the then base salary until the later of (i) the expiration
of the term of the agreement as set forth therein or (ii) one year, when the
termination is other than for cause (including termination by reason of
disability). There is no severance compensation in the event of voluntary
termination or termination for cause.
In
2003
and 2004, we reduced our reserve for rebates payable based, in part, on our
ability to meet the financial obligation of claims carried forward from our
last
rebate program in 2001. As such, we may have a legal obligation to pay rebates
in excess of the liability recorded.
Our
royalty agreements for new content generally provide for advance payments to
be
made upon contract signing. In addition, several new agreements provide for
additional advance payments to be made upon delivery of usable content and
publication. We accrue and pay these advances when the respective milestone
is
met.
We
do not
collect sales taxes or other taxes with respect to shipments of most of our
goods into most states in the U.S. Our fulfillment center and customer service
center networks, and any future expansion of those networks, along with other
aspects of our evolving business, may result in additional sales and other
tax
obligations. One or more states may seek to impose sales or other tax collection
obligations on out-of-jurisdiction companies that engage in e-commerce. A
successful assertion by one or more states that we should collect sales or
other
taxes on the sale of merchandise or services could result in substantial
tax
liabilities for past sales, decrease our ability to compete with traditional
retailers, and otherwise harm our business.
Currently,
decisions of the U.S. Supreme Court restrict the imposition of obligations
to
collect state and local taxes and use taxes with respect to sales made over
the
Internet. However, a number of states, as well as the U.S. Congress, have
been
considering various initiatives that could limit or supersede the Supreme
Court’s constitutional concerns and resulted in a reversal of its current
position, we could be required to collect sales and use taxes in additional
states. The imposition by state and local governments of various taxes upon
Internet commerce could create administrative burdens for us, put us at a
competitive disadvantage if they do not impose similar obligations on all
of our
online competitors and decrease our future sales.
NOTE
8 - RISKS AND UNCERTAINTIES
Our
future operating results may be affected by a number of factors. We depend
upon
a number of major inventory and intellectual property suppliers. If a critical
supplier had operational problems or ceased making materials available to us,
operations could be adversely affected.
NOTE
9 - SUBSEQUENT EVENTS
On
April
26, 2007, 50,000 vested stock options with an exercise price of $0.11 per share,
related to a terminated employee, expired unexercised.
On
May 1,
2007, a warrant issued to a consultant to purchase up to 600,000 restricted
shares of our common stock with an exercise price of $0.15 per share expired
unexercised.
In
May
2007, we secured a 5-year lease for office space in Omaha, Nebraska. The lease
provides for graduated rates ranging from $4,167 to $4,667 per month and
contains one 5-year renewal option.
In
May
2007, we secured a 3-year lease for warehouse space in Omaha, Nebraska. The
lease provides for a base monthly rent of $1,979 and contains one 3-year renewal
option.
Cautionary
Statement Regarding Forward-Looking Statements
This
quarterly report on Form 10-QSB, press releases and certain information provided
periodically in writing or verbally by our officers or our agents contain
statements which constitute forward-looking statements. The words “may”,
“would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”,
“intend”, “plan”, “goal”, and similar expressions and variations thereof are
intended to specifically identify forward-looking statements. These statements
appear in a number of places in this Form 10-QSB and include all statements
that
are not statements of historical fact regarding the intent, belief or current
expectations of us, our directors or our officers, with respect to, among other
things (i) our liquidity and capital resources, (ii) our financing opportunities
and plans, (iii) our ability to attract customers to generate revenues, (iv)
competition in our business segment, (v) market and other trends affecting
our
future financial condition or results of operations, (vi) our growth strategy
and operating strategy, and (vii) the declaration and/or payment of dividends.
Investors
and prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. Factors that might
cause such differences include, among others, those set forth in Part I, Item
2
of this quarterly report on Form 10-QSB, entitled “Management’s Discussion and
Analysis or Plan of Operation”, and including without limitation the ”Risk
Factors” contained in the company’s annual report on Form 10-KSB for the period
ending December 31, 2006. Except as required by law, we undertake no obligation
to update any of the forward-looking statements in this Form 10-QSB after the
date of this report.
This
information should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto included in Item 1
of
Part I of this quarterly report, and our audited financial statements and the
notes thereto and our Management’s Discussion and Analysis or Plan of Operation
contained in our annual report on Form 10-KSB for the fiscal year ended December
31, 2006.
MANAGEMENT
OVERVIEW
During
the first quarter of 2007, we released an upgrade to QuickVerse®
Macintosh. QuickVerse®
2007
Macintosh is available in three editions and provides access to several Bible
translations along with numerous reference titles.
The
QuickVerse®
2007
Macintosh family of products includes:
| |
▪
|
QuickVerse®
White Box Edition (which includes 10 Bibles and 45 reference titles,
retail price: $59.95);
|
| |
▪
|
QuickVerse®
Black Box Edition (which includes 15 Bibles and 66 reference titles,
retail price: $129.95); and
|
| |
▪
|
QuickVerse®
Gold Box Edition (which includes 22 Bibles and 158 reference titles,
retail price: $349.95).
|
Also
during our first quarter 2007, as part of our ongoing partnership with Thomas
Nelson Publishers®,
we
released the Nelson Reference Collection®
for
QuickVerse®
(Windows) users. This extensive reference collection includes Nelson’s New
Illustrated Bible Dictionary and has a retail price of
$129.95.
Comparatively,
during the first quarter of 2006, we released QuickVerse®
2006
Parable Edition, with a suggested retail price of $49.95, and
QuickVerse®
2006
Bible Suite, with a suggested retail price of $29.95.
During
the first quarter of 2007, we were able to increase our gross revenues as well
as decrease our total operating expenses while reducing our general and
administrative costs. Although there can be no assurance, we anticipate that
revenues will increase in real terms during our 2007 fiscal year based upon
our
development schedule for the fiscal year and the introduction of new titles
that
will broaden the content made available for our QuickVerse®
products.
|
Statement
of Operations for Three Months Ending March 31
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
%
|
|
|
Net
revenues
|
|
$
|
1,155,493
|
|
$
|
1,098,791
|
|
$
|
56,702
|
|
|
5
|
%
|
|
Cost
of sales
|
|
|
495,358
|
|
|
484,468
|
|
|
10,890
|
|
|
2
|
%
|
|
Gross
profit
|
|
$
|
660,135
|
|
$
|
614,323
|
|
$
|
45,812
|
|
|
7
|
%
|
|
Total
operating expenses
|
|
|
(686,355
|
)
|
|
(810,193
|
)
|
|
123,838
|
|
|
15
|
%
|
|
Loss
from operations
|
|
$
|
(26,220
|
)
|
$
|
(195,870
|
)
|
$
|
169,650
|
|
|
87
|
%
|
|
Other
expenses
|
|
|
(8,830
|
)
|
|
(1,932
|
)
|
|
(6,898
|
)
|
|
357
|
%
|
|
Registration
rights penalties
|
|
|
---
|
|
|
(49,314
|
)
|
|
49,314
|
|
|
100
|
%
|
|
Gain
(loss) on fair value adjustment of derivatives
|
|
|
26,544
|
|
|
(608,872
|
)
|
|
635,416
|
|
|
104
|
%
|
|
Loss
before income taxes
|
|
$
|
(8,506
|
)
|
$
|
(855,988
|
)
|
$
|
847,482
|
|
|
99
|
%
|
|
Income
tax (provision) benefit
|
|
|
2,825
|
|
|
(30,808
|
)
|
|
33,633
|
|
|
109
|
%
|
|
Net
loss
|
|
$
|
(5,681
|
)
|
$
|
(886,796
|
)
|
$
|
881,115
|
|
|
99
|
%
|
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 less than
30% of our annual sales.
Our
net
revenues increased approximately $57,000 from net revenues of approximately
$1,099,000 for the three months ended March 31, 2006 to net revenues of
approximately $1,156,000 for the three months ended March 31, 2007. Further,
we
incurred a net loss of approximately $6,000 for the three months ended March
31,
2007, which represents an improvement of approximately $881,000 from our net
loss of approximately $887,000 for the three months ended March 31, 2006. The
differing results of operations are primarily attributable to a gain of
approximately $27,000 related to the fair value (non-cash) adjustment of
derivatives for the three months ended March 31, 2007 compared to a loss of
approximately $609,000 for the three months ended March 31, 2006, but also,
to a
much lesser extent, the following:
| |
▪
|
a
decrease in total operating expenses of approximately $124,000 from
total
operating expenses of approximately $810,000 for the three months
ended
March 31, 2006 to total operating expenses of approximately $686,000
for
the three months ended March 31, 2007; and
|
| |
|
|
|
| |
▪
|
a
decrease in registration rights penalties of approximately $49,000
for the
three months ended March 31, 2007 as our registration statement on
Form
SB-2, originally filed by us on November 22, 2004 was declared effective
by the SEC on February 1, 2006.
|
Revenues
We
derive
revenues from the sale of packaged software products, product support and
multiple element arrangements that may include any combination of these items.
Revenue is recognized when persuasive evidence of an arrangement exists
(generally a purchase order), we have delivered the product, the fee is fixed
or
determinable, and collectibility is probable. For our packaged software
products, we typically recognize revenue from the sale when we ship the product.
We sell some of our products on consignment to a limited number of resellers.
We
recognize revenue for these consignment transactions only when the end-user
sale
has occurred. Service revenue resulting from technical support plans is
recognized over the life of the plan, which is generally one year. Revenue
associated with advance payments from our customers is deferred until we ship
the product or offer the support service. Revenue for software distributed
electronically via the Internet is recognized when the customer has been
provided with the access codes that allow the customer to take immediate
possession of the software on its hardware and evidence of the arrangement
exists. For revenue arrangements involving multiple products or product and
service packages, we allocate and defer revenue for the undelivered products
or
product and service packages based on their vendor-specific objective evidence
of fair value, which is generally the price charged when that product or product
and service package is sold separately.
We
reduce
product revenue for estimated returns and price protections that are based
on
historical experience and other factors such as the volume and price mix of
products in the retail channel, trends in retailer inventory and economic trends
that might impact customer demand for our products. Estimated returns are also
based upon a percentage of total retail and direct sales. Direct sales accounted
for approximately 53% of our 2006 fiscal year revenue. We account for cash
considerations (such as sales incentives - rebates and coupons) that we give
our
customers as a reduction of revenue rather than as an operating expense. Product
revenue is also reduced for the estimated redemption of end-user rebates on
certain current product sales. We did not have any rebate programs during the
three months ended March 31, 2006 and 2007, respectively.
Trends
that our returns typically follow include (i) the seasonality of sales, and
(ii)
the fact that, generally, relatively higher return rates occur in connection
with recently released title or title versions. Historically, actual returns
have been within management’s prior estimates, however, we cannot be certain
that any future write-offs exceeding reserves will not occur or that amounts
written off will not have a material adverse effect on our business, our
financial condition, including liquidity and profitability, and our results
of
operations. Management continually monitors and adjusts these allowances to
take
into account actual developments and sales results in the marketplace. In the
past, particularly during title and title version transitions, we have had
to
increase price concessions to our retail customers in order to move channel
inventory.
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
provided for in the contract between us and the corresponding
distributor/retailer. Under certain circumstances, including for example the
expiration of a given contract or the discovery that a given product is
defective, distributors and bookstores may be eligible to receive a cash refund
if returns exceed amounts owed. Returns from sales made directly to consumers
are accepted within 45 days of purchase and involve a cash refund. Product
returns, price protections or price 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.
In
general, price protection programs insure retail customers a refund of a portion
of their purchase price to the extent the product they have purchased drops
in
price within a given time frame following their purchase. In general, price
protection reduces customers’ anxieties in connection with a purchase decision
associated with a concern that they might obtain a better price if they were
to
wait than if they were to act immediately. Although we have historically
employed price protection programs in connection with many of our product
promotions, we do not anticipate implementing a price protection program in
the
near future.
Software
products are sold separately, without an obligation of future performance such
as upgrades, enhancements or additional software products, and are sold with
postcontract customer support services such as 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 any revenue associated with sales of these
products, since the cost of providing this free technical support is
insignificant. The technical support is provided within one year after the
associated revenue is recognized and free product enhancements (bug fixes)
are
minimal and infrequent. We accrue the estimated cost of providing this free
support upon product shipment and include it in cost of sales.
Shipping
and handling costs in connection with our software products are expensed as
incurred and included in cost of sales.
|
Revenues
for Three Months Ending March 31
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
|
Gross
revenues
|
|
$
|
1,270,004
|
|
|
100
|
%
|
|
$
|
1,182,071
|
|
|
100
|
%
|
|
$
|
87,933
|
|
|
7
|
%
|
|
Add
rebate reserve adjustment
|
|
|
1,190
|
|
|
0
|
%
|
|
|
---
|
|
|
0
|
%
|
|
|
1,190
|
|
|
0
|
%
|
|
Less
reserve for sales returns and allowances
|
|
|
(115,701
|
)
|
|
9
|
%
|
|
|
(83,280
|
)
|
|
7
|
%
|
|
|
(32,421
|
)
|
|
39
|
%
|
|
Net
revenues
|
|
$
|
1,155,493
|
|
|
91
|
%
|
|
$
|
1,098,791
|
|
|
93
|
%
|
|
$
|
56,702
|
|
|
5
|
%
|
Gross
revenues increased approximately $88,000 from approximately $1,182,000 for
the
three months ended March 31, 2006 to approximately $1,270,000 for the three
months ended March 31, 2007. We believe that this increase was primarily
attributable to the liquidation sales of our QuickVerse®
2006
product line, the QuickVerse®
2007
Macintosh release, as well as our Membership Plus®
2007
product line, for which pent-up demand following an eight month delay is
believed to have significantly spurred sales. During the three months ended
March 31, 2006 and 2007, the following products were released,
respectively:
First
Quarter 2006
| |
▪
|
QuickVerse®
2006 Parable Edition, with a suggested retail price of $49.95;
and
|
| |
▪
|
QuickVerse®
2006 Bible Suite, with a suggested retail price of
$29.95.
|
First
Quarter 2007
| |
▪
|
an
enhanced version of our QuickVerse®
Macintosh product, including QuickVerse®
2007 Macintosh White Edition, with a suggested retail price of $59.95,
QuickVerse®
2007 Macintosh Black Edition, with a suggested retail price of $129.95
and
QuickVerse®
2007 Macintosh Gold Edition, with a suggested retail price of $349.95;
and
|
| |
▪
|
the
Nelson Reference Collection®
for QuickVerse®
(Windows) users, with a suggested retail price of
$129.95.
|
During
each of the three months ended March 31, 2006 and 2007, our sales efforts were
focused on directly targeting end-users through telemarketing and Internet
sales. However, due to increased frequency and consistency in our development
schedule, and the annual releases of our flagship product,
QuickVerse®,
upgrade
sales have not been increasing at as rapid a rate as they have in previous
years. Although there can be no assurance, we anticipate, however, that our
revenues will continue to increase in the future at rates generally consistent
with our industry sector as we continue to expand the content available for
our
QuickVerse®
products, develop new products for multiple platforms, and offer our products
at
a range of price points intended to appeal to various market sub-segments.
Sales
returns and allowances increased approximately $33,000 from approximately
$83,000 for the three months ended March 31, 2006 to approximately $116,000
for
the three months ended March 31, 2007. As a percentage of gross revenues,
sales
returns and allowances also increased from approximately 7% for the three
months
ended March 31, 2006 to approximately 9% for the three months ended March
31,
2007. Typically, sales returns and allowances trend upward after a new product
is released as distributors and retail stores return old product in exchange
for
the new product release. For the three months ended March 31, 2007, we
experienced an increase in sales returns and allowances due to Membership
Plus®
2007
shipping in mid October 2006. Further, sales returns and allowances for the
three months ended March 31, 2006 reflect fewer returns of Membership
Plus®
2005
(released in the first quarter 2005), presumably due to the extended timeline
between the releases of these annual Membership Plus®
editions.
We
expect
to release enhanced versions of our biggest-selling products on an annual
basis
generally going forward, and anticipate sales returns and allowances as a
percentage of gross revenues to decrease over time as a result of increased
stability in the functionality of our products, decreasing reliance on retail
sales and increasing reliance on direct sales, which have historically resulted
in fewer returns, and improved planning in the timing of new product version
releases.
Cost
of Sales
|
Cost
of Sales for Three Months Ending March 31
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
|
Direct
costs
|
|
$
|
138,943
|
|
|
11
|
%
|
|
$
|
139,634
|
|
|
12
|
%
|
|
$
|
(691
|
)
|
|
0
|
%
|
|
Less
reserve for sales returns and allowances
|
|
|
(17,265
|
)
|
|
1
|
%
|
|
|
(12,420
|
)
|
|
1
|
%
|
|
|
(4,845
|
)
|
|
39
|
%
|
|
Amortization
of software development costs
|
|
|
107,419
|
|
|
8
|
%
|
|
|
184,128
|
|
|
16
|
%
|
|
|
(76,709
|
)
|
|
42
|
%
|
|
Royalties
|
|
|
182,800
|
|
|
14
|
%
|
|
|
106,745
|
|
|
9
|
%
|
|
|
76,055
|
|
|
71
|
%
|
|
Freight-out
|
|
|
55,415
|
|
|
4
|
%
|
|
|
30,996
|
|
|
3
|
%
|
|
|
24,419
|
|
|
79
|
%
|
|
Fulfillment
|
|
|
28,046
|
|
|
2
|
%
|
|
|
35,385
|
|
|
3
|
%
|
|
|
(7,339
|
)
|
|
21
|
%
|
|
Cost
of sales
|
|
$
|
495,358
|
|
|
39
|
%
|
|
$
|
484,468
|
|
|
41
|
%
|
|
$
|
10,890
|
|
|
2
|
%
|
Cost
of
sales consists primarily of direct costs, amortized software development costs,
non-capitalized technical support wages, royalties paid to third party providers
of intellectual property and the costs associated with reproducing, packaging,
fulfilling and shipping our products. Exclusive of third-party royalties paid,
our cost of sales decreased approximately $65,000 from approximately $378,000
for the three months ended March 31, 2006 to approximately $313,000 for the
three months ended March 31, 2007, and decreased as a percentage of gross
revenues approximately 7% for the three months ended March 31, 2007. The overall
decrease is predominantly attributable to decreased amortization of software
development costs, which decreased approximately $77,000 from approximately
$184,000 for the three months ended March 31, 2006 to approximately $107,000
for
the three months ended March 31, 2007. The amortization recognized during the
three months ended March 31, 2007 resulted from several new software releases
in
2005, 2006 and 2007 including:
| |
▪
|
QuickVerse®
2006 Macintosh (released June 2005),
|
| |
▪
|
Sermon
Builder®
4.0 (released June 2005),
|
| |
▪
|
QuickVerse®
2006 Windows (released September 2005),
|
| |
▪
|
Membership
Plus®
2007 (released October 2006),
|
| |
▪
|
QuickVerse®
2007 Windows (released August 2006),
|
| |
▪
|
QuickVerse®
2007 Mobile (released December 2006) and
|
| |
▪
|
QuickVerse®
2007 Macintosh (released March
2007).
|
Comparatively,
during the three months ended March 31, 2006, the amortization recognized
resulted from:
| |
▪
|
Membership
Plus®
2005 (released February 2005),
|
| |
▪
|
QuickVerse®
2006 Macintosh (released June 2005),
|
| |
▪
|
Sermon
Builder®
4.0 (released June 2005),
|
| |
▪
|
QuickVerse®
2006 Windows (released September 2005),
|
| |
▪
|
QuickVerse®
2006 Mobile (released October 2005) and
|
| |
▪
|
QuickVerse®
2006 Bible Suite (released March
2006).
|
The
increased number of product upgrades and product releases during the fiscal
year
2005 led to the increased amount of amortization for the three months ended
March 31, 2006.
On
a
percentage basis, we anticipate that direct costs and manufacturing overhead
will remain relatively stable as we continue to keep pace with a more intensive
development schedule than we had generally maintained in the past.
Fulfillment
costs decreased approximately $7,000 from approximately $35,000 for the three
months ended March 31, 2006 to approximately $28,000 for the three months
ended
March 31, 2007. This decrease is a direct result of our deliberate initiatives
to begin the process of decreasing our reliance on a third-party warehouse
as we
move towards our eventual goal of operating our own fulfillment
center.
Freight
costs increased approximately $24,000 from approximately $31,000 for the
three
months ended March 31, 2006 to approximately $55,000 for the three months
ended
March 31, 2007. This increase resulted from the overall increase in retail
sales, which carry higher shipping costs for us than direct and/or upgrade
sales, coupled with escalating per unit freight costs attributable to
industry-wide rising fuel costs.
Royalties
accrued to third party providers of intellectual property increased
approximately $76,000 from approximately $107,000 for the three months ended
March 31, 2006 to approximately $183,000 for the three months ended March 31,
2007, and increased approximately 5% as a percentage of gross revenues for
the
three months ended March 31, 2007. The percentage increase reflects the
following:
| |
▪
|
A
year over year increase in year-end liquidation sales of prior
year
editions of QuickVerse®;
|
| |
▪
|
an
overall increase in retail sales due to the release of the Membership
Plus®
2007 product line, as well as the release of QuickVerse®
2007 Macintosh; and
|
| |
▪
|
an
overall decrease in upgrade sales of QuickVerse®,
which, based on our content license agreements, carry less burdensome
royalty obligations than corresponding new product editions and/or
versions.
|
Our
royalty accruals are expected to increase in the future in real terms as
sales
to new users increase, more development projects are implemented for new
and/or
enhanced products, and as we continue to expand the content available for
our
QuickVerse®
line of
products. Upgrade sales will remain only subject to royalties on their content
additions.
Software
development costs are expensed as incurred as research and development until
technological feasibility and marketability have been established, at which
time
development costs are capitalized until the software title is available for
general release to customers. Software development is segregated by title and
technology platform. Once a product has been successfully released, subsequent
revisions and upgrades are deemed to constitute development, and, accordingly,
the costs of the revision and upgrade are capitalized. Capitalized costs are
amortized on a product-by-product basis using the greater of (i) straight-line
amortization over the estimated life of the product, or (ii) the ratio of
current revenues from the product to the total projected revenue over the life
of the product. Generally, we consider technological feasibility to have been
established with the release of a “beta” version for testing.
Our
software development costs for the three months ended March 31, 2007 and 2006
are summarized in the table below. These costs, consisting primarily of direct
and indirect labor and related overhead charges, and capitalized during the
three months ended March 31, 2007 and 2006, were approximately $110,000 and
approximately $63,000, respectively. Accumulated amortization of these
development costs, included in cost of sales, totaled approximately $107,000
and
approximately $184,000 for the three months ended March 31, 2007 and 2006,
respectively. The relative increase in capitalized costs reflects an increase
in
the number of development projects for the three months ended March 31, 2007,
while the relative decrease in amortization reflects the overall reduction
in
the number of products released during the year ended December 31, 2006.
|
Software
Development Costs For Three Months Ending December
31
|
|
|
2007
|
|
|
2006
|
|
|
Beginning
balance
|
|
$
|
491,695
|
|
$
|
707,067
|
|
|
Capitalized
|
|
|
109,705
|
|
|
63,231
|
|
|
Amortized
(cost of sales)
|
|
|
107,419
|
|
|
184,128
|
|
|
Ending
balance
|
|
$
|
493,981
|
|
$
|
586,170
|
|
|
Research
and development expense (General and administrative)
|
|
$
|
29,581
|
|
$
|
52,232
|
|
We
expect
our cost of sales in real terms to increase over time consistent with
anticipated increases in revenues due to aggressive product development and
release schedules.
Sales,
General and Administrative
|
Sales,
General and Administrative Costs for Three Months Ending March
31
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
|
Selected
expenses:
|
|
Commissions
|
|
$
|
61,186
|
|
|
5
|
%
|
|
$
|
60,365
|
|
|
5
|
%
|
|
$
|
821
|
|
|
1
|
%
|
|
Advertising
and direct marketing
|
|
|
55,519
|
|
|
4
|
%
|
|
|
38,246
|
|
|
3
|
%
|
|
|
17,273
|
|
|
45
|
%
|
|
Sales
and marketing wages, reclassified
|
|
|
73,999
|
|
|
6
|
%
|
|
|
92,313
|
|
|
8
|
%
|
|
|
(18,314
|
)
|
|
20
|
%
|
|
Total
sales and marketing
|
|
$
|
190,704
|
|
|
15
|
%
|
|
$
|
190,924
|
|
|
16
|
%
|
|
$
|
(220
|
)
|
|
0
|
%
|
|
Research
and development
|
|
|
29,581
|
|
|
2
|
%
|
|
|
52,232
|
|
|
4
|
%
|
|
|
(22,651
|
)
|
|
43
|
%
|
|
Personnel
costs
|
|
|
164,404
|
|
|
13
|
%
|
|
|
216,837
|
|
|
18
|
%
|
|
|
(52,433
|
)
|
|
24
|
%
|
|
Legal
|
|
|
5,839
|
|
|
0
|
%
|
|
|
24,499
|
|
|
2
|
%
|
|
|
(18,660
|
)
|
|
76
|
%
|
|
Accounting
|
|
|
32,403
|
|
|
3
|
%
|
|
|
34,423
|
|
|
3
|
%
|
|
|
(2,020
|
)
|
|
6
|
%
|
|
Rent
|
|
|
22,044
|
|
|
2
|
%
|
|
|
23,925
|
|
|
2
|
%
|
|
|
(1,881
|
)
|
|
8
|
%
|
|
Telecommunications
|
|
|
6,006
|
|
|
0
|
%
|
|
|
10,547
|
|
|
1
|
%
|
|
|
(4,541
|
)
|
|
43
|
%
|
|
Corporate
services
|
|
|
5,000
|
|
|
0
|
%
|
|
|
18,000
|
|
|
2
|
%
|
|
|
(13,000
|
)
|
|
72
|
%
|
|
Investor
services
|
|
|
8,125
|
|
|
1
|
%
|
|
|
---
|
|
|
0
|
%
|
|
|
8,125
|
|
|
0
|
%
|
|
Other
general and administrative costs
|
|
|
71,926
|
|
|
6
|
%
|
|
|
92,923
|
|
|
8
|
%
|
|
|
(20,997
|
)
|
|
23
|
%
|
|
Total
general and administrative
|
|
$
|
345,328
|
|
|
27
|
%
|
|
$
|
473,386
|
|
|
40
|
%
|
|
$
|
(128,058
|
)
|
|
27
|
%
|
|
Total
sales, marketing, general and administrative
|
|
$
|
536,032
|
|
|
42
|
%
|
|
|
664,310
|
|
|
56
|
%
|
|
$
|
(128,278
|
)
|
|
19
|
%
|
As
gross
revenues increased approximately $88,000 from our three months ended March
31,
2006 to our three months ended March 31, 2007, total sales, general and
administrative costs decreased approximately $128,000 from approximately
$664,000 for the three months ended March 31, 2006 to approximately $536,000
for
the three months ended March 31, 2007. Of the total sales, general and
administrative costs, sales and marketing expenses remained steady at
approximately $191,000 for the three months ended March 31, 2006 and March
31,
2007. Included in sales expenses, advertising and direct marketing costs
increased approximately $17,000 from approximately $38,000 for the three months
ended March 31, 2006 to approximately $55,000 for the three months ended March
31, 2007, and increased as a percentage of gross revenues from approximately
3%
to approximately 4% for the three months ended March 31, 2006 and 2007,
respectively. This increase is mainly attributable to the Membership
Plus®
2007 and
QuickVerse®
2007
Macintosh product releases. We anticipate advertising and direct marketing
costs
to increase in future periods as we continue to enhance our product visibility
online, increase and focus more on our direct marketing efforts, and increase
the scope and frequency of our print advertising campaigns in order to maximize
sales associated with new products and product enhancements.
Wages
associated with our sales team and marketing team have been reclassified and
are
included in the total sales and marketing costs. The reclassified sales and
marketing wages decreased approximately $18,000 from approximately $92,000
for
the three months ended March 31, 2006 to approximately $74,000 for the three
months ended March 31, 2007. This decrease is attributable to the streamlining
of our CBA sales team. We expect the sales and marketing wages to increase
in
future periods as we expand our in-house direct telemarketing sales team as
well
as our other marketing and related personnel.
Research
and development costs include direct production costs (including labor directly
associated with the development projects), indirect costs (including allocated
fringe benefits, payroll taxes, facilities costs and management supervision),
and other direct costs (including costs of outside consultants, purchased
software to be included in the software product being developed, travel
expenses, material and supplies, and other direct costs). Software development
costs related to third-party developers and direct labor expensed as research
and development (see table above) amounted to approximately $52,000 for the
three months ended March 31, 2006 compared to approximately $29,000 for the
three months ended March 31, 2007. The decrease in 2007 reflects an increase
in
research and development costs that were capitalized for the three months
ended
March 31, 2007 as compared to the three months ended March 31, 2006. Research
and development expenses are expected to increase in future periods as we
continue to expand our internal development team, add new products and product
versions, and as we continue to expand the amount of content made available
to
our QuickVerse®
users.
The
capitalization of direct and indirect labor and related overhead charges as
software development costs (see “Cost of Sales” above) increased by
approximately $30,000 from approximately $47,000 for the three months ended
March 31, 2006 to approximately $77,000 for the three months ended March 31,
2007. This increase reflects the increased amount of development projects for
the three months ended March 31, 2007. It is anticipated that personnel costs
will continue to increase in future periods as operating capital is available
and deployed to further fund the staffing requirements of our product
development, direct sales teams and marketing staff.
Total
net
personnel costs decreased approximately $52,000, from approximately $217,000
for
the three months ended March 31, 2006, to approximately $165,000 for the three
months ended March 31, 2007. In addition, gross direct salaries and wages,
before adjustment of capitalized wages and reclassifications (see prior
paragraph), decreased approximately $32,000, from approximately $371,000 to
approximately $339,000, over the same period. The decrease in direct salaries
and wages was a result of streamlining our CBA sales team as well as the loss
of
our marketing manager. Further, as a percentage of gross revenues, direct
salaries and wages decreased approximately 7% from approximately 34% for the
three months ended March 31, 2006 to approximately 27% for the three months
ended March 31, 2007. We do anticipate direct salaries and wages to increase
in
the future given our continued focus on expanding our direct telemarketing
sales
team, marketing staff and product development staff.
As
a
result of having restructured our health benefits plans in October 2006, our
employment-related healthcare costs decreased approximately $7,000 from
approximately $32,000 for the three months ended March 31, 2006 to approximately
$25,000 for the three months ended March 31, 2007. In July 2005, we initiated
a
Simple IRA retirement plan for our employees and for those who participated
we
chose to match up to 3% of the employee’s annual gross pay. We anticipate that
our costs related to this benefit will increase in future periods as more
employees take advantage of the retirement plan.
Direct
legal costs decreased approximately $19,000 for the three months ended March
31,
2007 as a result of our having concluded certain ongoing registration and
related securities matters in February 2006. It is anticipated that legal
costs
will fluctuate in future periods in direct relation to the level of our
capital-raising initiatives, acquisition and/or divestiture-related initiatives,
and other transactional activity.
Accounting
and audit related expenses decreased by approximately $2,000 for the three
months ended March 31, 2007. This increase is attributable principally to
our
having completed the process associated with a change in auditors which
necessitated the concurrent engagement of two auditing firms during the
transition period, not just one. It is anticipated that accounting costs
will
continue at these levels as we utilize the same principal accounting firm
on an
ongoing basis.
Rent
costs decreased approximately $2,000 for the three months ended March 31,
2007
as a result of periodic provisions for commercial and maintenance expenses
in
our lease agreements. In accordance with periodic lease escalations, rent
cost
will increase in the future for each of our primary office facility as well
as
our new warehouse facility. We believe that, over time, however, use of the
warehouse facility will allow us to cease our dependency on a third-party
to
fulfill our retail product sales, which, in turn, will provide us with cost
savings that will potentially enhance our gross margin. In addition to our
primary office facility and our new warehouse, we also maintain a lease on
certain office space in Naperville, Illinois.
Telecommunications-related
costs decreased approximately $5,000 for the three months ended March 31,
2007
as a result of qualifying for a lower rate with our local and long-distance
carriers upon the renewal of our service agreement. In general, we anticipate
our telecommunications-related costs to increase in the future consistent
on a
percentage basis with overall revenue growth.
Corporate
service fees decreased approximately $13,000 for the three months ended March
31, 2007 resulting from the expiration of an independent consulting agreement.
However, we expect consulting-related expenses to increase in future periods
based on our having engaged the services of another independent consultant
who
began performing business development related advisory services for us in
March
2007 and who is expected to continue providing such services through February
2008.
Finally,
investor services fees increased approximately $8,000 for the three months
ended
March 31, 2007 as we entered into an investor relations service agreement in
April 2006. These fees are related to the hiring of an investor relations firm
and the expense for the issuance of a total of 250,000 restricted shares of
common stock allocated over the term of the investor relations contract. We
anticipate fees payable to this service provider to materially increase in
future periods.
Registration
Rights Penalties
Through
March 31, 2006, and in connection with a 2004 private placement transaction,
we
had accrued a total of approximately $486,000 in registration rights penalties,
$150,000 of which we had paid as of April 7, 2006, and the balance of which
was
reduced to a two-year promissory note. The note agreement called for monthly
installments through May 2007 of $10,000 and $20,000 per month thereafter.
In
the aggregate, the accrual of, and the payments made in connection with, the
registration rights penalties have had a material adverse effect on our
business, our financial condition, including liquidity and profitability, and
our results of operations. The results of operations for the three months ended
March 31, 2006 include an increase in our net loss of approximately
$49,000.
Derivatives
In
May
2004, we issued a three-year warrant to purchase up to 600,000 shares of our
common stock to a consultant. This warrant may be exercised on a cashless basis
at the option of the holder at a price per share of $0.15. In November 2004,
we
issued two five-year warrants to purchase an aggregate of 21,875,000 shares
of
our common stock in connection with a certain private placement transaction.
The
first warrant entitles the holder to purchase up to 10,937,500 shares of our
common stock at a price of $0.18 per share, and the second warrant entitles
the
holder to purchase up to 10,937,500 additional shares of our common stock at
a
price of $0.60 per share. Each warrant is subject to standard adjustment
provisions and each provides for settlement in registered shares of our common
stock and may, at the option of the holder, be settled in a cashless, net-share
settlement.
These
warrants have been accounted for as a liability according to the guidance
of
EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a
Company’s Own Stock.
In
accordance with the accounting mandate, the derivative liability associated
with
these warrants has been, and shall continue to be, until each is either fully
exercised or expires, adjusted to fair value at each balance sheet date and
is
accordingly reassessed at each such time to determine whether the warrants
should be classified (or reclassified, as appropriate) as a liability or
as
equity. Under EITF 00-19, a decrease in our stock price results in a decrease
in
the fair value of the derivative liability and a valuation gain to be recognized
in our income statement whereas an increase in our stock price results in
an
increase in the fair value of the derivative liability and a valuation loss
to
be recognized in our income statement. At March 31, 2007 and 2006, the fair
value of the derivative liability was approximately $500,000 and $2,671,000,
respectively, and a fair value adjustment of approximately $27,000 has been
included in other income for the three months ended March 31, 2007 and a
fair
value adjustment of approximately $609,000 has been included in other expenses
for the three months ended March 31, 2006. If the market trading price of
our
stock rises, it could potentially have a materially adverse effect on our
derivative liability.
Amortization
Amortization
expenses remained steady at approximately $133,000 for the three months ended
March 31, 2007 and 2006. The software license we acquired in 1999 from which
we
derive our base intellectual property rights associated with the products that
are responsible for generating the overwhelming majority of our revenues (the
“1999 license”) is being amortized over a 10 year useful life and will have been
fully amortized by the close of the year ending December 31, 2009. Amortization
expense for 2007 and 2006 reflect the continual amortization of the 1999
license, as well as the amortization of our website, www.quickverse.com, the
most recent version of which we launched during the second quarter of 2004.
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. 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. At March 31, 2007, management adjusted the amount of
valuation allowance based on the assessment that we will produce sufficient
income in the future to realize our net deferred tax asset. The resulting
deferred tax liability reflects income taxes payable in future periods on the
net deductible differences related to the 1999 license. We currently have net
operating loss carryforwards, for federal income tax purposes, of approximately
$9,052,000. These carryforwards are the result of income tax losses generated
in
2000 ($2,086,000 expiring in 2020), 2001 ($5,191,000 expiring in 2021), 2002
($235,000 expiring in 2022), 2005 ($956,000 expiring in 2025), and 2006
($584,000 expiring in 2026). We will need to achieve a minimum annual taxable
income, before deduction of operating loss carryforwards, of approximately
$486,000 to fully utilize the current loss carryforwards. Although there can
be
no assurance, we expect the deductible temporary differences (reserves) to
reverse sometime beyond the next fiscal year.
Liquidity
And Capital Resources
Our
primary needs for liquidity and capital resources are the funding of our
continued operations, which includes the ongoing internal development of new
products, expansion and upgrade of existing products, and marketing and sales.
Although there can be no assurance, we believe cash generated through our
continuing operations will be at least minimally sufficient to sustain our
operations, albeit with very limited growth. However, our pursuit of an
aggressive growth plan, whether based on internally developed products or
strategic product line acquisitions and/or licensing opportunities will likely
require funding from outside sources or the divestiture of one or more existing
product lines. Funding from outside sources may include but is not limited
to
the exercise of outstanding warrants and pursuit of other financing options
such
as commercial loans, common stock and/or preferred stock issuances and
convertible notes. At this time, we have no legally committed funds for future
capital expenditures including software development.
|
Working
Capital at March 31
|
|
|
2007
|
|
|
Current
assets
|
|
$
|
787,871
|
|
|
Current
liabilities
|
|
$
|
2,463,014
|
|
|
Retained
deficit
|
|
$
|
7,104,078
|
|
As
of
March 31, 2007, we had approximately $788,000 in current assets and
approximately $2,463,000 in current liabilities. While liquidity remains
an ongoing concern for us, and while there can be no continuing assurance,
given
the combined facts that (i) a substantial portion of our net sales - 53% of
which we collected during our last fiscal year through credit card processing
transactions - are able to be collected in a much shorter timeframe (several
days) than that in which we must generally pay our trade payables (30 days)
and
our accrued royalties (quarterly, semi-annually, or annually), and (ii) our
derivative liability is an item that does not necessitate actual cash payout,
the situation suggested by our notably and consistently low ratio of our current
assets to current liabilities has historically been manageable.
As
of
March 31, 2007, we had a retained deficit of approximately $7,104,000. We
had a
loss before income taxes of approximately $9,000 and a net loss after income
taxes of approximately $6,000 for the three months ended March 31, 2007.
For the
three months ended March 31, 2007, we had a gain of approximately $27,000
from
the fair value adjustment of derivatives. See “Results Of Operations” above.
|
Cash
Flows for Three Months Ending March 31
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
%
|
|
|
Cash
flows provided by operating activities
|
|
$
|
192,564
|
|
$
|
6,878
|
|
$
|
185,686
|
|
|
2,700
|
%
|
|
Cash
flows (used) by investing activities
|
|
$
|
(154,273
|
)
|
$
|
(70,573
|
)
|
$
|
(83,700
|
)
|
|
119
|
%
|
|
Cash
flows (used) by financing activities
|
|
$
|
(32,469
|
)
|
$
|
(2,197
|
)
|
$
|
(30,272
|
)
|
|
1,378
|
%
|
Net
cash
provided by operating activities was approximately $193,000 for the three months
ended March 31, 2007, and approximately $7,000 for the three months ended March
31, 2006. The increase was primarily due to a short-term relative imbalance
in
payments made to content providers as compared to receivables
collected.
Net
cash
used in investing activities was approximately $154,000 for the three months
ended March 31, 2007 and approximately $71,000 for the three months ended
March
31, 2006. The increase was mainly the result of our having capitalized more
costs associated with software development. Further, during the three months
ended March 31, 2007, our merchant banker held $40,000 cash in reserve to
allow
for a potential increase in credit card chargebacks from increased consumer
purchases during the fourth quarter of 2006.
Net
cash
used by financing activities was approximately $32,000 for the three months
ended March 31, 2007, and approximately $2,000 for the three months ended March
31, 2006. The increase was due to an increase in payments made on long-term
notes payable.
Finally,
as a positive note, we were able to remain cash positive of approximately $6,000
for the three months ended March 31, 2007 compared to a cash deficit of
approximately $66,000 for the three months ended March 31, 2006, despite our
merchant banker holding $40,000 cash in reserve to allow for a potential
increase in credit card chargebacks from increased consumer purchases during
the
fourth quarter of 2006.
Financing
We
have
been unsuccessful in previous attempts to secure bank financing due to our
internal financial ratios and negative working capital position and do not
expect that we will be successful in securing any such financing unless and
until our ratios in this regard improve. However, it may be possible to secure
financing on our open accounts receivable in order to satisfy our future
financing needs, as we have chosen this option in previous years.
Contractual
Liabilities
We
currently lease office space/warehouse facilities in Omaha, Nebraska under
an
operating lease with a third-party with terms extending through May 2007. We
are
responsible for all taxes, insurance and utility expenses associated with this
lease. There is no lease renewal option contained in the lease. In May 2007,
we
secured a new operating lease with a third-party for our corporate office
facility in Omaha, Nebraska with terms extending through May 2012. We also
secured a new operating lease with a third-party for a warehouse facility in
Omaha, Nebraska with terms extending through June 2010. We are responsible
for
all taxes, insurance and utility expenses associated with these two new
operating leases.
We
lease
office space in Naperville, Illinois under an operating lease with a third-party
with terms extending through March 2009. We are responsible for all insurance
expenses associated with this lease.
At
March
31, 2007, the future minimum rental payments required under these leases are
as
follows:
|
2007
|
|
$
|
64,169
|
|
|
2008
|
|
|
90,034
|
|
|
2009
|
|
|
78,993
|
|
|
2010
|
|
|
63,883
|
|
|
2011
|
|
|
54,339
|
|
|
2012
|
|
|
23,335
|
|
|
Total
future minimum rental payments
|
|
$
|
374,753
|
|
We
lease
telephone equipment under a capital lease due to expire in November 2009. The
asset and liability under the capital lease are recorded at the present value
of
the minimum lease payments. The asset is depreciated over a 5 year life. Minimum
future lease payments under capital leases as of March 31, 2007 for each of
the
next three years and in the aggregate are:
|
2007
|
|
$
|
10,295
|
|
|
2008
|
|
|
13,726
|
|
|
2009
|
|
|
12,582
|
|
|
Total
minimum lease payments
|
|
$
|
36,603
|
|
(a)
Formation of Disclosure Controls and Procedures Officer
Committee
Our
Disclosure Controls and Procedures Officer Committee (the “Disclosure Policy
Committee”) was formed in September 2002 and reports directly to our Chief
Executive Officer and Chief Financial Officer. The Disclosure Policy Committee
has implemented disclosure controls and procedures that meet the standards
established by Rule 13a-15 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”).
Disclosure
Controls and Procedures
The
Disclosure Policy Committee is primarily responsible for establishing and
maintaining disclosure controls and procedures designed to ensure that the
information required to be disclosed in our reports filed or submitted under
the
Exchange Act, is recorded, processed, summarized and reported in a timely manner
as specified in the rules and forms set forth by the SEC and that the
information required to be disclosed in our reports is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or other persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
(b)
Evaluation of Disclosure Controls and Procedures and Annual Report on Internal
Control over Financial Reporting
The
Disclosure Policy Committee meets quarterly within one week of the last day
of
the period in which a given report is due. Members provide information that
is
documented in the Quarterly Control and Procedures Report for the period in
which a quarterly 10-QSB or annual 10-KSB report is due. This report contains
attestations and documentation in regard to the following:
| |
▪
|
the
fact that disclosure controls and procedures have been reviewed as
of the
end of the period covered by a given report;
|
| |
▪
|
any
concerns regarding weaknesses in disclosure controls and
procedures;
|
| |
▪
|
any
concerns relating to events that may require
disclosure;
|
| |
▪
|
any
concerns relating to internal fraud/defalcation;
|
| |
▪
|
potential
material losses;
|
| |
▪
|
new
off-balance sheet arrangements; and
|
| |
▪
|
material
amounts not reflected on the general
ledger.
|
The
Quarterly Control and Procedures Report is completed, signed and presented
to
the CEO and CFO prior to completion of the first draft of each 10-QSB and
10-KSB. Because material issues may occur between regularly scheduled quarterly
meetings, this report is to be generated by the disclosure policy appropriate
officers at any time warranted. The CEO and CFO will consult with our Disclosure
Policy Committee to determine any action that is necessary.
Our
CEO
and CFO have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of the end of the fiscal quarter covered by this quarterly
report on Form 10-QSB. Based on this evaluation, our CEO and CFO have concluded
that our disclosure controls and procedures are effective and designed to ensure
that the information required to be disclosed in our reports filed or submitted
under the Exchange Act, is recorded, processed, summarized and reported within
the requisite time periods.
During
the course of their evaluation our CEO and CFO did not discover any fraud
involving management or any other personnel who play a significant role in
our
disclosure controls and procedures. Furthermore, because there were no
significant deficiencies and/or material weaknesses discovered no remedial
measures were necessary or taken during the period covered by this report
to
correct any such deficiencies.
(c)
Changes in Internal Control over Financial Reporting
No
changes in our disclosure controls and procedures, internal control over
financial reporting or other factors have occurred during the fiscal quarter
covered by this report that would materially affect or be reasonably likely
to
materially affect our disclosure controls and procedures or internal control
over financial reporting.
As
of the
date of this quarterly report on Form 10-QSB for the period ended March 31,
2007, there were no pending material legal proceedings to which we were a party
and we were not aware that any were contemplated. There can be no assurance,
however, that we will not be made a party to litigation in the future. Moreover,
there can be no assurance that our insurance coverage will prove adequate to
cover all liabilities arising out of any claims that may be initiated against
us
in the future. Any finding of liability imposed against us coupled with a lack
of corresponding insurance coverage is likely to have an adverse effect on
our
business, our financial condition, and including liquidity and profitability,
and our results of operations.
There
were no reportable events under this Item 2 during the quarterly period ended
March 31, 2007.
There
were no reportable events under this Item 3 during the quarterly period ended
March 31, 2007.
No
matters were submitted to a vote of our stockholders during the quarterly period
ended March 31, 2007.
Our
Annual Meeting of the Stockholders of Findex.com, Inc., previously scheduled
to
be held on May 4, 2007, has been rescheduled for September 21,
2007.
There
were no reportable events under this Item 5 during the quarterly period ended
March 31, 2007.
|
No.
|
Description
of Exhibit
|
| |
|
|
2.1
|
Share
Exchange Agreement between Findex.com, Inc. and the stockholders
of Reagan
Holdings, Inc. dated March 7, 2000, incorporated by reference to
Exhibit
2.1 on Form 8-K filed March 15, 2000.
|
| |
|
|
3(i)(1)
|
Restated
Articles of Incorporation of Findex.com, Inc. dated June 1999 incorporated
by reference to Exhibit 3.1 on Form 8-K filed March 15, 2000.
|
| |
|
|
3(i)(2)
|
Amendment
to Articles of Incorporation of Findex.com, Inc. dated November 10,
2004
incorporated by reference to Exhibit 3.1(ii) on Form 10-QSB filed
November
10, 2004.
|
| |
|
|
3(ii)
|
Restated
By-Laws of Findex.com, Inc., incorporated by reference to Exhibit
3.3 on
Form 8-K filed March 15, 2000.
|
| |
|
|
10.1
|
Stock
Incentive Plan of Findex.com, Inc. dated May 7, 1999, incorporated
by
reference to Exhibit 10.1 on Form 10-KSB/A filed May 13,
2004.
|
| |
|
|
10.2
|
Share
Exchange Agreement between Findex.com, Inc. and the stockholders
of Reagan
Holdings Inc., dated March 7, 2000, incorporated by reference to
Exhibit
2.1 on Form 8-K filed March 15, 2000.
|
| |
|
|
10.3
|
License
Agreement between Findex.com, Inc. and Parsons Technology, Inc. dated
June
30, 1999, incorporated by reference to Exhibit 10.3 on Form 10-KSB/A
filed
May 13, 2004.
|
| |
|
|
10.4
|
Employment
Agreement between Findex.com, Inc. and Steven Malone dated July 25,
2003,
incorporated by reference to Exhibit 10.4 on Form 10-KSB/A filed
May 13,
2004.
|
| |
|
|
10.5
|
Employment
Agreement between Findex.com, Inc. and Kirk Rowland dated July 25,
2003,
incorporated by reference to Exhibit 10.5 on Form 10-KSB/A filed
May 13,
2004.
|
| |
|
|
10.6
|
Employment
Agreement between Findex.com, Inc. and William Terrill dated June
7, 2002,
incorporated by reference to Exhibit 10.6 on Form 10-KSB/A filed
May 13,
2004.
|
| |
|
|
10.7
|
Restricted
Stock Compensation Agreement between Findex.com, Inc. and John A.
Kuehne
dated July 25, 2003, incorporated by reference to Exhibit 10.7 on
Form
10-KSB/A filed May 13, 2004.
|
| |
|
|
10.8
|
Restricted
Stock Compensation Agreement between Findex.com, Inc. and Henry M.
Washington dated July 25, 2003, incorporated by reference to Exhibit
10.8
on Form 10-KSB/A filed May 13, 2004.
|
| |
|
|
10.9
|
Restricted
Stock Compensation Agreement between Findex.com, Inc. and William
Terrill
dated July 25, 2003, incorporated by reference to Exhibit 10.9 on
Form
10-KSB/A filed May 13, 2004.
|
| |
|
|
10.10
|
Stock
Purchase Agreement, including the form of warrant agreement, between
Findex.com, Inc. and Barron Partners, LP dated July 19, 2004, incorporated
by reference to Exhibit 10.1 on Form 8-K filed July 28,
2004.
|
| |
|
|
10.11
|
Amendment
No. 1 to Stock Purchase Agreement between Findex.com, Inc. and Barron
Partners, LP dated September 30, 2004, incorporated by reference
to
Exhibit 10.3 on Form 8-K filed October 6, 2004.
|
| |
|
|
10.12
|
Registration
Rights Agreement between Findex.com, Inc. and Barron Partners, LP
dated
July 26, 2004, incorporated by reference to Exhibit 10.2 on Form
8-K filed
July 28, 2004.
|
| |
|
|
10.13
|
Waiver
Certificate between Findex.com, Inc. and Barron Partners, LP dated
September 16, 2004, incorporated by reference to Exhibit 10.4 on
Form 8-K
filed October 6, 2004.
|
| |
|
|
10.14
|
Settlement
Agreement between Findex.com, Inc., The Zondervan Corporation, Mattel,
Inc., TLC Multimedia, Inc., and Riverdeep, Inc. dated October 20,
2003,
incorporated by reference to Exhibit 10.14 on Form 10-KSB/A filed
December
14, 2005.
|
| |
|
|
10.15
|
Employment
Agreement Extension between Findex.com, Inc and Steven Malone dated
March
31, 2006, incorporated by reference to Exhibit 10.1 on Form 8-K filed
April 6, 2006.
|
| |
|
|
10.16
|
Employment
Agreement Extension between Findex.com, Inc and William Terrill dated
March 31, 2006, incorporated by reference to Exhibit 10.2 on Form
8-K
filed April 6, 2006.
|
| |
|
|
10.17
|
Employment
Agreement Extension between Findex.com, Inc and Kirk R. Rowland dated
March 31, 2006, incorporated by reference to Exhibit 10.3 on Form
8-K
filed April 6, 2006.
|
| |
|
|
10.18
|
Promissory
Note to Barron Partners, LP dated April 7, 2006, incorporated by
reference
to Exhibit 10.1 on Form 8-K filed April 13, 2006.
|
| |
|
|
10.19
|
Share
Exchange Agreement between Findex.com, Inc. and the stockholders
of Reagan
Holdings Inc., dated March 7, 2000, incorporated by reference to
Exhibit
2.1 on Form 8-K filed March 15, 2000.
|
| |
|
|
10.20
|
Convertible
Secured Promissory Note between FindEx.com, Inc. and W. Sam Chandoha,
dated July 20, 2006, incorporated by reference to Exhibit 10.1 on
Form 8-K
filed July 26, 2006.
|
| |
|
|
10.21
|
Security
Agreement between FindEx.com, Inc. and W. Sam Chandoha, dated July
20,
2006 incorporated by reference to Exhibit 10.2 on Form 8-K filed
July 26,
2006.
|
| |
|
|
10.22
|
Common
Stock Purchase Warrant between FindEx.com, Inc. and W. Sam Chandoha,
dated
July 20, 2006 incorporated by reference to Exhibit 10.3 on Form 8-K
filed
July 26, 2006.
|
| |
|
|
10.23
|
Modification
and Extension Agreement Between FindEx.com, Inc. and W. Sam Chandoha,
dated September 20, 2006, incorporated by reference to Exhibit 10.1
on
Form 8-K filed September 25,2006.
|
| |
|
|
10.24
|
Employment
Agreement Extension Amendment between Findex.com, Inc. and Steven
Malone
dated April 13, 2007, incorporated by reference to Exhibit 10.24
on Form
10-KSB filed April 17, 2007.
|
| |
|
|
10.25
|
Employment
Agreement Extension Amendment between Findex.com, Inc. and William
Terrill
dated April 13, 2007, incorporated by reference to Exhibit 10.25
on Form
10-KSB filed April 17, 2007.
|
| |
|
|
10.26
|
Employment
Agreement Extension Amendment between Findex.com, Inc. and Kirk R.
Rowland
dated April 13, 2007, incorporated by reference to Exhibit 10.25
on Form
10-KSB filed April 17, 2007.
|
| |
|
|
31.1
|
Certification
of Findex.com, Inc. Chief Executive Officer, Steven Malone, required
by
Rule 13a-14(a) or Rule 15d-14(a), and dated May 21, 2007. FILED
HEREWITH.
|
| |
|
|
31.2
|
Certification
of Findex.com, Inc. Chief Financial Officer, Kirk R. Rowland, required
by
Rule 13a-14(a) or Rule 15d-14(a), and dated May 21, 2007. FILED
HEREWITH.
|
| |
|
|
32.1
|
Certification
of Findex.com, Inc. Chief Executive Officer, Steven Malone, required
by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title
18 of the United States Code (18 U.S.C. 1350), and dated May 21,
2007.
FILED HEREWITH.
|
| |
|
|
32.2
|
Certification
of Findex.com, Inc. Chief Financial Officer, Kirk R. Rowland, required
by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title
18 of the United States Code (18 U.S.C. 1350), and dated May 21,
2007.
FILED HEREWITH.
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Signatures
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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FINDEX.COM,
INC.
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Date:
May 21, 2007
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By
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/s/
Steven Malone
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Steven
Malone
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President
and Chief Executive Officer
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Date:
May 21, 2007
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By
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/s/
Kirk R. Rowland
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Kirk
R. Rowland, CPA
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Chief
Financial Officer
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