FindEx.com, Inc. Form 10-QSB June 30, 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 JUNE 30, 2007
Commission
file number: 0-29963
FINDEX.COM,
INC.
(Exact
name of small business issuer as specified in its charter)
Nevada
|
|
88-0379462
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
|
|
|
620
North 129th
Street, Omaha, Nebraska
|
|
68154
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(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
August
17, 2007, the registrant had outstanding 51,650,817 shares of common stock,
of
which there is only a single class.
Transitional
Small Business Disclosure Format (check one): Yes __ No X
|
|
|
Page
Number
|
|
|
|
|
|
F-1
|
|
1
|
|
9
|
|
|
|
|
|
|
|
11
|
|
11
|
|
11
|
|
11
|
|
12
|
|
12
|
Findex.com,
Inc.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
Assets
|
Current
assets:
|
Cash
and cash equivalents
|
|
$
|
3,452
|
|
$
|
48,672
|
|
Accounts
receivable, trade, net
|
|
|
284,944
|
|
|
318,000
|
|
Inventories
|
|
|
110,713
|
|
|
145,344
|
|
Other
current assets
|
|
|
231,744
|
|
|
213,162
|
|
Total
current assets
|
|
|
630,853
|
|
|
725,178
|
|
Property
and equipment, net
|
|
|
72,145
|
|
|
86,638
|
|
Software
license, net
|
|
|
1,007,015
|
|
|
1,258,769
|
|
Capitalized
software development costs, net
|
|
|
522,712
|
|
|
491,695
|
|
Restricted
cash
|
|
|
40,000
|
|
|
---
|
|
Other
assets
|
|
|
494,474
|
|
|
493,565
|
|
Total
assets
|
|
$
|
2,767,199
|
|
$
|
3,055,845
|
|
|
Liabilities
and stockholders’ equity
|
Current
liabilities:
|
Accounts
payable, trade
|
|
$
|
738,866
|
|
$
|
693,260
|
|
Accrued
royalties
|
|
|
693,469
|
|
|
649,763
|
|
Derivative
liabilities
|
|
|
473,123
|
|
|
526,868
|
|
Other
current liabilities
|
|
|
629,370
|
|
|
561,111
|
|
Total
current liabilities
|
|
|
2,534,828
|
|
|
2,431,002
|
|
Long-term
obligations
|
|
|
19,329
|
|
|
80,568
|
|
Commitments
and contingencies (Note 9)
|
Stockholders’
equity:
|
Preferred
stock, $.001 par value
|
|
|
5,000,000
shares authorized
|
|
|
-0-
and -0- shares issued and outstanding, respectively
|
|
|
---
|
|
|
---
|
|
Common
stock, $.001 par value
|
|
|
120,000,000
shares authorized,
|
|
|
50,350,817
and 49,788,317 shares issued and outstanding, respectively
|
|
|
50,351
|
|
|
49,788
|
|
Paid-in
capital
|
|
|
7,610,321
|
|
|
7,592,884
|
|
Retained
(deficit)
|
|
|
(7,447,630
|
)
|
|
(7,098,397
|
)
|
Total
stockholders’ equity
|
|
|
213,042
|
|
|
544,275
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
2,767,199
|
|
$
|
3,055,845
|
|
|
See
accompanying notes.
|
Findex.com,
Inc.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
Three
Months Ended
|
Six
Months Ended
|
|
|
June
30,
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenues,
net of reserves and allowances
|
|
$
|
602,838
|
|
$
|
661,279
|
|
$
|
1,758,331
|
|
$
|
1,760,070
|
|
Cost
of sales
|
|
|
281,517
|
|
|
484,918
|
|
|
776,875
|
|
|
969,386
|
|
Gross
profit
|
|
|
321,321
|
|
|
176,361
|
|
|
981,456
|
|
|
790,684
|
|
Operating
expenses:
|
Sales
and marketing
|
|
|
147,097
|
|
|
196,537
|
|
|
337,801
|
|
|
387,461
|
|
General
and administrative
|
|
|
392,481
|
|
|
451,296
|
|
|
737,809
|
|
|
924,682
|
|
Other
operating expenses
|
|
|
153,326
|
|
|
145,538
|
|
|
303,649
|
|
|
291,421
|
|
Total
operating expenses
|
|
|
692,904
|
|
|
793,371
|
|
|
1,379,259
|
|
|
1,603,564
|
|
Loss
from operations
|
|
|
(371,583
|
)
|
|
(617,010
|
)
|
|
(397,803
|
)
|
|
(812,880
|
)
|
Other
expenses, net
|
|
|
(6,445
|
)
|
|
(8,099
|
)
|
|
(15,275
|
)
|
|
(10,031
|
)
|
Registration
rights penalties
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
(49,314
|
)
|
Gain
(loss) on valuation adjustment of derivatives
|
|
|
27,201
|
|
|
1,481,411
|
|
|
53,745
|
|
|
872,539
|
|
Income
(loss) before income taxes
|
|
|
(350,827
|
)
|
|
856,302
|
|
|
(359,333
|
)
|
|
314
|
|
Income
tax (provision) benefit
|
|
|
7,275
|
|
|
5,356
|
|
|
10,100
|
|
|
(25,452
|
)
|
Net
income (loss)
|
|
$
|
(343,552
|
)
|
$
|
861,658
|
|
|
(349,233
|
)
|
|
(25,138
|
)
|
Retained
deficit at beginning of year
|
|
(7,098,397
|
)
|
|
(7,752,097
|
)
|
Retained
deficit at end of period
|
|
|
$
|
(7,447,630
|
)
|
$
|
(7,777,235
|
)
|
|
|
Net
income (loss) per share:
|
Basic
|
|
$
|
(0.01
|
)
|
$
|
0.02
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
Diluted
|
|
$
|
(0.01
|
)
|
$
|
0.02
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
|
Weighted
average shares outstanding:
|
Basic
|
|
|
49,794,498
|
|
|
49,558,317
|
|
|
49,791,425
|
|
|
49,162,163
|
|
Diluted
|
|
|
49,794,498
|
|
|
50,397,239
|
|
|
49,791,425
|
|
|
49,162,163
|
|
|
See
accompanying notes.
|
Findex.com,
Inc.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
Six
Months Ended June 30,
|
|
|
2007
|
|
|
2006
|
|
|
Cash
flows from operating activities:
|
Cash
received from customers
|
|
$
|
1,835,864
|
|
$
|
1,956,573
|
|
Cash
paid to suppliers and employees
|
|
|
(1,580,906
|
)
|
|
(1,762,323
|
)
|
Other
operating activities, net
|
|
|
(11,195
|
)
|
|
(2,030
|
)
|
Net
cash provided by operating activities
|
|
|
243,763
|
|
|
192,220
|
|
Cash
flows from investing activities:
|
Software
development costs
|
|
|
(191,451
|
)
|
|
(238,380
|
)
|
Deposits
paid
|
|
|
(41,189
|
)
|
|
---
|
|
Other
investing activities, net
|
|
|
(11,334
|
)
|
|
(15,653
|
)
|
Net
cash used by investing activities
|
|
|
(243,974
|
)
|
|
(254,033
|
)
|
Cash
flows from financing activities:
|
Payments
made on long-term notes payable
|
|
|
(45,009
|
)
|
|
(27,228
|
)
|
Net
cash used by financing activities
|
|
|
(45,009
|
)
|
|
(27,228
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(45,220
|
)
|
|
(89,041
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
48,672
|
|
|
119,560
|
|
Cash
and cash equivalents, end of period
|
|
$
|
3,452
|
|
$
|
30,519
|
|
|
Reconciliation
of net loss to cash flows from operating activities:
|
Net
loss
|
|
$
|
(349,233
|
)
|
$
|
(25,138
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
provided
by operating activities:
|
|
|
Software
development costs amortized
|
|
|
160,433
|
|
|
457,598
|
|
Gain
on fair value adjustment of derivatives
|
|
|
(53,745
|
)
|
|
(872,539
|
)
|
Bad
debts provision
|
|
|
17,164
|
|
|
---
|
|
Depreciation
& amortization
|
|
|
286,485
|
|
|
291,421
|
|
Gain
on sale of property and equipment
|
|
|
(551
|
)
|
|
---
|
|
Noncash
operating expenses
|
|
|
---
|
|
|
65,000
|
|
Change
in assets and liabilities:
|
|
|
Decrease
in accounts receivable
|
|
|
15,892
|
|
|
251,271
|
|
Decrease
in inventories
|
|
|
34,631
|
|
|
67,258
|
|
Decrease
in refundable taxes
|
|
|
2,050
|
|
|
5,764
|
|
Decrease
(increase) in prepaid expenses
|
|
|
1,519
|
|
|
(43,659
|
)
|
Increase
in accrued royalties
|
|
|
43,706
|
|
|
9,583
|
|
Increase
in accounts payable
|
|
|
45,606
|
|
|
71,719
|
|
(Decrease)
increase in deferred taxes
|
|
|
(10,100
|
)
|
|
25,452
|
|
Increase
(decrease) in other liabilities
|
|
|
49,906
|
|
|
(111,510
|
)
|
Net
cash provided by operating activities
|
|
$
|
243,763
|
|
$
|
192,220
|
|
|
See
accompanying notes.
|
Findex.com,
Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 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 $1,906,333, less accumulated
amortization of $1,383,621 at June 30, 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 $60,569 and $83,620 for the six months ended June 30, 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 $112,098, less accumulated amortization of $84,440 at June 30,
2007.
RESTRICTED
CASH
Restricted
cash represents cash held in reserve by our merchant banker to allow for a
potential increase in credit card charge backs from increased consumer
purchases.
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 and six months ended June 30, 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.
RECENT
ACCOUNTING PRONOUNCEMENTS
Fair
Value
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements,
to
provide enhanced guidance for using fair value to measure assets and
liabilities. The standard also expands disclosure requirements for assets and
liabilities measured at fair value, how fair value is determined, and the effect
of fair value measurements on earnings. The standard applies whenever other
authoritative literature requires, or permits, certain assets or liabilities
to
be measured at fair value, but does not expand the use of fair value. SFAS
No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those years. Early adoption
is permitted. We plan to adopt SFAS No. 157 as of January 1, 2008. The balance
sheet items carried at fair value consist of derivatives and other financial
instruments. Additionally, we use fair value concepts to test various long-lived
assets for impairment and to initially measure assets and liabilities acquired
in a business combination. Management is currently evaluating the impact of
adoption on how these liabilities are currently measured.
In
February 2007 the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities,
to
provide companies with an option to report selected financial assets and
liabilities at fair value. The standard’s objective is to reduce both complexity
in accounting for financial instruments and the volatility in earnings caused
by
measuring related assets and liabilities differently. The standard requires
companies to provide additional information that will help investors and other
users of financial statements to more easily understand the effect of the
company’s choice to use fair value on its earnings. It also requires companies
to display the fair value of those assets and liabilities for which the company
has chosen to use fair value on the face of the balance sheet. The new standard
does not eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair value measurements
included in SFAS 157, Fair
Value Measurements,
and
SFAS 107, Disclosures
about Fair Value of Financial Instruments.
SFAS
159 is effective for fiscal years beginning after November 15, 2007. We plan
to
adopt SFAS No. 159 as of January 1, 2008. We are in the process of evaluating
this standard and therefore have not yet determined the impact that the adoption
will have on our financial position, results of operations or cash
flows.
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 June 30, 2007, we had a
year-to-date net loss of ($349,233), and negative working capital of $1,903,975
and $1,705,824, and an accumulated deficit of $7,447,630 and $7,098,397 as
of
June 30, 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 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
June
30, 2007, inventories consisted of the following:
Raw
materials
|
|
$
|
67,882
|
|
Finished
goods
|
|
|
42,831
|
|
Inventories
|
|
$
|
110,713
|
|
NOTE
4 - RESERVES AND ALLOWANCES
At
June
30, 2007, the allowance for doubtful accounts included in Accounts receivable,
trade, net, consisted of the following:
Balance
December 31, 2006
|
|
$
|
11,000
|
|
Bad
debts provision (included in Other operating expenses)
|
|
|
17,164
|
|
Accounts
written off
|
|
|
(2,879
|
)
|
Collection
of accounts previously written off
|
|
|
715
|
|
Balance
June 30, 2007
|
|
$
|
26,000
|
|
At
June
30, 2007, the reserve for sales returns included in Other current liabilities
consisted of the following:
Balance
December 31, 2006
|
|
$
|
98,132
|
|
Return
provision - sales
|
|
|
223,100
|
|
Return
provision - cost of sales
|
|
|
(33,465
|
)
|
Returns
processed
|
|
|
(167,590
|
)
|
Balance
June 30, 2007
|
|
$
|
120,177
|
|
NOTE
5 - DERIVATIVE LIABILITIES
At
June
30, 2007, our derivative liability consisted of the following:
Warrant
A
|
|
$
|
---
|
|
Warrant
B
|
|
|
255,813
|
|
Warrant
C
|
|
|
217,310
|
|
Derivatives
|
|
$
|
473,123
|
|
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 was exercisable on
a
cashless basis at the option of the warrant holder at a price per share of
$0.15. This warrant was 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. On
May 1, 2007, this warrant expired unexercised. See Note 6.
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
B
|
|
|
Warrant
C
|
|
Expected
term - years
|
|
|
2.61
|
|
|
2.61
|
|
Stock
price at June 30, 2007
|
|
$
|
0.03
|
|
$
|
0.03
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
Expected
stock price volatility
|
|
|
212
|
%
|
|
212
|
%
|
Risk-free
interest rate
|
|
|
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 income
adjustments of $27,201 and $53,745 for the three and six months ended June
30,
2007, respectively, and income adjustments of $1,481,411 and $872,539 for the
three and six months ended June 30, 2006, respectively.
NOTE
6 - STOCKHOLDERS’ EQUITY
COMMON
STOCK
In
June
2007, we committed to issue a total of 562,500 restricted shares of common
stock
to our outside director, at the closing price as of June 29, 2007 ($0.032),
in
lieu of cash payments of amounts accrued for services as a member of our board
from the period of October 1, 2006 through June 30, 2007. This issuance was
valued at $18,000.
COMMON
STOCK OPTIONS
In
April
2007, 50,000 vested stock options with an exercise price of $0.11, related
to a
former employee, expired unexercised. We did not grant any options or other
stock-based awards to the individual for which the options expired, during
the
six months prior to and after the option expirations.
COMMON
STOCK WARRANTS
In
May
2007, a warrant to purchase up to 600,000 restricted shares of our common stock
with an exercise price of $0.15 per share expired unexercised. See Note
5.
In
June
2007, a warrant to purchase up to 250,000 restricted shares of our common stock
with an exercise price of $0.10 per share expired unexercised.
NOTE
7 - INCOME TAXES
The
provision (benefit) for taxes on net loss for the three and six months ended
June 30, 2007 and 2006 consisted of the following:
|
|
Three
Months
|
Six
Months
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Current:
|
Federal
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
$
|
---
|
|
State
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
---
|
|
Deferred:
|
Federal
|
|
|
(7,375
|
)
|
|
(3,956
|
)
|
|
(10,225
|
)
|
|
27,888
|
|
State
|
|
|
100
|
|
|
(1,400
|
)
|
|
125
|
|
|
(2,436
|
)
|
|
|
|
(7,275
|
)
|
|
(5,356
|
)
|
|
(10,100
|
)
|
|
25,452
|
|
Total
tax provision (benefit)
|
|
$
|
(7,275
|
)
|
$
|
(5,356
|
)
|
$
|
(10,100
|
)
|
$
|
25,452
|
|
NOTE
8 - 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 June 30,
|
|
|
2007
|
|
|
2006
|
|
Net
income (loss)
|
|
$ |
(343,552
|
)
|
$
|
861,658
|
|
Preferred
stock dividends
|
|
|
---
|
|
|
---
|
|
Net
income (loss) available to common shareholders
|
|
$ |
(343,552
|
)
|
$
|
861,658
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
49,794,498
|
|
|
49,558,317
|
|
Dilutive
effect of:
|
Stock
options
|
|
|
---
|
|
|
672,554
|
|
Warrants
|
|
|
---
|
|
|
166,368
|
|
Diluted
weighted average shares outstanding
|
|
|
49,794,498
|
|
|
50,397,239
|
|
For
the Six Months Ended June 30,
|
|
|
2007
|
|
|
2006
|
|
Net
loss
|
|
$ |
(349,233
|
)
|
$ |
(25,138
|
)
|
Preferred
stock dividends
|
|
|
---
|
|
|
---
|
|
Net
loss available to common shareholders
|
|
$ |
(349,233
|
)
|
$ |
(25,138
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
49,791,425
|
|
|
49,162,163
|
|
Dilutive
effect of:
|
Stock
options
|
|
|
---
|
|
|
---
|
|
Warrants
|
|
|
---
|
|
|
---
|
|
Diluted
weighted average shares outstanding
|
|
|
49,791,425
|
|
|
49,162,163
|
|
NOTE
9 - 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 ($21,745
included in Other current liabilities at June 30, 2007), bonuses ($30,542
included in other current liabilities at June 30, 2007), and any vested deferred
vacation compensation ($37,125 included in other current liabilities at June
30,
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
10 - 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
11 - SUBSEQUENT EVENTS
In
July
2007, we amended an agreement with a business development consultant to provide
for additional compensation of warrants to purchase up to 2,300,000 shares
of
common stock at $0.032 per share. The agreement provides that warrants to
purchase up to 1,300,000 shares of common stock vest on August 31, 2007 and
warrants to purchase up to 1,000,000 shares of common stock vest on January
1,
2008.
In
July
2007, we entered into a stock subscription agreement with a business development
consultant for the sale of 1,300,000 shares of common stock at a price of $0.025
per share. We realized $32,500 from this subscription.
As
of
August 14, 2007, we have received a letter of interest from a potential buyer
of
one of our top software titles. We are currently unable to determine if the
price is reasonable relative to its current fair value. In addition, the letter
of interest does not provide for any legally enforceable provisions, such as
a
firm purchase commitment, and therefore, we have not determined the asset sale
to be probable. SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets requires all of six criteria be met before classifying a
long-lived asset as “held for sale”. We have not classified this asset as “held
for sale” at June 30, 2007 due to the failure of the two criteria mentioned
above.
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 second quarter of 2007, we continued to concentrate on our core products,
QuickVerse®
and
Membership Plus®,
and
their technological features in order to meet our development schedule and
our
annual upgrade releases for these product lines. Furthermore, we continued
to
focus on expanding the content available for our QuickVerse®
products. We released the following two new reference collections for
QuickVerse®
(Windows) users:
|
▪
|
Theological
Dictionary of the New Testament: Abridged®,
commonly known as “Little Kittel”, which details more than 2,300
theologically significant New Testament words with a retail price
of
$59.95; and
|
|
▪
|
Word
Studies in the Greek New Testament®,
which comes in a three volume set and provides a wealth of knowledge
and
insight on the majority of the Greek New Testament with a retail
price of
$59.95.
|
During
the first quarter of 2007, as part of our ongoing partnership with Thomas Nelson
Publishers®,
we
released the Nelson Reference Collection®
for
QuickVerse®
(Windows) users at a retail price of $129.95. In addition, we released
QuickVerse®
2007
Macintosh which is available in the following three editions:
|
▪
|
QuickVerse®
Macintosh White Box Edition, which includes 10 Bibles and 45 reference
titles with a retail price of $59.95;
|
|
▪
|
QuickVerse®
Macintosh Black Box Edition, which includes 15 Bibles and 66 reference
titles with a retail price of $129.95; and
|
|
▪
|
QuickVerse®
Macintosh Gold Box Edition, which includes 22 Bibles and 158 reference
titles with a retail price of $349.95.
|
Comparatively,
during the first six months of 2006, we released the following:
|
▪
|
QuickVerse®
2006 Macintosh Gold Edition with a retail price of
$349.95;
|
|
▪
|
the
Holman Christian Standard Bible®
with a retail price of $29.95;
|
|
▪
|
QuickVerse®
2006 Parable Edition with a retail price of $49.95; and
|
|
▪
|
QuickVerse®
2006 Bible Suite with a retail price of
$29.95.
|
Despite
our decreased net revenues during the six months ended June 30, 2007, we were
able to considerably decrease our total operating expenses while reducing our
sales and marketing costs as well as 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 Six Months Ending June 30,
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
%
|
|
Net
revenues
|
|
$
|
1,758,331
|
|
$
|
1,760,070
|
|
$
|
(1,739
|
)
|
|
0
|
%
|
Cost
of sales
|
|
|
776,875
|
|
|
969,386
|
|
|
(192,511
|
)
|
|
20
|
%
|
Gross
profit
|
|
$
|
981,456
|
|
$
|
790,684
|
|
$
|
190,772
|
|
|
24
|
%
|
Total
operating expenses
|
|
|
(1,379,259
|
)
|
|
(1,603,564
|
)
|
|
224,305
|
|
|
14
|
%
|
Loss
from operations
|
|
$
|
(397,803
|
)
|
$
|
(812,880
|
)
|
$
|
415,077
|
|
|
51
|
%
|
Other
expenses
|
|
|
(15,275
|
)
|
|
(10,031
|
)
|
|
(5,244
|
)
|
|
52
|
%
|
Registration
rights penalties
|
|
|
---
|
|
|
(49,314
|
)
|
|
49,314
|
|
|
100
|
%
|
Gain
on fair value adjustment of derivatives
|
|
|
53,745
|
|
|
872,539
|
|
|
(818,794
|
)
|
|
94
|
%
|
Income
(loss) before income taxes
|
|
$
|
(359,333
|
)
|
$
|
314
|
|
$
|
(359,647
|
)
|
|
114,537
|
%
|
Income
tax (provision) benefit
|
|
|
10,100
|
|
|
(25,452
|
)
|
|
35,552
|
|
|
140
|
%
|
Net
loss
|
|
$
|
(349,233
|
)
|
$
|
(25,138
|
)
|
$
|
(324,095
|
)
|
|
1,289
|
%
|
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.
Although
our net revenues decreased slightly, our gross profit increased for the six
months ended June 30, 2007 due to reduced cost of sales. We incurred a loss
from
operations of approximately $398,000 for the six months ended June 30, 2007,
which represents an improvement of approximately $415,000 from our loss from
operations of approximately $813,000 for the six months ended June 30, 2006.
However, our net loss for the six months ended June 30, 2007 increased
approximately $324,000 to a net loss of approximately $349,000 compared to
a net
loss of approximately $25,000 for the six months ended June 30, 2006.
The
differing results of operations are primarily attributable to the
following:
|
▪
|
a
decrease in cost of sales for the six months ended June 30, 2007
due
primarily to decreased amortization of software development costs;
|
|
▪
|
a
decrease in total operating expenses for the six months ended June
30,
2007 arising from decreased sales, marketing, general and administrative
costs;
|
|
▪
|
a
decrease in registration rights penalties for the six months ended
June
30, 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; and
|
|
▪
|
a
decrease in our gain related to the fair value adjustment of derivatives
for the six months ended June 30, 2007 due to expired warrants and
a
decrease in the estimated life of the remaining
warrants.
|
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. 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. Shipping and handling costs in connection
with
our software products are expensed as incurred and included in cost of sales.
Revenues
for Six Months Ending June 30,
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
Gross
revenues
|
|
$
|
1,980,108
|
|
|
100
|
%
|
|
$
|
1,882,698
|
|
|
100
|
%
|
|
$
|
97,410
|
|
|
5
|
%
|
Less
reserves and allowances
|
|
|
(221,777
|
)
|
|
11
|
%
|
|
|
(122,628
|
)
|
|
7
|
%
|
|
|
(99,149
|
)
|
|
81
|
%
|
Net
revenues
|
|
$
|
1,758,331
|
|
|
|
%
|
|
$
|
|
|
|
|
%
|
|
$ |
(1,739
|
)
|
|
86
|
%
|
Gross
revenues increased for the six months ended June 30, 2007, which was primarily
attributable to the liquidation sales of our QuickVerse®
2006
product line (Windows and Macintosh editions), 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. In addition, we continue to
release new content each quarter for our QuickVerse®
products.
During
each of the six months ended June 30, 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.
Our
reserves for sales returns and allowances increased for the six months ended
June 30, 2007, and as a percentage of gross revenues, reserves for sales returns
and allowances also increased. 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 instance, we
experienced an increase in sales returns and allowances for the six months
ended
June 30, 2007 due to Membership Plus®
2007
shipping in mid October 2006. Further, for the six months ended June 30, 2007,
we increased our reserves for sales returns as we have experienced a delay
in
our receivable collections from our liquidation sales which could potentially
result in increased actual returns in the future.
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 Six Months Ending June 30,
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
Direct
costs
|
|
$
|
267,051
|
|
|
13
|
%
|
|
$
|
254,328
|
|
|
14
|
%
|
|
$
|
12,723
|
|
|
5
|
%
|
Less
reserve for sales returns and allowances
|
|
|
(33,465
|
)
|
|
2
|
%
|
|
|
(18,165
|
)
|
|
1
|
%
|
|
|
(15,300
|
)
|
|
84
|
%
|
Amortization
of software development costs
|
|
|
160,433
|
|
|
8
|
%
|
|
|
457,598
|
|
|
24
|
%
|
|
|
(297,165
|
)
|
|
65
|
%
|
Royalties
|
|
|
254,800
|
|
|
13
|
%
|
|
|
161,627
|
|
|
9
|
%
|
|
|
93,173
|
|
|
58
|
%
|
Freight-out
|
|
|
79,840
|
|
|
4
|
%
|
|
|
52,109
|
|
|
3
|
%
|
|
|
27,731
|
|
|
53
|
%
|
Fulfillment
|
|
|
48,216
|
|
|
2
|
%
|
|
|
61,889
|
|
|
3
|
%
|
|
|
(13,673
|
)
|
|
22
|
%
|
Cost
of sales
|
|
$
|
776,875
|
|
|
39
|
%
|
|
$
|
969,386
|
|
|
51
|
%
|
|
$ |
(192,511
|
)
|
|
20
|
%
|
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. Cost of sales decreased for the six months
ended June 30, 2007, and decreased as a percentage of gross revenues. The
overall decrease is predominantly attributable to decreased amortization of
software development costs. The large amount of amortization of software
development costs recognized during the six months ended June 30, 2006 resulted
primarily from the continual amortization of QuickVerse®
2006
Macintosh (released June 2005) and QuickVerse®
2006
Windows (released September 2005). QuickVerse®
2006
Macintosh was our first product produced on the Macintosh platform; and
therefore, the amount of capitalized development costs recognized for that
specific development project was quite significant as compared to our
development projects on the Windows platform.
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 for the six months ended June 30, 2007, which is a direct result
of our deliberate initiatives to decrease our reliance on a third-party
warehouse as we began operating our own fulfillment center as of June
2007.
Freight
costs increased for the six months ended June 30, 2007 as a direct result 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 for the
six
months ended June 30, 2007. as a result of the following:
|
▪
|
A
year over year increase in year-end liquidation sales of prior year
editions of QuickVerse®
(Windows and Macintosh editions);
|
|
▪
|
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 for
|
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Beginning
balance
|
|
$
|
493,981
|
|
$
|
586,170
|
|
$
|
491,695
|
|
$
|
707,067
|
|
Capitalized
|
|
|
81,745
|
|
|
175,149
|
|
|
191,450
|
|
|
238,380
|
|
Amortized
(Cost of sales)
|
|
|
(53,014
|
)
|
|
(273,470
|
)
|
|
(160,433
|
)
|
|
(457,598
|
)
|
Ending
Balance
|
|
$
|
522,712
|
|
$
|
487,849
|
|
$
|
522,712
|
|
$
|
487,849
|
|
Research
and development expense (General and administrative)
|
|
$
|
30,988
|
|
$
|
31,388
|
|
$
|
60,569
|
|
$
|
83,620
|
|
Our
software development costs for the three and six months ended June 30, 2007
and
2006 are summarized in the table above. The relative decrease in capitalized
costs reflects an increased efficiency from our development staff (including
internal and external developers) as our development projects for the six months
ended June 30, 2007 focused on the annual releases of QuickVerse®,
Membership Plus®
and new
content for our QuickVerse®
products. The relative decrease in amortization reflects the overall reduction
in the number of products released during the year ended December 31, 2006
as
well as the amortization recognized for QuickVerse®
2006
Macintosh, our first product produced on the Macintosh platform, brought to
an
end.
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 Six Months Ending June
30,
|
|
|
2007
|
|
|
%
to Sales
|
|
|
|
2006
|
|
|
%
to Sales
|
|
|
|
Change
|
|
|
%
|
|
Selected
expenses:
|
Commissions
|
|
$
|
109,723
|
|
|
6
|
%
|
|
$
|
111,096
|
|
|
6
|
%
|
|
$
|
(1,373
|
)
|
|
1
|
%
|
Advertising
and direct marketing
|
|
|
92,802
|
|
|
5
|
%
|
|
|
94,235
|
|
|
5
|
%
|
|
|
(1,433
|
)
|
|
2
|
%
|
Sales
and marketing wages, reclassified
|
|
|
135,276
|
|
|
7
|
%
|
|
|
182,130
|
|
|
10
|
%
|
|
|
(46,854
|
)
|
|
26
|
%
|
Total
sales and marketing
|
|
$
|
337,801
|
|
|
17
|
%
|
|
$
|
387,461
|
|
|
21
|
%
|
|
$
|
(49,660
|
)
|
|
13
|
%
|
Research
and development
|
|
$
|
60,569
|
|
|
3
|
%
|
|
$
|
83,620
|
|
|
4
|
%
|
|
$
|
(23,051
|
)
|
|
28
|
%
|
Personnel
costs
|
|
|
354,448
|
|
|
18
|
%
|
|
|
409,730
|
|
|
22
|
%
|
|
|
(55,282
|
)
|
|
13
|
%
|
Legal
|
|
|
25,809
|
|
|
1
|
%
|
|
|
57,434
|
|
|
3
|
%
|
|
|
(31,625
|
)
|
|
55
|
%
|
Accounting
|
|
|
56,693
|
|
|
3
|
%
|
|
|
41,005
|
|
|
2
|
%
|
|
|
15,688
|
|
|
38
|
%
|
Corporate
services
|
|
|
20,000
|
|
|
1
|
%
|
|
|
36,000
|
|
|
2
|
%
|
|
|
(16,000
|
)
|
|
44
|
%
|
Investor
services
|
|
|
8,125
|
|
|
0
|
%
|
|
|
33,750
|
|
|
2
|
%
|
|
|
(25,625
|
)
|
|
76
|
%
|
Other
general and administrative costs
|
|
|
212,165
|
|
|
11
|
%
|
|
|
263,143
|
|
|
14
|
%
|
|
|
(50,978
|
)
|
|
19
|
%
|
Total
general and administrative
|
|
$
|
737,809
|
|
|
37
|
%
|
|
$
|
924,682
|
|
|
49
|
%
|
|
$
|
(186,873
|
)
|
|
20
|
%
|
Total
sales, marketing, general and administrative
|
|
$
|
1,075,610
|
|
|
54
|
%
|
|
$
|
1,312,143
|
|
|
70
|
%
|
|
$
|
(236,533
|
)
|
|
18
|
%
|
As
gross
revenues increased for the six months ended June 30, 2007, total sales, general
and administrative costs decreased. Of the total sales, marketing, general
and
administrative costs, sales and marketing expenses decreased for the six months
ended June 30, 2007, which is mainly attributed to a decrease in the sales
and
marketing wages as a result of streamlining our CBA sales team. However, 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. Commissions and advertising and direct marketing expenses
remained relatively stable as we continually monitor these items in relation
to
our gross revenues. 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.
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). The decrease in
software development costs related to third-party developers and direct labor
expensed as research and development reflects an increase in research and
development costs that were capitalized for the six months ended June 30, 2007
as compared to the six months ended June 30, 2006 as well as a decrease in
the
non-capitalized software development wages for the corresponding periods.
Research and development expenses are expected to increase in future periods
as
we 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.
In
addition to the decrease in total net personnel costs, gross direct salaries
and
wages, before adjustments of capitalized wages and reclassifications, decreased
approximately $117,000, from approximately $778,000 for the six months ended
June 30, 2006 to approximately $661,000 for the six months ended June 30, 2007.
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. Due to a cost cutting
initiative in late 2006, we also lost our Vice President of Sales and Marketing
and an individual on our product development staff. Further, as a percentage
of
gross revenues, direct salaries and wages decreased approximately 8% from
approximately 41% for the six months ended June 30, 2006 to approximately 33%
for the six months ended June 30, 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 $58,000 for the six months ended June 30, 2006 to approximately
$51,000 for the six months ended June 30, 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 for the six months ended June 30, 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 increased for the six months ended June 30, 2007,
which is attributable principally to an increased fee from our principal
accounting firm as compared to our previous principal accounting firm as well
as
our recent completion of our 2006 annual audit. It is anticipated that
accounting costs will continue at these levels as we utilize the same principal
accounting firm on an ongoing basis and as we prepare to become fully compliant
with Sarbanes-Oxley Section 404.
Corporate
service fees decreased for the six months ended June 30, 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 June 2008.
Finally,
investor services fees decreased for the six months ended June 30, 2007 as
we
had terminated an investor relations service agreement that initiated in April
2006. These fees incurred from April 2006 through March 2007 were 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. Fees payable to this service provider have
ceased.
Registration
Rights Penalties
The
results of operations for the six months ended June 30, 2006 include an increase
in our net loss due to having accrued registration rights penalties that were
in
connection with a 2004 private placement transaction.
Derivatives
At
June
30, 2007, the fair value of the derivative liability associated with warrants
issued in November 2004 was approximately $473,000. Fair value adjustments
have
been included in other income for the six months ended June 30, 2007 and 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, included in other operating expenses, decreased approximately $2,000
from approximately $266,000 for the six months ended June 30, 2006 to
approximately $264,000 for the six months ended June 30, 2007. 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. However, the slight
decrease in the amortization expense for the six months ended June 30, 2007
reflects the conclusion of the amortization of our website.
Income
Tax Benefits
Our
effective tax rate differs from the statutory federal rate due to the following
differences between income and expense recognition prescribed by the Internal
Revenue Code and Generally Accepted Accounting Principles:
|
▪
|
Different
methods and useful lives for depreciating property and equipment;
and
|
|
▪
|
changes
in estimates (reserves) recognized as expense for financial reporting
but
not deductible for income tax
purposes.
|
We
have
recognized deferred tax assets from estimated future tax benefits related to
the
timing of income tax deductions primarily from the following items:
|
▪
|
Sales
returns and allowances;
|
|
▪
|
accrued
payroll; and
|
|
▪
|
net
operating loss carryforwards.
|
We
have
established a valuation allowance against the deferred tax assets based on
our
estimate of how much benefit we will eventually realize in future periods,
primarily from the net operating loss carryforwards.
We
have
recognized deferred tax liabilities from estimated future tax liabilities
related to the timing of income tax deductions primarily from the following
items:
|
▪
|
Software
license fees; and
|
|
▪
|
capitalized
software development costs.
|
We
have
reported our deferred tax assets and liabilities in a net current and a net
non-current amount as follows:
|
▪
|
Net
current deferred tax asset - Federal and State (approximately $101,000
included in other current assets);
|
|
▪
|
net
non-current deferred tax asset - Federal (approximately $452,000
included
in other assets); and
|
|
▪
|
net
non-current deferred tax liability - State (approximately $1,200
included
in long-term obligations).
|
Realization
of our net deferred tax assets depends on generating future taxable income.
Our
net
income tax benefit of approximately $10,000 for the six months ended June 30,
2007 results primarily from our anticipated utilization of net operating loss
carryforwards, and the related effect in the valuation allowance for future
tax
benefits, and management’s estimate of changes to the book and tax basis
differences of the following items from their December 31, 2006 basis
differences:
|
▪
|
Reserve
for sales returns;
|
|
▪
|
accrued
payroll;
|
|
▪
|
software
license fees; and
|
|
▪
|
capitalized
software development costs.
|
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 June 30,
|
|
|
2007
|
|
Current
assets
|
|
$
|
630,853
|
|
Current
liabilities
|
|
$
|
2,534,828
|
|
Retained
deficit
|
|
$
|
7,447,630
|
|
As
of
June 30, 2007, we had approximately $631,000 in current assets and approximately
$2,535,000 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
June 30, 2007, we had a retained deficit of approximately $7,448,000. We had
a
loss before income taxes of approximately $359,000 and a net loss after income
taxes of approximately $349,000 for the six months ended June 30, 2007. For
the
six months ended June 30, 2007, we had a gain of approximately $54,000 from
the
fair value adjustment of derivatives. See “Results Of Operations” above.
Cash
Flows for Six Months Ended June 30,
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
%
|
|
Cash
flows provided by operating activities
|
|
$
|
243,763
|
|
$
|
192,220
|
|
$
|
51,543
|
|
|
27
|
%
|
Cash
flows (used) by investing activities
|
|
$
|
(243,974
|
)
|
$
|
(254,033
|
)
|
$
|
10,059
|
|
|
4
|
%
|
Cash
flows (used) by financing activities
|
|
$
|
(45,009
|
)
|
$
|
(27,228
|
)
|
$
|
(17,781
|
)
|
|
65
|
%
|
The
increase in net cash provided by operating activities for the six months ended
June 30, 2007 was primarily due to a short-term relative imbalance in payments
made to content providers and vendors as compared to receivables
collected.
The
decrease in net cash used by investing activities for the six months ended
June
30, 2007 was mainly the result of our having capitalized less costs associated
with software development. However, during the six months ended June 30, 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.
The
increase in net cash used by financing activities for the six months ended
June
30, 2007 was due to an increase in payments made on long-term notes payable.
It
should
be noted that due to our low available cash balance at the end of June 2007,
normal check runs were delayed until our available cash balance increased in
July 2007.
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
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
June
30, 2007, the future minimum rental payments required under these leases are
as
follows:
2007
|
|
$
|
45,017
|
|
2008
|
|
|
90,034
|
|
2009
|
|
|
78,993
|
|
2010
|
|
|
63,883
|
|
2011
|
|
|
54,339
|
|
2012
|
|
|
23,335
|
|
Total
future minimum rental payments
|
|
$
|
355,601
|
|
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 June 30, 2007 for each of
the
next three years and in the aggregate are:
2007
|
|
$
|
6,863
|
|
2008
|
|
|
13,726
|
|
2009
|
|
|
12,582
|
|
Total
minimum lease payments
|
|
$
|
33,171
|
|
(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 committee
and
provided to the 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 June 30,
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.
Date
Securities Issued
|
|
|
Securities
Title
|
|
|
Issued
to
|
|
|
Number
of Securities Issued
|
|
|
Consideration
|
|
|
Footnotes
|
|
Common
Stock Issuances
|
Issued
for compensation to independent board of
directors
|
6/29/2007
|
|
|
Common
Stock
|
|
|
John
Kuehne
|
|
|
562,500
|
|
$
|
18,000
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold
for cash
|
7/14/2007
|
|
|
Common
Stock
|
|
|
Gordon
Landies
|
|
|
1,300,000
|
|
$
|
32,500
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
Consideration is calculated to be the value of the security at the
date of
issuance.
|
(B)
$32,500 ($0.025 per share) total offering price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrant Issuances
|
Issued
for compensation to independent
contractor
|
7/9/2007
|
|
|
Common
Stock
|
|
|
GL
Ventures, LLC
|
|
|
2,300,000
|
|
$
|
48,160
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
Issued as compensation for corporate business planning, financing
and
merger and acquisition assistance.
|
We
relied
in each case for these unregistered sales on the private offering exemption
of
Section 4(2) of the Securities Act and/or the private offering safe harbor
provision of Rule 506 of Regulation D promulgated thereunder based on the
following factors: (i) the number of offerees or purchasers, as applicable,
(ii)
the absence of general solicitation, (iii) representations obtained from the
acquirors relative to their accreditation and/or sophistication (or from offeree
or purchaser representatives, as applicable), (iv) the provision of appropriate
disclosure, and (v) the placement of restrictive legends on the certificates
reflecting the securities coupled with investment representations obtained
from
the acquirors.
There
were no reportable events under this Item 3 during the quarterly period ended
June 30, 2007.
No
matters were submitted to a vote of our stockholders during the quarterly period
ended June 30, 2007.
Our
Annual Meeting of the Stockholders of Findex.com, Inc., previously scheduled
to
be held on September 21, 2007, has been rescheduled for November 9,
2007.
There
were no reportable events under this Item 5 during the quarterly period ended
June 30, 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 August 17, 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 August 17, 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 August 17,
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 August 17,
2007.
FILED HEREWITH.
|
|
|
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.
|
|
FINDEX.COM,
INC.
|
|
|
|
|
|
Date:
August 17, 2007
|
By
|
/s/
Steven Malone
|
|
|
|
Steven
Malone
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
August 17, 2007
|
By
|
/s/
Kirk R. Rowland
|
|
|
|
Kirk
R. Rowland, CPA
|
|
|
|
Chief
Financial Officer
|
|