UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
Amendment
No. 1
(Mark
One)
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended March 31, 2005.
|
[_]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ________ to _________.
Commission
File Number: 0-29963
FINDEX.COM,
INC.
(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.)
|
|
11204
Davenport Street, Suite 100, Omaha, Nebraska
|
68154
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(402)
333-1900
(Issuer’s
telephone number, including area code)
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 [_]
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS
Check
whether the registrant filed all documents and reports required to be filed
by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes
[_] No [_]
APPLICABLE
ONLY TO CORPORATE ISSUERS
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 48,619,855 common shares as of August
19, 2005.
Transitional
Small Business Disclosure Format (check one): Yes
[_] No [X]
|
Page
Number
|
|
|
F-1
|
|
|
1
|
|
|
6
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
7
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||
|
(Unaudited)
|
|||||||
|
|
|||||||
|
|
March
31, 2005
|
||||||
|
|
(Restated)
|
||||||
|
Assets
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
283,141
|
|||||
|
Accounts
receivable, trade
|
517,242
|
||||||
|
Inventory
|
248,047
|
||||||
|
Other
current assets
|
351,193
|
||||||
|
Total
current assets
|
1,399,623
|
||||||
|
Property
and equipment, net
|
140,800
|
||||||
|
Software
license, net
|
2,139,907
|
||||||
|
Capitalized
software development costs, net
|
783,250
|
||||||
|
Restricted
cash
|
50,354
|
||||||
|
Other
assets
|
382,521
|
||||||
|
Total
assets
|
$
|
4,896,455
|
|||||
|
|
|||||||
|
Liabilities
and stockholders’ equity
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable, trade
|
$
|
506,852
|
|||||
|
Accrued
royalties
|
253,744
|
||||||
|
Other
current liabilities
|
473,609
|
||||||
|
Total
current liabilities
|
1,234,205
|
||||||
|
Long-term
obligations
|
189,698
|
||||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders’
equity:
|
|||||||
|
Common
stock
|
48,620
|
||||||
|
Paid-in
capital
|
9,198,417
|
||||||
|
Retained
(deficit)
|
(5,774,485
|
)
|
|||||
|
Total
stockholders’ equity
|
3,472,552
|
||||||
|
Total
liabilities and stockholders’ equity
|
$
|
4,896,455
|
|||||
|
|
|||||||
|
See
accompanying notes.
|
|||||||
|
Findex.com,
Inc.
|
|||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||||||
|
(Unaudited)
|
|||||||
|
|
|||||||
|
Three
Months Ended March 31
|
2005
|
2004
|
|||||
|
|
|
|
(Restated)
|
(Restated)
|
|||
|
Revenues,
net of reserves and allowances
|
$
|
1,677,414
|
$
|
1,566,393
|
|||
|
Cost
of sales
|
508,785
|
468,659
|
|||||
|
Gross
profit
|
1,168,629
|
1,097,734
|
|||||
|
Operating
expenses:
|
|||||||
|
Sales
and marketing
|
427,447
|
242,599
|
|||||
|
General
and administrative
|
635,718
|
555,679
|
|||||
|
Other
operating expenses
|
146,421
|
137,952
|
|||||
|
Total
operating expenses
|
1,209,586
|
936,230
|
|||||
|
Earnings
(loss) from operations
|
(40,957
|
) |
161,504
|
||||
|
Other
expenses, net
|
(3,856
|
)
|
(14,330
|
)
|
|||
|
Income
(loss) before income taxes
|
(44,813
|
)
|
147,174
|
||||
|
Provision
for income taxes
|
149,489
|
(30,311
|
)
|
||||
|
Net
income
|
104,676
|
116,863
|
|||||
|
Retained
deficit at beginning of year
|
(5,879,161
|
)
|
(7,255,023
|
)
|
|||
|
Retained
deficit at end of period
|
$
|
(5,774,485
|
)
|
$
|
(7,138,160
|
)
|
|
|
|
|||||||
|
Net
earnings per share:
|
|||||||
|
Basic
|
$
|
---
|
$
|
0.01
|
|||
|
Diluted
|
$
|
---
|
$
|
0.01
|
|||
|
|
|||||||
|
Weighted
average shares outstanding:
|
|||||||
|
Basic
|
48,619,855
|
21,011,438
|
|||||
|
Diluted
|
49,350,801
|
22,965,438
|
|||||
|
|
|||||||
|
See
accompanying notes.
|
|||||||
|
Findex.com,
Inc.
|
|||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
|
(Unaudited)
|
|||||||
|
|
|||||||
|
Three
Months Ended March 31
|
2005
|
2004
|
|||||
|
(Restated)
|
(Restated)
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Cash
received from customers
|
$
|
1,707,292
|
$
|
1,481,382
|
|||
|
Cash
paid to suppliers and employees
|
(1,456,683
|
)
|
(1,385,164
|
)
|
|||
|
Other
operating activities, net
|
(3,076
|
)
|
(13,921
|
)
|
|||
|
Net
cash provided by operating activities
|
247,533
|
82,297
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
Software
development costs
|
(264,649
|
)
|
(73,628
|
)
|
|||
|
Other
investing activities, net
|
(14,581
|
)
|
(18,674
|
)
|
|||
|
Net
cash (used) by investing activities
|
(279,230
|
)
|
(92,302
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from line of credit, net
|
---
|
16,605
|
|||||
|
Payments
made on long-term notes payable
|
(26,521
|
)
|
(17,684
|
)
|
|||
|
Net
cash (used) by financing activities
|
(26,521
|
)
|
(1,079
|
)
|
|||
|
Net
(decrease) in cash and cash equivalents
|
(58,218
|
)
|
(11,084
|
)
|
|||
|
Cash
and cash equivalents, beginning of year
|
341,359
|
142,022
|
|||||
|
Cash
and cash equivalents, end of period
|
$
|
283,141
|
$
|
130,938
|
|||
|
|
|||||||
|
Reconciliation
of net income to cash flows from operating activities:
|
|||||||
|
Net
income
|
$
|
104,676
|
$
|
116,863
|
|||
|
Adjustments
to reconcile net income to net cash provided
by operating activities:
|
|||||||
|
Software
development costs amortized
|
182,688
|
152,213
|
|||||
|
Provision
for bad debts
|
653
|
2,500
|
|||||
|
Depreciation
& amortization
|
145,768
|
135,452
|
|||||
|
Loss
on disposal of property, plant and equipment
|
1,715
|
---
|
|||||
|
Change
in assets and liabilities:
|
|||||||
|
(Increase)
decrease in accounts receivable
|
48,924
|
(80,478
|
)
|
||||
|
(Increase)
decrease in inventories
|
(14,047
|
)
|
99,600
|
||||
|
(Increase)
decrease in prepaid expenses
|
51,841
|
(1,750
|
)
|
||||
|
(Decrease)
in accrued royalties
|
(33,770
|
)
|
(100,436
|
)
|
|||
|
(Decrease)
in accounts payable
|
(114,952
|
)
|
(251,996
|
)
|
|||
|
Increase
in income taxes payable
|
180
|
---
|
|||||
|
Increase
(decrease) in deferred taxes
|
(149,669
|
)
|
30,311
|
||||
|
Increase
(decrease) in other liabilities
|
23,526
|
(19,982
|
)
|
||||
|
Net
cash provided by operating activities
|
$
|
247,533
|
$
|
82,297
|
|
||
|
|
|||||||
|
See
accompanying notes.
|
|||||||
Findex.com,
Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2005
(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/A for
the
fiscal year ended December 31, 2004.
USE
OF ESTIMATES
The
preparation of consolidated financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and the
accompanying notes. Significant estimates used in the consolidated financial
statements include the estimates of (i) doubtful accounts, sales returns,
price
protection and rebates, (ii) provision for income taxes and realizability
of the
deferred tax assets, (iii) the life and realization of identifiable intangible
assets, and (iv) provisions for obsolete inventory. The amounts we will
ultimately incur or recover could differ materially from current
estimates.
RESTRICTED
CASH
Restricted
cash represents cash held in reserve by our merchant banker to allow for
a
potential increase in credit card chargebacks from increased consumer purchases.
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 (Restated)
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. The software license is being amortized over
a 10
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 $2,013,383, less accumulated
amortization of $1,230,133 at March 31, 2005.
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,
establishes 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 $37,080 and $16,174 for the three months ended March 31, 2005 and
2004,
respectively.
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 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 $89,140,
less
accumulated amortization of $25,799
at
March
31,
2005.
NET
REVENUE (Restated)
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, 2005
and 2004
and maintain a reserve for rebate claims remaining unpaid from
2000.
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 service, 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, e-mail 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 the 2004
financial statements have been reclassified for comparative purposes to conform
with the presentation in the 2005
financial statements.
NOTE
2 - INVENTORIES
At
March
31,
2005,
inventories consisted of the following:
|
Raw
materials
|
$
|
134,070
|
||
|
Finished
goods
|
113,977
|
|||
|
Inventories
|
$
|
248,047
|
During
the three months ended March 31, 2004, we wrote-off obsolete inventory
with a
carried cost totaling $32,396. This has been included in cost of sales.
NOTE
3 - INCOME TAXES (Restated)
The
provision (benefit) for taxes on net income for the three months ended
March
31,
2005
and
2004
consisted of the following:
|
2005
|
2004
|
||||||
|
Current:
|
|||||||
|
Federal
|
$
|
---
|
$
|
---
|
|||
|
State
|
180
|
---
|
|||||
|
180
|
---
|
||||||
|
Deferred:
|
|||||||
|
Federal
|
(141,093
|
)
|
25,001
|
||||
|
State
|
(8,576
|
)
|
5,310
|
||||
|
(149,669
|
)
|
30,311
|
|||||
|
Total
tax provision (benefit)
|
$
|
(149,489
|
)
|
$
|
30,311
|
||
NOTE
4 - EARNINGS PER COMMON SHARE (Restated)
Earnings
per common share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding
during
the year. Common stock equivalents are the net additional number of shares
that
would be issuable upon the exercise of the outstanding common stock options
and
warrants, assuming that we reinvested the proceeds to purchase additional
shares
at market value.
The
following table shows the amounts used in computing earnings per common
share
and the effect on income and the average number of shares of dilutive potential
common stock:
|
For
the Three Months Ended March 31
|
2005
|
2004
|
|||||
|
Net
Income
|
$
|
104,676
|
$
|
116,863
|
|||
|
Preferred
stock dividends
|
---
|
---
|
|||||
|
Net
income available to common shareholders
|
$
|
104,676
|
$
|
116,863
|
|||
|
Basic
weighted average shares outstanding
|
48,619,855
|
21,011,438
|
|||||
|
Dilutive
effect of:
|
|||||||
|
Stock
options
|
480,790
|
---
|
|||||
|
Convertible
notes payable
|
---
|
1,800,000
|
|||||
|
Convertible
Preferred Series A
|
---
|
114,000
|
|||||
|
Convertible
Preferred Series B
|
---
|
40,000
|
|||||
|
Warrants
|
250,156
|
---
|
|||||
|
Diluted
weighted average shares outstanding
|
49,350,801
|
22,965,438
|
|||||
A
total
of 24,285,000 and 4,075,283 dilutive potential securities for the three
months
ended March 31, 2005 and 2004, respectively, have been excluded from the
computation of diluted earnings per common share, as their inclusion would
be
anti-dilutive.
NOTE
5 - COMMITMENTS AND CONTINGENCIES (Restated)
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
position.
Our
employment agreements with our management team each contain a provision
for an
annual bonus equal to 1% of our net income (3% total). We accrue this
bonus on a
quarterly basis.
In
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.
As
part
of a July 2004 financing transaction, we entered into a certain
Registration Rights Agreement with a New York based private investment
partnership pursuant to which we committed to registering all of the
shares
issued as part of such transaction, including those issuable under
each of the
two warrants. Under the terms of the Registration Rights Agreement,
as amended,
we had until November 12, 2004 to file a registration statement covering
the
shares already issued in the transaction, and we have another 150 days
thereafter to have caused such registration statement to become effective.
Upon
receipt of the requisite stockholder approval to increase the number
of
authorized common shares so as to be able to deliver the warrants,
which was
effectively obtained as of November 10, 2004 (and which increase was
effectuated
on November 10, 2004), we had 30 days in which to file a registration
statement
covering such shares (which was filed November 22, 2004), and another
150 days
thereafter to cause such registration statement to become effective.
Any delays
in meeting these obligations will result in our being liable to the
New York
based private investment partnership in an amount equal to $630,000
per year,
pro-rated as appropriate for the duration of any such delay.
NOTE
6 - 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 material available to
us,
operations could be adversely affected.
NOTE
7 - SUBSEQUENT EVENTS
As
of
April 22, 2005, this registration statement had not yet been declared effective.
Pursuant to an agreement reached with the New York based private investment
partnership in relation to the associated accruing penalties, we have agreed
to
pay the New York based private investment partnership an amount in cash
equal to
$100,000 in two equal installments of $50,000 between April 22, 2005 and
May 22,
2005, with no additional penalty obligations accruing for at least 60 days
from
April 22, 2005. Although there can be no assurance, management is hopeful
that
we will be to cause the registration statement to be declared effective
by June
21, 2005. If we are unsuccessful in causing the registration statement
to be
declared effective by the SEC by June 21, 2005, however, and depending
on how
long any such delay in causing effectiveness to be declared by the SEC
continues
thereafter, it is likely to have a very material adverse effect on our
business,
our financial condition, including liquidity and profitability, and
our
results of operations.
NOTE
8 - REVISION AND RECLASSIFICATION
The
company has revised its financial statements for the three months ended
March
31, 2005 to reflect changes in judgment resulting from a regulatory review
of
our financial statements associated with our Form SB-2 filing. There was
no net
effect on cash provided by operating activities or cash used by investing
and
financing activities as a result of these revisions.
During
the three month period ended June 30, 2002, we offset the remaining unpaid
installment of $1,051,785 under a certain software license we originally
acquired in July 1999 (the “software license”) from The Learning Company (“TLC”)
against the carrying amount of that software license in accordance with
the
terms of a tentative settlement agreement reached with TLC. Although paragraph
6
of SFAS No. 141, Business
Combinations,
which
guides the recognition and measurement of intangible assets, provides that
the
measurement of assets in which the consideration given is cash are measured
by
the amount of cash paid, we have determined that too much time had passed
between the date of the software license agreement (June 1999) and the
date of
the tentative settlement (May 2002) for such an offset to be proper. We
have
revised the consolidated balance sheet as of December 31, 2002 and the
consolidated statements of operations, stockholders’ equity, and cash flows for
the year then ended. This revision returned the software license to its
historical cost for determination of amortization and adjusted retained
earnings
for the prior year’s effects of the additional amortization and reclassification
of the debt extinguishment as revenue.
Also
during the three month period ended June 30, 2002, we extended the estimated
life of the software license from 10 years to 50 years in accordance with
the
terms of the tentative settlement agreement with TLC. During the year ended
December 31, 2003, we extended the estimated life of the software license
from
50 years to indefinite based on the terms of our final settlement with
The
Zondervan Corporation and TLC and our assessment of the estimated future
direct
and indirect cash flows from the software license, as provided by paragraphs
53
and 11 of SFAS No. 142, Goodwill
and Other Intangible Assets.
Although the software license provides for the unlimited and exclusive
use of
the trademarks related to the software programs, and management originally
assessed the useful life of the software license as indefinite, we have
determined that a 10 year life is appropriate based on the going concern
opinion
issued on our 2000 through 2003 financial statements. We have revised the
consolidated balance sheets as of December 31, 2002, 2003, and 2004 and
the
consolidated statements of operations, consolidated statements of stockholders’
equity, and consolidated statements of cash flows for the years then ended
to
reflect amortization of the software license agreement over a 10 year useful
life.
A
summary
of the effects of these changes is as follows:
|
Findex.com,
Inc.
|
||||||||||||||||
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
||||||||||||||||
|
March
31, 2005
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
|
||||||||||||||||
|
|
As
Previously Reported
|
As
Restated
|
Change
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Current
assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$
|
283,141
|
$
|
283,141
|
$
|
---
|
||||||||||
|
Accounts
receivable, trade
|
517,242
|
517,242
|
---
|
|||||||||||||
|
Inventory
|
248,047
|
248,047
|
---
|
|||||||||||||
|
Other
current assets
|
355,099
|
351,193
|
(3,906
|
)
|
(a
|
)
|
||||||||||
|
Total
current assets
|
1,403,529
|
1,399,623
|
(3,906
|
)
|
||||||||||||
|
Property
and equipment, net
|
140,800
|
140,800
|
---
|
|||||||||||||
|
Software
license, net
|
2,513,158
|
2,139,907
|
(373,251
|
)
|
(b
|
)
|
||||||||||
|
Capitalized
software development costs, net
|
783,250
|
783,250
|
---
|
|||||||||||||
|
Restricted
cash
|
50,354
|
50,354
|
---
|
|||||||||||||
|
Other
assets
|
417,854
|
382,521
|
(35,333
|
)
|
(a
|
)
|
||||||||||
|
Total
assets
|
$
|
5,308,945
|
$
|
4,896,455
|
$
|
(412,490
|
)
|
|||||||||
|
|
||||||||||||||||
|
Liabilities
and stockholders’
equity
|
||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||
|
Accounts
payable, trade
|
$
|
506,852
|
$
|
506,852
|
$
|
---
|
||||||||||
|
Accrued
royalties
|
253,744
|
253,744
|
---
|
|||||||||||||
|
Other
current liabilities
|
474,602
|
473,609
|
(993
|
)
|
(c
|
)
|
||||||||||
|
Total
current liabilities
|
1,235,198
|
1,234,205
|
(993
|
)
|
||||||||||||
|
Long-term
obligations
|
296,894
|
189,698
|
(107,196
|
)
|
(a | ) | ||||||||||
|
Commitments
and contingencies
|
||||||||||||||||
|
Stockholders’equity:
|
||||||||||||||||
|
Common
stock
|
48,620
|
48,620
|
---
|
|||||||||||||
|
Paid-in
capital
|
9,198,417
|
9,198,417
|
---
|
|||||||||||||
|
Retained
(deficit)
|
(5,470,184
|
)
|
(5,774,485
|
)
|
(304,301
|
)
|
||||||||||
|
Total
stockholders’
equity
|
3,776,853
|
3,472,552
|
(304,301
|
)
|
||||||||||||
|
Total
liabilities and stockholders’
equity
|
$
|
5,308,945
|
$
|
4,896,455
|
$
|
(412,490
|
)
|
|||||||||
|
|
||||||||||||||||
|
(a)
Decreased
deferred taxes from amortization of software license
agreement.
|
||||||||||||||||
|
(b)
Decrease
from additional amortization of software license
agreement.
|
||||||||||||||||
|
(c)
Decrease
in accrued management bonus resulting from additional amortization
of
software license agreement.
|
||||||||||||||||
|
Findex.com,
Inc.
|
||||||||||||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
|
Three
Months Ended March 31, 2005
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
|
||||||||||||||||
|
|
As
Previously Reported
|
As
Restated
|
Change
|
|||||||||||||
|
Revenues,
net of reserves and allowances
|
$
|
1,672,504
|
$
|
1,677,414
|
$
|
4,910
|
(a
|
)
|
||||||||
|
Cost
of sales
|
493,506
|
508,785
|
15,279
|
(b
|
)
|
|||||||||||
|
Gross
profit
|
1,178,998
|
1,168,629
|
(10,369
|
)
|
||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Sales
and marketing
|
437,816
|
427,447
|
(10,369
|
)
|
||||||||||||
|
General
and administrative
|
636,711
|
635,718
|
(993
|
)
|
(c
|
)
|
||||||||||
|
Other
operating expenses
|
20,544
|
146,421
|
125,877
|
(d
|
)
|
|||||||||||
|
Total
operating expenses
|
1,095,071
|
1,209,586
|
114,515
|
|||||||||||||
|
Earnings
(loss) from operations
|
83,927
|
(40,957
|
)
|
(124,884
|
)
|
|||||||||||
|
Other
expenses, net
|
(3,856
|
)
|
(3,856
|
)
|
---
|
|||||||||||
|
Income
(loss) before income taxes
|
80,071
|
(44,813
|
)
|
(124,884
|
)
|
|||||||||||
|
Provision
for income taxes
|
81,532
|
149,489
|
67,957
|
(e
|
)
|
|||||||||||
|
Net
income
|
$
|
161,603
|
$
|
104,676
|
$
|
(56,927
|
)
|
|||||||||
|
|
||||||||||||||||
|
Net
earnings per share:
|
||||||||||||||||
|
Basic
|
$
|
---
|
$
|
---
|
$
|
---
|
||||||||||
|
Diluted
|
$
|
---
|
$
|
---
|
$
|
---
|
||||||||||
|
|
||||||||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||
|
Basic
|
48,619,855
|
48,619,855
|
---
|
|||||||||||||
|
Diluted
|
49,350,801
|
49,350,801
|
---
|
|||||||||||||
|
|
||||||||||||||||
|
(a)
Increase
from reclassifying rebate reserve adjustment as an adjustment
to revenue
instead of an adjustment
to sales and marketing expenses.
|
||||||||||||||||
|
(b)
Increase
from reclassifying fulfillment expenses as cost of sales instead
of sales
and marketing expenses.
|
||||||||||||||||
|
(c)
Decrease
in accrued management bonus resulting from additional amortization
of
software license agreement.
|
||||||||||||||||
|
(d)
Increase from additional amortization of software license
agreement.
|
||||||||||||||||
|
(e)
Increase
in deferred tax benefits resulting from additional amortization
of
software license.
|
||||||||||||||||
|
Findex.com,
Inc.
|
||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||||||
|
Three
Months Ended March 31, 2005
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
|
||||||||||||||||
|
|
As
Previously Reported
|
As
Restated
|
Change
|
|||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||||||
|
Cash
received from customers
|
$
|
1,707,292
|
$
|
1,707,292
|
$
|
---
|
||||||||||
|
Cash
paid to suppliers and employees
|
(1,456,683
|
)
|
(1,456,683
|
)
|
---
|
|||||||||||
|
Other
operating activities, net
|
(3,076
|
)
|
(3,076
|
)
|
---
|
|||||||||||
|
Net
cash provided by operating activities
|
247,533
|
247,533
|
---
|
|||||||||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Software
development costs
|
(264,649
|
)
|
(264,649
|
)
|
---
|
|||||||||||
|
Other
investing activities, net
|
(14,581
|
)
|
(14,581
|
)
|
---
|
|||||||||||
|
Net
cash (used) by investing activities
|
(279,230
|
)
|
(279,230
|
)
|
---
|
|||||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Payments
made on long-term notes payable
|
(26,521
|
)
|
(26,521
|
)
|
---
|
|||||||||||
|
Net
cash (used) by financing activities
|
(26,521
|
)
|
(26,521
|
)
|
---
|
|||||||||||
|
Net
(decrease) in cash and cash equivalents
|
(58,218
|
)
|
(58,218
|
)
|
---
|
|||||||||||
|
Cash
and cash equivalents, beginning of year
|
341,359
|
341,359
|
---
|
|||||||||||||
|
Cash
and cash equivalents, end of period
|
$
|
283,141
|
$
|
283,141
|
$
|
---
|
||||||||||
|
|
||||||||||||||||
|
Reconciliation
of net income to cash flows from operating activities:
|
||||||||||||||||
|
Net
income
|
$
|
161,603
|
$
|
104,676
|
$
|
(56,927
|
)
|
|||||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
|
provided
by operating activities:
|
||||||||||||||||
|
Software
development costs amortized
|
182,688
|
182,688
|
---
|
|||||||||||||
|
Provision
for bad debts
|
653
|
653
|
---
|
|||||||||||||
|
Depreciation
& amortization
|
19,891
|
145,768
|
125,877
|
(a
|
)
|
|||||||||||
|
Loss
on disposal of property, plant and equipment
|
1,715
|
1,715
|
---
|
|||||||||||||
|
Change
in assets and liabilities:
|
||||||||||||||||
|
Decrease
in accounts receivable
|
48,924
|
48,924
|
---
|
|||||||||||||
|
(Increase) in
inventories
|
(14,047
|
)
|
(14,047
|
)
|
---
|
|||||||||||
|
Decrease
in prepaid expenses
|
51,841
|
51,841
|
---
|
|||||||||||||
|
(Decrease)
in accrued royalties
|
(33,770
|
)
|
(33,770
|
)
|
---
|
|||||||||||
|
(Decrease)
in accounts payable
|
(114,952
|
)
|
(114,952
|
)
|
---
|
|||||||||||
|
Increase
in income taxes payable
|
180
|
180
|
---
|
|||||||||||||
|
(Decrease)
in deferred taxes
|
(81,712
|
)
|
(149,669
|
)
|
(67,957
|
)
|
(b
|
)
|
||||||||
|
Increase in
other liabilities
|
24,519
|
23,526
|
(993
|
)
|
(c
|
)
|
||||||||||
|
Net
cash provided by operating activities
|
$
|
247,533
|
$
|
247,533
|
$
|
---
|
||||||||||
|
|
||||||||||||||||
|
(a)
Increase
from additional amortization of software license
agreement.
|
||||||||||||||||
|
(b)
Increase
from reclassifying fulfillment expenses as cost of sales instead
of sales
and marketing expenses.
|
||||||||||||||||
|
(c)
Decrease
in accrued management bonus resulting from additional amortization
of
software license agreement.
|
||||||||||||||||
Cautionary Statement Regarding Forward-Looking Statements
This
Form 10-QSB/A, press releases and certain information provided periodically
in
writing or orally by our officers or our agents contain statements which
constitute forward-looking. 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/A 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) market
and
other trends affecting our future financial condition or results of operations,
(v) our growth strategy and operating strategy, and (vi) 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. The 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/A, entitled Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
including without limitation the risk factors contained in the company’s annual
report on Form 10-KSB/A for the period ending December 31, 2004. Except
as
required by law, we undertake no obligation to update any of the forward-looking
statements in this Form 10-QSB/A after the date of this
report.
This
information should be read in conjunction with the financial statements
and the
notes thereto included in Item 1 of Part I of this Quarterly Report
and the
audited financial statements and notes thereto and Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained in
the
company’s Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2004.
MANAGEMENT
OVERVIEW
During
the first quarter of 2005, and for the second consecutive year, we released
an
upgrade to our top-selling financial and data management software, Membership
Plus®.
As a
result of this release, as well as our release in December 2004 of our most
recent upgrade to QuickVerse®,
our
first quarter 2005 revenues were slightly higher than those during the first
quarter of 2004. Also during the first quarter of 2005, we introduced two
new
QuickVerse®
editions, QuickVerse®
2005
Essentials and QuickVerse®
2005
Platinum. QuickVerse®
2005
Essentials appeals to those customers who are seeking their first Bible study
software and it is a great way to begin a Bible study software collection.
It
has a suggested retail price of $49.95. QuickVerse®
2005
Platinum is the most comprehensive Bible study edition we have to offer and
appeals to scholars who are serious about Bible study. It has a suggested
retail
price of $799.95. We believe that the unique features of these two new editions
will provide us with an opportunity to broaden our customer base as they
appeal
not only to those just beginning their journey into Bible study but also
to the
scholars who are searching for an in-depth knowledge of the Bible. Our
performance during the first quarter of 2005 marks the third straight year
in
which we have increased our gross revenues during our first quarter. Although
there can be no assurance, we believe that we can sustain our revenue growth
through the second and third quarters based upon our anticipated introduction
during the second quarter of our QuickVerse®
Macintosh edition, which was announced during the first quarter 2005. We
believe
that this introduction will make us the only publisher of Bible reference
software for each of Windows®,
Macintosh®,
Pocket
PC®
and Palm
OS®.
Results
Of Operations for Quarters Ending March 31, 2005 and March 31,
2004
Our
software products are highly seasonal. More than 50% of our annual sales
are
expected to occur in the five months of September through January; the
five
months of April through August are generally our weakest, generating
only about
33% of our annual sales.
During
the three months ended March 31, 2004, we wrote down a distinct
category of
obsolete inventory of approximately $32,000 which is included in cost
of sales.
This write down item had no effect on the cash flow statement. Our net
income
decreased approximately $12,000 from a net income of approximately $117,000
for
the three months ended March 31, 2004 to a net income of approximately
$105,000
for the three months ended March 31, 2005. For the three months ended
March 31,
2004 and 2005 we did not recognize any non-cash expenses related to common
shares of stock and warrants issued for services.
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 products
and
services, we allocate and defer revenue for the undelivered products or products
and services based on their vendor-specific objective evidence of fair value,
which is generally the price charged when that product or product and service
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 65% of our 2004 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, 2004 and 2005, respectively.
Trends
that our returns typically follow include (i) the seasonality of sales,
and (ii)
the fact that, generally, relatively higher return rates occur during periods
of
new title or title version releases. 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.
Product
returns from distributors and Christian bookstores are allowed primarily
in
exchange for new products or for credit towards purchases as part of a
stock-balancing program. These returns are subject to certain limitations
that
may exist in the contract in each case. Under certain circumstances, such
as
termination or when a product is defective, distributors and bookstores could
receive a cash refund if returns exceed amounts owed. Returns from sales
made
directly to the consumer are accepted within 45 days of purchase and are
issued
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.
Software
products are sold separately, without an obligation of future performance
such
as upgrades, enhancements or additional software products, and are sold with
post contract 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.
Gross
revenues increased approximately $269,000 from approximately $1,715,000 for
the
three months ended March 31, 2004 to approximately $1,984,000 for the three
months ended March 31, 2005. Such increase is due to our release of
an
enhanced version of Membership Plus®
during
the first quarter of 2005 and an enhanced version of QuickVerse®
during
late fourth quarter of 2004. During the fourth quarter of 2004 when
QuickVerse®
2005 was
released, it was available in three editions ranging in price from $99.95
to
$299.95. During the first quarter of 2005, we released an enhanced
version
of the QuickVerse®
Essentials edition which retails for $49.95. In addition, we released a new
edition to the QuickVerse®
family,
the QuickVerse®
Platinum
edition, which contains the most Bible translations and reference titles
of any
QuickVerse®
edition
and retails for $799.95. Comparatively, during the three months ended March
31,
2004, we had the product release of Membership Plus®
8.0
which ranged in price from $199.95 to $299.95 and the late December 2003
release
of QuickVerse®
8.0
which ranged in price from $99.95 to $299.95.
Sales
returns and allowances increased approximately $102,000 from approximately
$209,000 for the three months ended March 31, 2004 to approximately $311,000
for
the three months ended March 31, 2005 and increased as a percentage of gross
sales from approximately 12% for the three months ended March 31, 2004 to
approximately 16% for the three months ended March 31, 2005. The upward
trend in sales returns and allowances as a percentage is attributable
to
our release of enhanced versions of QuickVerse®
and
Membership Plus®
in
December of 2004 and February of 2005, respectively. The release of these
two
enhanced products resulted in an increased quantity of sales returns and
allowances of prior versions as distributors and stores made shelf space
during
the first quarter of 2005. Furthermore, the timeframe between the last
enhancements for both of these titles was approximately one year. In the
past,
product enhancements were typically extended over two to three years. Although
we expect to continue to release enhanced versions of our
products annually, we anticipate the sales return and allowances
as a
percentage to follow a downward trend due to the increased
focus of
our sales efforts to the end-user and our decreased presence in the
retail
market because incidents of return are lower for sales direct to end-users
than sales into the retail stores.
Cost
of Sales
Cost
of
sales consists primarily of royalties to third party providers of intellectual
property and the direct costs and manufacturing overhead required to reproduce,
package, fulfill and ship the software products. Direct costs and manufacturing
overhead also include the amortized software development costs and the
non-capitalized technical support wages. The direct costs and manufacturing
overhead decreased approximately $15,000 from approximately $389,000 for the
three months ended March 31, 2004 to approximately $374,000 for the three months
ended March 31, 2005 and decreased as a percentage of gross revenues
approximately 4% from approximately 23% for the three months ended March
31, 2004 to approximately 19% for the three months ended March 31, 2005. The
three months ended March 31, 2004 include the write down of a distinct category
of obsolete inventory of approximately $32,000. Furthermore, fulfillment costs
from a third-party warehouse and included in the manufacturing overhead costs
noted above decreased approximately $20,000 from approximately $35,000 for
the
three months ended March 31, 2004 to approximately $15,000 for the three months
ended March 31, 2005 as we moved our retail fulfillment to a new outside entity
in late October 2004. Both the write down of obsolete inventory and the
fulfillment costs explain the decrease of the direct costs and manufacturing
overhead when compared as a percentage of gross revenues. The amortization
costs
recognized during the three months ended March 31, 2004 resulted from several
new software releases in late 2003 and early 2004 including
QuickVerse®
8.0 and
Membership Plus®
8.0.
Similarly, the amortization costs recognized during the three months ended
March
31, 2005 resulted from the December 2004 release of QuickVerse®
2005 and
the February 2005 release of Membership Plus®
2005.
The direct costs and manufacturing overhead percentage are expected to continue
at the 2005 levels as working capital remains more consistent and as more
development projects are implemented in a shortened timeframe.
Royalties
to third party intellectual property content providers increased
approximately $55,000 from approximately $80,000 for the three months ended
March 31, 2004 to approximately $135,000 for the three months ended March 31,
2005. Royalties also increased as a percentage of gross revenues from
approximately 4.7% for the three months ended March 31, 2004 to approximately
6.8% for the three months ended March 31, 2005. The increase of royalties
reflects the release of the QuickVerse®
2005
editions in early December 2004, and the two additional QuickVerse®
editions, specifically QuickVerse®
Essentials and QuickVerse®
Platinum, which were released in early March of 2005. Furthermore, we sold
some
of the older QuickVerse®
versions
to liquidators at a reduced price throughout the first quarter of 2005 but
had
no such sales during the first quarter of 2004. During the year
ended
2004, we renegotiated several royalty contracts which resulted in some cases
in
a higher royalty rate along with access to more content. The royalty rate as
a
percentage of gross sales is expected to increase in the future as sales to
new
users are expected to increase and as more development projects are implemented
for new and/or enhanced products. However, upgrade sales will continue to be
subject to royalties only on content additions of the upgraded version.
Software
development costs are expensed as incurred until technological feasibility
and
marketability has been established, at which time development costs are
capitalized until the software title is available for general release to
customers. 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 is segregated by title and technology platform. Once a product
has
been successfully released, subsequent revisions and upgrades are considered
development and the costs of the revision and upgrade are capitalized.
Capitalized costs are amortized on a product-by-product basis using the greater
of (i) the straight-line amortization over the estimated life of the product
(generally from 12 to 18 months) 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.
Software
development costs are summarized in the table below. The software development
costs, consisting primarily of direct and indirect labor and related overhead
charges, capitalized during the three months ended March 31, 2004 and 2005
were
approximately $74,000 and approximately $265,000, respectively. Accumulated
amortization of these development costs included in cost of sales totaled
approximately $152,000 and approximately $183,000 for the three months ended
March 31, 2004 and 2005, respectively. The increase in both the capitalization
and amortization is a direct result of the increase in the number of development
projects and the consistent one year turn around on enhanced versions of
our
two best-selling product lines QuickVerse®
and
Membership Plus®.
| Three Months Ended March 31, |
2005
|
2004
|
|||||
|
Beginning
balance
|
$
|
701,289
|
$
|
584,706
|
|||
|
Capitalized
|
264,649
|
73,628
|
|||||
|
Amortized
(cost of sales)
|
182,688
|
152,213
|
|||||
|
Ending
balance
|
$
|
783,250
|
$
|
506,121
|
|||
|
Research
and development expense (General and administrative)
|
$
|
37,080
|
$
|
16,174
|
Sales,
General and Administrative
With
gross revenues increasing approximately $269,000 for the first quarter
of 2005
from the first quarter of 2004, sales expenses also increased approximately
$185,000 from approximately $243,000 for the three months ended March
31, 2004
to approximately $428,000 for the three months ended March 31, 2005.
Included in
sales expenses, commissions to a third-party telemarketing firm increased
approximately $105,000 from approximately $166,000 for the three months
ended
March 31, 2004 to approximately $271,000 for the three months ended
March 31,
2005. Commissions also increased as a percentage of gross revenues
from
approximately 9.7% to approximately 13.7% for the three months ended
March 31,
2004 and 2005, respectively. This increase is attributed to the increased
focus
of our sales to the direct consumer along with the number of new and
enhanced
product releases during the first quarter of 2005 compared with just
one product
release during the first quarter of 2004. Advertising and direct marketing
costs
increased approximately $84,000 from approximately $73,000 for the
three months
ended March 31, 2004 to approximately $157,000 for the three months
ended March
31, 2005 and increased as a percentage of gross revenues from approximately
4%
to 8%, respectively. This increase is a direct result of continuing
to
market our products online through multiple sources, continuing to
increase and
focus more on our direct marketing efforts, and the increased number
of
publication advertisements due to the new product enhancements of
QuickVerse®
and
Membership Plus®.
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 $16,000 for
the
three months ended March 31, 2004 compared to approximately $37,000 incurred
for
the three months ended March 31, 2005. The increase in 2005 reflects more
research and development costs associated with maintenance issues on titles
after they are released to the general public along with exploring new
platforms
for future products. Research and development expenses are expected to
increase
in future periods as we add new products and versions to our product mix.
Total
personnel costs decreased approximately $13,000 from approximately $395,000
for
the three months ended March 31, 2004 to approximately $382,000 for the
three
months ended March 31, 2005. Direct salaries and wages increased approximately
$64,000 from approximately $356,000 for the three months ended March 31,
2004 to
approximately $420,000 for the three months ended March 31, 2005 but remained
consistent as a percentage of gross revenues at approximately 21%. This
includes
approximately $5,000 in expense for upper management year-end bonus accrual.
This increase in salaries and wages is a result of increasing our sales
and
marketing team, technical support staff and development staff. However,
the
associated health care costs decreased approximately $15,000 from approximately
$48,000 for the three months ended March 31, 2004 to approximately $33,000
for
the three months ended March 31, 2005 as we restructured our health benefits
plans. The capitalization of direct and indirect labor and related overhead
charges as software development costs (see “Cost of Sales” above) increased by
approximately $52,000 from approximately $45,000 for the three months ended
March 31, 2004 to approximately $97,000 for the three months ended March
31,
2005. This increase is due to the addition of development staff and the
increased amount of new development projects. It is anticipated that personnel
costs will increase in future periods as operating capital is available
to fund
full staffing of our product development team and expansion of the direct
sales
staff.
Direct
legal costs increased approximately $30,000 for the three months ended March
31,
2005 as we continue to work through the registration process
for
our registration statement on Form SB-2. It is anticipated that legal
costs
will continue to increase as we hold our first annual meeting of stockholders
later this year and pursue our business plan for growth by acquiring companies
and software title properties that are synergistic with our current product
line
and customer base. Telecommunications costs decreased approximately $23,000
for
the three months ended March 31, 2005 as we switched our local and long distance
carriers in order to take advantage of the provider’s current technology. Our
increased call volume enabled us to change our service to dedicated T-1 lines
which in turn reduced the long distance charges. Furthermore, we invested
in
Internet protocol phones for our remote locations which reduced the overall
local and long distance charges in our Illinois and Iowa locations. The
increased call volume in the technical support and customer service departments
resulted from the release of the two major product upgrades beginning in
December 2004 through March 2005. Corporate service fees increased approximately
$33,000 for the three months ended March 31, 2005. These fees are related
to the
hiring of an outside consultant and the expense for a 2004 issuance of a
warrant
to purchase 600,000 shares of common stock allocated over the term of the
consulting contract. Interest expense for the three months ended March 31,
2005
decreased by approximately $11,000 compared to 2004. This is due to our
continuing efforts to reduce our trade payables and meet the scheduled terms
and
the reduced loans and long-term note payables.
Amortization
Amortization
expense increased approximately $7,000 for the three months ended March 31,
2005. The software license acquired from TLC in July of 1999 is amortized over
a
10 year useful life. Amortization expense for 2005 reflects the continual
amortization of the software license along with the amortization for the launch
of our Website, www.quickverse.com, 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, 2005, management established the 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 software license. We currently
have
net operating loss carryforwards, for income tax purposes, of approximately
$7,648,000. The carryforwards are the result of income tax losses generated
in
2000 ($2,480,000 expiring in 2020) and 2001 ($5,168,000 expiring in 2021).
We
will need to achieve a minimum annual taxable income, before deduction of
operating loss carryforwards, of approximately $450,000 to fully utilize
the
current loss carryforwards. We believe this is achievable through careful
expense management and continued introduction of new products and enhanced
versions of our existing products.
Although
there can be no assurance, management expects the deductible temporary
differences (reserves) to reverse sometime beyond the next fiscal year.
Liquidity
And Capital Resources
Our
primary need for liquidity and capital resources are the funding of our
continued operations, which includes the ongoing internal development
of new
products and expansion and upgrade of existing products and our pursuit
of
future strategic product line and/or corporate acquisitions and licensing.
As
of
March 31, 2005, we had $1,399,623 in current assets, $1,234,205
in current
liabilities and a retained deficit of $5,774,485. We had a loss before
income taxes of $44,813 for the three months ended March 31, 2005.
Net
cash
provided by operating activities was approximately $82,000 for the three
months
ended March 31, 2004 and approximately $248,000 for the three months
ended March
31, 2005. The increase in cash provided was primarily due to an increase
in the
amounts received from customers resulting from increased sales.
Net
cash
used in investing activities was approximately $92,000 for the three
months
ended March 31, 2004 and approximately $279,000 for the three months
ended March
31, 2005. The increase in cash used for investing activities results
from
capitalizing costs associated with software development and upgrading
our
internal computer equipment and software in order to increase our operating
efficiency capabilities.
Net
cash
used by financing activities was approximately $1,000 for the three months
ended
March 31, 2004 and approximately $27,000 for the three months ended March
31,
2005. Cash used by financing activities reflects payments made on long-term
note
payables.
On
July
19, 2004, we completed an equity financing in the amount of $1,750,000
through a
private placement with Barron Partners, L.P. Under the terms of the agreement,
Barron purchased 21,875,000 restricted shares of common stock at a price
of
$0.08 per share. In addition, according to the terms of the agreement,
Barron
received two warrants to purchase common stock. The first warrant
entitles the holder to purchase up to 10,937,500 shares
of 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 common
stock at a
price of $0.60 per share. The original terms of the agreement called
for the
exercise price associated with each of the warrants to be subject to
adjustment
based on the occurrence or non-occurrence of certain events. An amendment
to the
Barron Stock Purchase Agreement was entered into on September 30, 2004
which
voided these provisions. See Exhibits 10.10, 10.11, 10.12, and 10.13.
(a) Evaluation
of Disclosure Controls and Procedures.
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
Securities Exchange Act of 1934, as amended) as of the end of the fiscal
quarter
covered by this report on Form 10-QSB. Based on this evaluation, our
CEO and CFO
have concluded that these 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 Securities Exchange Act of 1934, as amended,
is
recorded, processed, summarized and reported within the requisite time
periods.
(b) Changes
In Internal Control over Financial Reporting.
No
changes in our disclosure controls and procedures, internal controls
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
controls
over financial reporting.
As
of the
date of this report, 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, including liquidity
and
profitability, and our operating results.
Subsequent
to December 31, 2004, the company restored a stale check that was issued
to
Business Investor Services, Inc. as payment in full of a note payable. This
resulted in the conversion of the note payable into 466,666 shares of common
stock. The conversion of such securities was effected without registration
under
the Securities Act of 1933, as amended, based on their being exempted securities
under Section 3(a)(9) thereof. There were no underwriters or placement agents
involved in this issuance and no commissions were paid.
There
were no reportable events under this Item 3 during the quarterly period
ended
March 31, 2005.
There
were no reportable events under this Item 4 during the quarterly period ended
March 31, 2005.
There
were no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
The
Annual Meeting of the Stockholders of Findex.com, Inc. will be held on September
8, 2005. Stockholders of record who wish to submit a proposal at the 2005
Annual
Meeting must provide written notice to the Secretary of the company in
accordance with Article IX of our Articles of Incorporation. Under our Articles
of Incorporation, such notice must be received by the Secretary no earlier
than
July 10, 2005, and no later than August 9, 2005.
There
were no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
|
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)
|
Articles
of Incorporation of Findex.com, Inc., 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
12, 2004
incorporated by reference to Exhibit 3.1(ii) on Form 10-QSB
filed November
12, 2004.
|
|
3(ii)
|
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 Barron Partners, LP Stock Purchase Agreement 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.
|
|
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 22,
2005. 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 22,
2005. 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
22,
2005. 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
22,
2005. 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
22, 2005
|
By
|
/s/
Steven Malone
|
|
|
Steven
Malone
|
|||
|
President
and Chief Executive Officer
|
|
Date: August
22, 2005
|
By
|
/s/
Kirk R. Rowland
|
|
|
Kirk
R. Rowland, CPA
|
|||
|
Chief
Financial Officer
|