FindEx.com, Inc. 10-KSB/A Dec. 31, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB/A
Amendment Number 1

(Mark One)

[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000.

[_]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________.

Commission File Number: 0-29963

FINDEX.COM, INC.
(Name of Small Business Issuer in its Charter)

Nevada
88-0379462
(State or other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
 
11204 Davenport Street, Suite 100, Omaha, Nebraska
68154
(Address of Principal Executive Offices)
(Zip Code)

(402) 333-1900
(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value
(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_] 

Revenues for the fiscal year ended December 31, 2000 totaled $7,038,451.

As of September 27, 2005 the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average of the closing bid and asked prices on such date was approximately $2,542,000.

 
At September 28, 2005, the registrant had outstanding 48,619,855 shares of common stock, of which there is only a single class.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one):

Yes __ No X
 
 
 
 
 
 
 
 
 
 
 
 

 

Explanatory Note
 
We are filing this Amendment Number 1 to our Annual Report on Form 10-KSB for the year ended December 31, 2000 to restate our financial statements for the year then ended to reflect issues identified during a regulatory review of our financial statements associated with a certain registration statement filed with the SEC on November 22, 2004 on Form SB-2 and which is pending effectiveness as of the date of this filing of Amendment Number 1 to Form 10-KSB for the year ended December 31, 2000. There was no net effect on the consolidated statements of operations or consolidated statements of cash flows for the year ended December 31, 2000 as a result of corrections to the financial statements for the period covered by the report.

During the year ended December 31, 2000, we discontinued the use of a third-party to process rebate claims. Rebate program details were obtained from the third-party processor and a liability was recorded for the unpaid rebate claims monthly, beginning July 1999 and continuing through October 2000. In 2004, we discovered that the unpaid rebate claims were duplicated between reports received from the third-party processor and as a result the liability recorded upon our assumption of the rebate claim fulfillment was also duplicated. We are restating the liability recorded for unpaid rebate claims for the fiscal year end December 31, 2000 as a decrease to rebates payable rather than as an adjustment to the beginning retained earnings of the period commencing January 1, 2003.

We have also restated our financial statements for the year ended December 31, 1999 to reflect issues identified during the restatement of our financial statements for the year ended December 31, 2001 and previously reported as a prior period adjustment on the Form 10-KSB filed for the year ended December 31, 2001. There was no net effect on the consolidated statements of operations or consolidated statements of cash flows for the year ended December 31, 2001 as a result of corrections to the financial statements for the period covered by the report.

During the year ended December 31, 1999, we erroneously recognized revenue associated with inventory retained by The Learning Company (“TLC”) as part of a certain amended Asset Purchase Agreement dated June 30, 1999. The amended Asset Purchase Agreement provided for the purchase of all inventories of raw materials, works-in-process, finished goods and materials of Parsons Technology, Inc., including components that were then located at Parsons’ Cedar Rapids, Iowa locations. The amended Asset Purchase Agreement indicated that any inventories located at any facility of BMG, TLC’s third-party manufacturer, were to be retained by TLC and not included in the purchase. Accordingly, we have restated our consolidated balance sheet as of December 31, 1999 and our consolidated statements of operations, consolidated statements of stockholders’ equity, and consolidated statements of cash flows for the year then ended.

A discussion of the restatements for years ended December 31, 2000 and 1999, respectively, are included in Note 18 to the financial statements included in this Amendment Number 1 to Form 10-KSB for the year ended December 31, 2000. Changes have also been made to the following items as a result of the restatement:

Part II Item 6  Management’s Discussion and Analysis of Financial Condition or Plan of Operations
         Item 7 Financial Statements

This Amendment Number 1 to Form 10-KSB for the year ended December 31, 2000 does not otherwise change or update the disclosures set forth in the Form 10-KSB for the year then ended as originally filed and does not otherwise reflect events occurring after the filing of the Form 10-KSB. For a description of our business and the risks related to our business, please see our Annual Report on Form 10-KSB/A for the year ended December 31, 2004.
 
 
-i-
 
Part II
 
Item 6. Management’s Discussion and Analysis of Financial Condition or Plan of Operations

The following discussion should be read together with the consolidated financial statements of FindEx.com, Inc. and the notes to the consolidated financial statements included elsewhere in this Form 10-KSB/A.

THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS REGARDING FINDEX’S EXPECTATIONS FOR ITS BUSINESS AND ITS CAPITAL RESOURCES. THESE EXPECTATIONS ARE SUBJECT TO VARIOUS UNCERTAINTIES AND RISKS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM THESE FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF CERTAIN LIMITATIONS INHERENT IN SUCH STATEMENTS, SEE “FORWARD-LOOKING STATEMENTS” BELOW.

GENERAL

For a discussion of the history and development of FindEx.com, Inc., see the “General” discussion above. Since our acquisition of the Parsons Church Division from Mattel Corporation, we have expanded our presence in the Christian Booksellers Association (“CBA”) marketplace, lost our presence in the secular retail marketplace, re-established our presence in the secular market and expanded that presence to the point that we have a larger presence than before. We have been aggressively pursing our business plan to be the premier provider of Bible study and related products and content to the domestic and international markets through both acquisition of established companies and ongoing internal development of products and Bible-related content, to build upon the Company’s existing financial information products and services, and to offer additional technology, products and services that are synergistic to the affinity group FindEx already serves. We have developed two (2) enhanced releases of our flagship product, QuickVerse, one (1) new product targeted mainly to the secular market, QuickVerse Essentials, and one (1) enhanced release of our top financial product, Membership Plus. We are currently researching new opportunities in technology for our existing software titles and expanding our financial product line.

RESULTS OF OPERATIONS

FindEx.com was an inactive company until the acquisition of the Parsons Church Division from Mattel Corporation in June 1999, and had no revenue and limited expenses from January 1, 1999 through approximately mid-July, 1999. Therefore, the results of operations for fiscal year 2000 are not comparable to the results for the same period in 1999. Much of the discussion of results analyzes operations solely for the twelve months ended December 31, 2000.

Our software products have a significant seasonality to their revenues. 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 expected to be the weakest generating only about 33% of our annual sales.

Our Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the twelve months ended December 31, 2000 was a loss of approximately $3,159,000. This loss, however, includes several non-cash expenses recorded during the year. We recognized expenses of $555,363 relating to 120,000 common shares issued to IC Capital, LLC for investor relations services, $181,250 relating to 50,000 common shares issued to Genesis Financial Group, LLC for consulting services, $2,171,875 relating to 250,000 common shares issued to MHE, Inc. for consulting services, and $328,571 to Business Investor Services, Inc. relating to 100,000 shares and 100,000 warrants for consulting services. In addition, we increased our reserve for sales returns by $150,720 and our reserve for rebates by $307,760 to reflect higher expected future occurrences due to our expanded presence in the secular retail marketplace.

Revenues

Revenues from the sale of software are recognized when the product is shipped. Product return reserves are based upon a percentage of total retail and direct sales for the period and may increase or decrease as actual returns are processed. Product returns or price protection concessions that exceed our reserves could materially adversely affect our business and operating results and could increase the magnitude of quarterly fluctuations in our operating and financial results. See “Risk Factors - Product returns that exceed our anticipated reserves could result in worse than expected operating results.”

-1-
 
Gross revenues increased from approximately $6,243,000 for the year ended December 31, 1999 to approximately $7,947,000 for the year ended December 31, 2000. Sales returns and allowances increased from approximately $289,000 for the year ended December 31, 1999 to approximately $792,000 for the year ended December 31, 2000. On March 8, 2000, The Learning Company, a division of Mattel Corporation, canceled the distribution agreement. Realizing the importance of that marketplace to our business plan, we began the process of establishing those relationships on our own behalf. Key distributors in the secular market began placing orders with us on a test basis in early third quarter and by late third quarter, they began placing significant orders in preparation for the Christmas retail season. The full benefit of these efforts was not realized until fourth quarter of 2000 and is continuing to expand. In addition, Mattel Interactive, the direct sales division of Mattel Corporation, made significant reductions in workforce and product lines. This decision on their part resulted in significantly fewer and smaller orders during the last three quarters of 2000. Finally, 1999 gross revenues reflect the release of our top two titles; QuickVerse version 6.0 (QV6) in early October 1999, and Membership Plus version 6.0 in mid November 1999. Gross revenues for 2000 reflect the introduction of one new title, QuickVerse Essentials, in the first quarter, immediately before The Learning Company cancelled the distribution agreement, and the release of QuickVerse version 7.0 (QV7) in mid November 2000. The earlier release of QV6 in 1999 allowed our customers to sell down their initial orders and place reorders in time for the Christmas season. The timing of the release of QV7 did not provide adequate time for the initial orders to be sold through.

The Company experienced larger product returns during the fourth quarter of 2000 than during the same period of 1999. Product returns are typically higher in the secular marketplace than the Christian marketplace. As the distributors place the products into the secular retail channel, they monitor the sell-through rates of those products and generally return quantities of those that aren’t selling as anticipated. This practice contrasts with the Christian marketplace in that the quantities ordered are generally smaller and the retailer is willing to hold on to the products for a longer period of time before making the decision to return. The release of QV7 in November 2000 also increased the quantity of returns of prior versions as stores made shelf space. With our expanded presence in the secular retail market, we increased our reserve for anticipated returns of channel inventory at December 31, 2000.

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. The direct costs and manufacturing overhead decreased from 18.6% of gross revenues in 1999 to 17.2% of gross revenues in 2000 due to opening our new warehouse facility and not depending on a third party to fulfill our retail orders. Royalties to third party providers of intellectual property remained steady at 13% of gross revenues in 1999 and 2000. Royalties are expected to increase in the future due to content additions to QV7. Several new titles were added and the entire content of the QuickVerse Greek Edition was included as basic content of the Deluxe version while continuing to be marketed as a separate product.
 
SALES, GENERAL AND ADMINISTRATIVE

Operating expenses for 2000 reflect a full twelve months of operations whereas 1999 reflects only six months of activity. In addition, operating expenses for 2000 include approximately $3,237,000 in non-cash expenses for stock and warrants issued for services and approximately $243,000 in non-cash increases in reserve accounts (see “RESULTS OF OPERATIONS” above).

Sales expenses reflect an increase in marketing efforts and travel directly related to the establishment and expansion of our secular retail presence. Sales expenses are expected to increase in future periods due to the continued expansion of our sales force and marketing efforts and development of new and enhanced products.

Research and development costs include salaries and benefits of personnel and third parties conducting research and development of software products. Research and development expenses increased in 2000 reflecting a full development period for QV7. The research and development period for QV6 and Membership Plus version 6 was split between FindEx and Mattel Corporation in 1999. Research and development expenses are expected to increase in future periods as we add new products and versions to our product mix.

-2-
 
Costs associated with acquiring Reagan Holdings, Inc. amounted to $150,000 for the year 2000 compared with costs of $86,362 in 1999 associated with the mergers with FindEx Acquisition Corporation and EJH Entertainment, Inc. Acquisition costs are expected to continue as we pursue our business plan for growth by acquiring companies that are synergistic with our current product line and customer base.

INCOME TAX BENEFITS

The Company’s 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. The Company utilizes different methods and useful lives for depreciating property and equipment. Amortization of the software license agreement is on a straight-line basis over the ten-year term for financial reporting while deductible when paid for income tax purposes. Changes in estimates (reserves) are recognized as expense for financial reporting but are not deductible for income tax purposes.

The Company has recognized a net deferred tax asset whose realization depends on generating future taxable income. We currently have net operating loss carryforwards, for income tax purposes, of approximately $5,263,000. The carryforwards are the result of income tax losses generated in 1996 ($52,000 expiring in 2011), 1997 ($77,000 expiring in 2012), 1998 ($54,000 expiring in 2018), and 2000 ($5,080,000 expiring in 2020). The Company will need to achieve a minimum annual taxable income, before deduction of operating loss carryforwards, of approximately $264,000 to fully utilize the current loss carryforwards. We believe this is achievable, with our current sales levels, through careful expense management and continued introduction of new products and enhanced versions of our existing products. In addition, the deductions currently taken for license agreement payments will expire within the next year and taxable income will be greater than income for financial reporting purposes.

Management expects the deductible temporary differences (reserves) to reverse sometime beyond the next fiscal year, with the exception of accrued bonuses. The future tax benefit associated with those bonuses is not expected to be realized when paid due to the expected utilization of operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2000, FindEx had $4,875,498 in current assets, $5,572,253 in current liabilities and a retained deficit of $2,299,256. We had a net loss of $2,255,193 for the year ended December 31, 2000. Operating expenses for 2000 included approximately $3,237,000 in non-cash expenses for stock issued for services and approximately $458,000 in non-cash increases in reserve accounts (see “RESULTS OF OPERATIONS” above). Positive cash flow from operations for the period was $978,895.

To date, because of a lack of equity capital, FindEx has funded the purchase of the Parsons Church Division primarily through operations. In addition, a dispute with The Learning Company (TLC) over specific performance provisions of the Finished Goods Distribution Agreement has also lead to tight cash flow. Discussions and negotiations are ongoing with TLC and we believe that rapid resolution of the dispute will provide cash flow sufficient to fund operation needs allowing equity capital to fund product development and expansion of our business plan.

Because of tight cash flow conditions, we have concentrated on improving our accounts receivable turnover and have been successful in reducing the average collection period from over 100 days to less than 60. In addition, by taking a pro-active approach to collections by contacting the customer soon after shipment and before the due date, we have been able to keep our bad debts to a minimal level.

Our inventory turnover decreased from approximately 2.8 for 1999 to approximately 2.0 for 2000. Tight cash flow conditions did not allow us to manage our inventory as efficiently and effectively as desired. Turnover for 1999 is somewhat affected by the short period of actual operations. We expect that settlement of the dispute with TLC and the funding provided through the offering with a private institutional investor will provide sufficient working capital to effectively manage and plan our inventory turnover.

-3-
 
Pursuant to a note originally issued to a management company in December 1999, the Company received additional funds in January of 2000, in order to fund the continued development and sales of its software products and services. FindEx received $450,000 of additional financing under the note agreement, which is due in the form of a note payable in December of 2001. This note is unsecured and bears an annual interest rate of 9%.

The Company received $703,819, after fees and expenses, from a stock subscription agreement dated April 28, 2000, offered under a Regulation D Section 506 exemption. This agreement was for 362,500 restricted shares of FindEx.com, Inc. Common Stock issued to twenty-nine accredited investors at a price of $2.00 per share. These shares carry piggyback registration rights.

On November 7, 2000, a shareholder loaned a total of $99,000 to FindEx to fund a short-term production need. These notes are secured by accounts receivable and bear an annual interest rate of 15%.

On March 26, 2001, the Company entered into a binding letter of intent with an institutional private equity investor, (the “Letter of Intent”) pursuant to which the Company has the ability to require such investor to purchase up to $15 million of the Company’s common stock from time to time over a period of up to 36 months (the “Term”). The shares will be sold to a private institutional investor at a discount to the market price of the common stock at the time of sale. During any twenty (20) day period during the Term, the Company will have the ability to require such investor to purchase up to $2 million of its common stock, subject to certain limitations based upon our trading volume and share price. FindEx plans to use funds received from this offering to liquidate accounts payable, accrued royalties to content providers, and the aforementioned note agreements. In addition, part of the proceeds will be retained for working capital purposes and part will be used to fund future product development efforts.

The consummation of the financing contemplated by the Letter of Intent is subject to numerous conditions, certain of which are outside our control, including the investor’s completion of its due diligence, our entry into definitive agreements with the investor and the effectiveness with the Securities and Exchange Commission of a registration statement covering the resale of the shares to be issued to such investor, and there can be no assurance that the financing will be consummated on the term described herein, or at all. If FindEx is unable to obtain such additional financing or raise adequate working capital in the amounts desired and on acceptable terms, FindEx may be required to reduce the scope of its presently anticipated activities.

In order to maintain current level of operations, the Company will need to secure additional funding sources to meet its operating expenses. Such funding sources may include, but are not limited to, private placements of common or convertible equities, placement of debt with banks, private or public investors, or other lending institutions.

The Company believes that through a combination of outside sources of capital and revenues generated from sales it will have sufficient sources of capital to meet its operating needs. However, any substantial delays in receipt of or failure to obtain such capital may prevent the Company from operating as a going concern, given its limited revenues and capital reserves.

CAUTIONARY STATEMENTS AND RISK FACTORS

Several of the matters discussed in this document contain forward-looking statements that involve risks and uncertainties. Factors associated with the forward-looking statements that could cause actual results to differ from those projected or forecast are included in the statements below. In addition to other information contained in this report, readers should carefully consider the following cautionary statements and risk factors.

We have experienced, and may continue to experience, reduced revenues due to delays in the introduction and distribution of our products.

We cannot be certain that we will be able to meet our planned release dates for our new software releases. If we cannot release an important new product during the scheduled quarter, our revenues would likely be reduced in that quarter. In the past, we have experienced significant delays in our introduction of some new products. For instance, delays in duplication, packaging and distribution caused our QuickVerse version 7.0 to begin arriving at retailers over the Thanksgiving holiday. As a result, we experienced fewer sales of these products than we would have if the products were in stores before the holiday selling season began, which had a materially adverse effect on our operating results for the 2000 fourth quarter. It is likely in the future that delays will continue to occur and that some new products will not be released in accordance with our internal development schedule or the expectations of public market analysts and investors.

-4-
 
If we are unable to raise additional funds, we may be required to defer completion of future software updates and reduce overhead significantly.

We entered into binding letter of intent with a private institutional investor on March 26, 2001 pursuant to which such investor agreed to purchase up to $15 million of our common stock upon certain terms and conditions over a period of thirty-six months. We believe we will need to receive this additional funding in order to continue our product development, increase our sales and fund our working capital requirements. The ability to consummate and draw upon this additional funding is dependent on a number of factors, including the investor’s completion of its due diligence, our entry into definitive agreements with the investor and the effectiveness of a registration statement covering the resale of the shares to be issued to such investor, which are outside of our control. If we are unable to draw on the additional funding, then we will need to raise additional funds through the sale of equity or debt securities in private or public financings or through strategic partnerships in order to meet our needs and achieve profitability. There can be no assurance that such alternate funds can be obtained or, if obtained, that they will be available on terms equal to, or more favorable than, the anticipated terms.

We have a limited operating history upon which you can evaluate our potential for future success.

We began to introduce our products and services during 1999. Although we have generated revenue from operations, we have a very limited operating history on which you can evaluate our potential for future success. Rather than relying on historical financial information to evaluate our Company, you should evaluate our Company in light of the expenses, delays, uncertainties, and complications typically encountered by early-stage businesses, many of which will be beyond our control. Early-stage businesses commonly face risks such as the following:

·  
lack of sufficient capital,
·  
unanticipated problems, delays, and expenses relating to product development and implementation,
·  
lack of intellectual property,
·  
licensing and marketing difficulties,
·  
competition,
·  
technological changes, and
·  
uncertain market acceptance of products and services.

The loss of any of our key executives or our failure to attract, integrate, motivate and retain additional key employees could have a material adverse effect on our business.

Our success depends to a large degree upon the skills of our senior management team and key employees and upon our ability to identify, hire, and retain additional sales, marketing, technical, and financial personnel. The loss of any of our key executives or the failure to attract, integrate, motivate, and retain additional key employees could have a material adverse effect on our business. We may be unable to retain our existing key personnel or attract and retain additional key personnel. Competition for these personnel in the Internet and technology industry is intense and identifying personnel with experience in this industry is even more difficult. We are in a relatively new market, and there are a limited number of people with the appropriate combination of skills needed to provide the services that our customers require. We depend particularly upon the services of Steven Malone, our Chief Executive Officer and President.

If we cannot obtain CD-ROM manufacturing and packaging services on a timely basis, we may not be able to timely deliver our CD-ROM and DVD products to distributors and retailers and our sales will be adversely affected.

We use third party vendors to press CD-ROM disks, assemble purchased product components, and print product packaging and user manuals in connection with the retail distribution of our software. We do not have contractual agreements with any of our third party vendors, which may result in our inability to secure adequate services in a timely manner. If we cannot obtain adequate manufacturing services, we will not be able to timely produce and deliver our CD-ROM products to distributors and retail stores for ultimate sale to consumers, which will adversely affect our sales and operating results.

-5-
 
Product returns that exceed our anticipated reserves could result in worse than expected operating results.

At the time we ship our products to retailers we will establish reserves, including reserves that estimate the potential for future product returns. Product returns or price protection concessions that exceed our reserves could increase the magnitude of quarterly fluctuations in our operating and financial results. Furthermore, if we incorrectly assess the creditworthiness of customers who receive our products on credit, we could be required to significantly increase the reserves previously established. We cannot be certain that any future write-offs will not occur or that amounts written off will not have a material adverse effect on our business and depress the market price of our common stock. Actual returns to date have been within management’s estimates.

Fluctuations in operating results may result in unexpected reductions in revenue and stock price volatility.

We operate in an industry that is subject to significant fluctuations in operating results from quarter to quarter, which may lead to unexpected reductions in revenues and stock price volatility. Factors that may influence our quarterly operating results include:

·  
the introduction or enhancement of software products and technology by us and our competitors;
·  
our ability to produce and distribute retail packaged versions of our software in advance of peak retail selling seasons; and
·  
our ability to create appealing content within our software products.

Additionally, a majority of the unit sales for a product typically occurs in the quarter in which the product is introduced. As a result, our revenues may increase significantly in a quarter in which a major product introduction occurs and may decline in following quarters.

Errors or defects in our software products may cause a loss of market acceptance and result in fewer sales of our products.

Our products are complex and may contain undetected errors or defects when first introduced or as new versions are released. In the past, we have discovered software errors in some of our new products and enhancements after their introduction into the market. Because our products are complex, we anticipate that software errors and defects will be present in new products or releases in the future. While to date these errors have not been material, future errors and defects could result in adverse product reviews and a loss of, or delay in, market acceptance of our products.

To develop products that consumers desire, we must make substantial investments in research and development to keep up with the rapid technological developments that are typical in our industry.

The entertainment software market and the PC industry are subject to rapid technological developments. To develop products that consumers desire, we must continually improve and enhance our existing products and technologies and develop new products and technologies that incorporate these technological developments. We cannot be certain that we will have the financial and technical resources available to make these improvements. We must make these improvements while remaining competitive in terms of performance and price. This will require us to make substantial investments in research and development, often times well in advance of the widespread release of the products in the market and any revenues these products may generate.

Our proprietary technology may not be adequately protected from unauthorized use by others, which could increase our litigation costs and adversely affect our sales.

Our ability to compete with other Bible software companies depends in part upon our proprietary technology. Unauthorized use by others of our proprietary technology could result in an increase in competing products and a reduction in our sales. We rely on trademark, trade secret and copyright laws to protect our technology. We cannot be certain, however, that these precautions will provide meaningful protection from unauthorized use by others. If we must pursue litigation in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, we may not prevail and will likely make substantial expenditures and divert valuable resources. In addition, many foreign countries’ laws may not protect us from improper use of our proprietary technologies overseas. We may not have adequate remedies if our proprietary rights are breached or our trade secrets are disclosed.

-6-
 
New internet access devices may change the way information is displayed requiring us to change our products.

Recent increases in the use of internet devices to access inspirational content and the continued development of internet devices as a medium for the delivery of network-based information, content, and services may require us to change our products. Our success depends on our ability to understand the method upon which our search engines operate and our ability to service new and emerging devices to access the Internet, such as browser phones, personal digital assistants, and other wireless devices. To the extent these new Internet access devices change the way that information is displayed to the end user or causes a change in the medium that is searched, we may be required to revise the methodology of our products. We cannot predict the impact that these new devices will have on our services, and any such required revisions may result in loss of revenue and goodwill, increased expenses, and reduced operating margins.

If our products infringe any proprietary rights of others, a lawsuit may be brought against us that could require us to pay large legal expenses and judgments and redesign or discontinue selling our product.

We believe that our products do not infringe any valid existing proprietary rights of third parties. Any infringement claims, however, whether or not meritorious, could result in costly litigation or require us to enter into royalty or licensing agreements. If we are found to have infringed the proprietary rights of others, we could be required to pay damages, redesign the products or discontinue their sale. Any of these outcomes, individually or collectively, could have a material adverse effect on our business and financial condition.

We will face additional risks as we expand into international markets.

We plan to further expand our services to international markets. Expanding into overseas operations may cost more than we expect. We also may be unsuccessful in expanding our presence in international markets, and we might lose all or part of our investment in those operations. As we expand into international operations, we will be increasingly subject to various risks associated with international operations in addition to the other business risks described in this memorandum. These risks include the following:

·  
management of a multi-national organization,
·  
compliance with local laws and regulatory requirements, as well as changes in those laws and requirements,
·  
restrictions on the repatriation of funds,
·  
employment and severance issues,
·  
overlap of tax issues,
·  
the business and financial condition of any overseas business partners,
·  
political and economic conditions abroad, and
·  
the possibility of
o  
expropriation or nationalization of assets,
o  
supply disruptions, - currency controls,
o  
exchange rate fluctuations, or
o  
changes in tax laws, tariffs, and freight rates.

Our inability to manage these and other risks effectively could increase our expenses or decrease our opportunities to generate revenue.

-7-
 
FORWARD-LOOKING STATEMENTS

This report on Form 10-KSB/A includes “forward-looking statements” within the meaning of SECTION 27A of the Securities Act of 1933 and SECTION 21E of the Securities Exchange Act of 1934. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other expressed in our forward-looking statements. These risks and uncertainties, many of which are beyond our control, include (i) the sufficiency of our existing capital resources and our ability to raise additional capital to fund cash requirements for future operations, (ii) uncertainties involved in the rate of growth and acceptance of the Internet, (iii) adoption by the Christian community of electronic technology for gathering information, facilitating e-commerce transactions, and providing new products, websites, and services, (iv) volatility of the stock market, particularly within the technology sector, and the ability to use our capital stock as a currency for acquisitions, and (v) general economic conditions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot give any assurance that such expectations reflected in these forward-looking statements will prove to have been correct.

We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-KSB/A after the date of this report.
 
 
 
 
 
 
 
 
 
 

-8-

Item 7. Financial Statements

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Stockholders of FindEx.com, Inc.:
 
We have audited the accompanying consolidated balance sheets of FindEx.com, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FindEx.com, Inc. as of December 31, 2000 and 1999 and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 16, the Company has a current year operating loss, a negative current ratio and is dependent upon financing to continue operations. These circumstances raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 16. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 18 to the consolidated financial statements, there was an error in reporting the Company’s unpaid rebate claims and inventory that were discovered by management as a result of a regulatory review. Accordingly, the consolidated financial statements have been restated to correct the errors.


/s/ CHISHOLM & ASSOCIATES
Chisholm & Associates

North Salt Lake, Utah
March 9, 2001 except for notes 3, 8, 10 and 18 dated September 23, 2005
 
 
F-1
 
Findex.com, Inc.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
 
 
    
2000
    
1999
  
 
    
(Restated)
    
(Restated)
 
Assets
Current assets:
Cash and cash equivalents
  
$
21,768
  
$
147,272
  
Accounts receivable, trade (Note 3)
    
3,455,983
   
383,367
 
Inventories (Note 4)
    
617,902
   
545,348
 
Deferred income taxes, net (Note 8)
    
504,998
   
---
 
Other current assets
    
274,847
   
13,603
 
Total current assets
    
4,875,498
   
1,089,590
 
Property and equipment, net (Note 5)
    
107,126
   
97,973
 
Software license (Note 6)
    
4,279,813
   
4,858,695
 
Deferred income taxes, net (Note 8)
    
496,561
   
---
 
Other assets
   
11,444
   
9,108
 
Total assets
  
$
9,770,442
  
$
6,055,366
  
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, trade
  
$
1,089,343
  
$
1,153,561
  
Notes payable (Note 7)
    
749,000
   
---
 
Accrued royalties
   
1,599,473
   
728,871
 
Accrued income taxes
    
39,284
   
602,000
 
Reserve for technical support charges
    
224,500
   
235,300
 
Accrued expenses
    
178,729
   
46,279
 
Reserve for sales returns
    
284,752
   
134,032
 
Reserve for rebates
    
380,460
   
72,700
 
License fee payable (Note 6)
    
1,026,712
   
614,034
 
Total current liabilities
    
5,572,253
   
3,586,777
 
Note payable (Note 7)
    
---
   
200,000
 
Commitments and contingencies (Note 14)
Stockholders’ equity (Note 9):
Preferred stock, $.001 par value
    
5,000,000 shares authorized
    
Series A: 15,000 and 20,000 shares issued and outstanding
    
15
   
20
 
Series B: 40,000 and 67,500 shares issued and outstanding
    
40
   
68
 
Common stock, $.001 par value
    
50,000,000 shares authorized
    
10,509,609 and 9,072,312 shares issued and outstanding
    
10,509
   
9,072
 
Paid-in capital
   
6,486,881
   
2,248,618
 
Retained (deficit)
    
(2,299,256
)
  
10,811
 
Total stockholders’ equity
    
4,198,189
   
2,268,589
 
Total liabilities and stockholders’ equity
  
$
9,770,442
  
$
6,055,366
  
 
See accompanying notes.
 
F-2

Findex.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Years Ended December 31
    
2000
    
1999
  
 
    
(Restated)
    
(Restated)
 
 
Revenues, net of reserves and allowances
  
$
7,038,451
  
$
5,954,207
  
Cost of sales (Note 18)
    
2,404,436
   
1,643,741
 
Gross profit
    
4,634,015
   
4,310,466
 
Operating expenses:
Sales and marketing
    
1,579,362
   
1,039,581
 
General and administrative
    
6,195,405
   
1,550,529
 
Bad debt expense
    
18,024
   
11,000
 
Amortization expense
    
585,140
   
276,879
 
Depreciation expense
    
26,385
   
8,427
 
Total operating expenses
    
8,404,316
   
2,886,416
 
Earnings (loss) from operations
    
(3,770,301
)
  
1,424,050
 
Interest income
    
10,171
   
4,405
 
Other income
    
2,873
   
---
 
Interest expense
    
(58,939
)
  
(4,024
)
Income (loss) before income taxes
    
(3,816,196
)
  
1,424,431
 
Provision for income taxes (Note 8)
    
1,561,003
   
(602,000
)
Net income (loss)
  
$
(2,255,193
)
$
822,431
  
 
Net earnings (loss) per share (Note 10):
Basic
  
$
(0.24
)
$
0.11
  
Diluted
  
$
(0.24
)
$
0.10
  
 
Weighted average shares outstanding (Note 10):
Basic
    
9,791,535
   
7,767,416
 
Diluted
    
9,791,535
   
8,035,085
 
 
See accompanying notes.
 
F-3
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
  
Retained
        
 
  
Preferred Stock
Common Stock
  
Paid-In
    
Earnings
        
 
    
Series A
    
Series B
    
Shares
    
Amount
    
Capital
    
(Deficit)
 
  
Total
  
 
Balance, December 31, 1998
  
$
---
  
$
---
    
5,157,625
 
$
5,157
  
$
722,621
  
$
(811,620
)
$
(83,842
)
April 30 Reverse merger & reorganization
    
adjustment for minority stockholders
    
of EJH Entertainment, Inc.
    
---
   
---
   
3,914,687
   
3,915
   
(3,915
)
  
---
   
---
 
Preferred Series A shares issued for cash
    
20
   
---
   
---
   
---
   
199,980
   
---
   
200,000
 
Preferred Series B shares issued for cash
    
---
   
68
   
---
   
---
   
1,349,932
   
---
   
1,350,000
 
Offering cost
    
---
   
---
   
---
   
---
   
(20,000
)
  
---
   
(20,000
)
Net income, December 31, 1999 (Restated)
    
---
   
---
   
---
   
---
   
---
   
822,431
   
822,431
 
Balance, December 31, 1999 (Restated)
  
$
20
  
$
68
    
9,072,312
 
$
9,072
  
$
2,248,618
  
$
10,811
  
$
2,268,589
  
Issuance of Common Stock for
    
Acquisition of Reagan Holdings, Inc.
    
---
   
---
   
150,000
   
150
   
551
   
---
   
701
 
Conversion of preferred stock
    
(5
)
  
(28
)
  
233,333
   
233
   
---
   
---
   
200
 
Preferred Series A common stock dividend
    
---
   
---
   
695
   
1
   
3,496
   
(3,541
)
  
(44
)
Preferred Series B common stock dividend
    
---
   
---
   
17,109
   
17
   
51,160
   
(51,333
)
  
(156
)
Common stock issued for cash
    
---
   
---
   
362,500
   
363
   
724,637
   
---
   
725,000
 
Offering cost
    
---
   
---
   
24,375
   
24
   
(21,204
)
  
---
   
(21,180
)
Common stock issued for services
    
---
   
---
   
649,285
   
649
   
3,314,925
   
---
   
3,315,574
 
Common stock warrants issued for services
    
---
   
---
   
---
   
---
   
106,696
   
---
   
106,696
 
Pre-EJH debt reclassification
    
---
   
---
   
---
   
---
   
58,002
   
---
   
58,002
 
Net loss, December 31, 2000 (Restated)
    
---
   
---
   
---
   
---
   
---
   
(2,255,193
)
  
(2,255,193
)
Balance, December 31, 2000 (Restated)
  
$
15
  
$
40
    
10,509,609
 
$
10,509
  
$
6,486,881
  
$
(2,299,256
)
$
4,198,189
  
 
See accompanying notes.
 
 
 
F-4
 
Findex.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years Ended December 31
    
2000
    
1999
  
 
    
(Restated)
    
(Restated)
 
Cash flows from operating activities:
Cash received from customers
  
$
6,704,383
  
$
3,339,109
  
Cash paid to suppliers and employees
    
(5,725,619
)
  
(2,780,097
)
Interest paid
    
(1,424
)
  
(4,024
)
Interest received
    
4,827
   
4,405
 
Income taxes paid
    
(3,272
)
  
---
 
Net cash provided by operating activities
    
978,895
   
559,393
 
Cash flows from investing activities:
Acquisition of property, plant and equipment
    
(35,538
)
  
(106,400
)
Cash received in merger with Reagan Holdings, Inc.
    
701
   
---
 
Cash paid for note receivable
    
(240,000
)
  
---
 
Website development costs
    
(8,343
)
  
---
 
Cash paid for software license agreement
    
(2,073,788
)
  
(2,035,074
)
Deposits paid
    
(250
)
  
(859
)
Net cash (used) by investing activities
    
(2,357,218
)
  
(2,142,333
)
Cash flows from financing activities:
Proceeds from issuance of notes payable
    
549,000
   
200,000
 
Proceeds from issuance of stock
    
703,819
   
1,530,000
 
Net cash provided by financing activities
    
1,252,819
   
1,730,000
 
Net increase (decrease) in cash and cash equivalents
    
(125,504
)
  
147,060
 
Cash and cash equivalents, beginning of year
    
147,272
   
212
 
Cash and cash equivalents, end of year
  
$
21,768
  
$
147,272
  
 
Reconciliation of net income (loss) to cash flows from operating activities:
Net income (loss)
  
$
(2,255,193
)
$
822,431
  
Adjustments to reconcile net income (loss) to net cash
   
provided by operating activities:
    
Stock and warrants issued for services
    
3,422,270
   
---
 
Provision for bad debts
    
18,024
   
11,000
 
Depreciation & amortization
    
611,525
   
285,306
 
Change in assets and liabilities:
    
(Increase) in accounts receivable
    
(604,174
)
  
(2,879,457
)
(Increase) in inventories
    
(72,554
)
  
(545,348
)
(Increase) in prepaid expenses
    
(21,244
)
  
(13,603
)
Increase in accrued royalties
    
870,602
   
728,871
 
Increase (decrease) in accounts payable
    
(6,216
)
  
1,063,417
 
Increase (decrease) in income taxes payable
    
(730,716
)
  
46,169
 
Increase (decrease) in deferred taxes
    
(833,559
)
  
555,831
 
Increase in other liabilities
    
580,130
   
484,776
 
Net cash provided by operating activities
  
$
978,895
  
$
559,393
  
 
See accompanying notes.
 
F-5

FindEx.com, Inc.
Notes to Consolidated Financial Statements
December 31, 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

FindEx.com, Inc. (“FindEx” or the “Company”) was incorporated under the laws of the State of Delaware on December 26, 1995, as FinSource, Ltd. In April 1999, the Company merged with FINdex Acquisition Corporation (FAC), a Delaware corporation, in a stock for stock transaction. On April 30, 1999, the Company was acquired by EJH Entertainment, Inc. (EJH), a Nevada corporation, in a stock for stock transaction and the name of the Company was changed to FindEx.com, Inc. Both the merger with FAC and the acquisition by EJH were treated as reorganization mergers with the surviving Company and accounting history being that of FinSource (the accounting acquirer).

FindEx is a retail, wholesale and Internet supplier of software products to business and religious organizations and individuals. In July 1999, the Company completed an exclusive license agreement with Parsons Technology, Inc., a subsidiary of TLC, formerly Mattel Corporation, for the Parsons Church Division of Mattel. In so doing, FindEx obtained the exclusive right to market, sell and continue to develop several Bible study software products. The Company develops and publishes church and Bible study software products designed to simplify Biblical research and streamline church office tasks.

Accounting Method

The Company recognizes income and expenses on the accrual basis of accounting.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after eliminations.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Significant estimates used in the consolidated financial statements include the estimates of (i) doubtful accounts, sales returns, price protection and rebates, (ii) provision for income taxes and realizability of the deferred tax assets, (iii) the life and realization of identifiable intangible assets, and (iv) provisions for obsolete inventory. The amounts FindEx will ultimately incur or recover could differ materially from current estimates.

Concentrations

Financial instruments that potentially subject FindEx to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. FindEx places its cash and cash equivalents at well-known, quality financial institutions. At times, cash balances held at financial institutions were in excess of federally insured limits. FindEx sells a majority of its products to end-users through distributors, Christian book stores, and telemarketing efforts. Although FindEx attempts to prudently manage and control accounts receivable and performs ongoing credit evaluations in the normal course of business, the Company generally requires no collateral on its product sales.

During the years ended December 31, 2000 and 1999, the Company had two major customers that individually accounted for 10% or more of the annual sales. Sales to Customer A accounted for 41% and 69%, respectively, and sales to Customer B accounted for 14% and 0%, respectively, of consolidated revenue for the years ended December 31, 2000 and 1999. Accounts receivable, net of offsets, relating to Customer A and Customer B, were $2,867,293 and $426,432 as of December 31, 2000, respectively.

F-6
 
During the years ended December 31, 2000 and 1999, five vendors provided purchases individually of 10% or more of the total product and material purchases as follows: Vendor A accounted for 17% and 47%, respectively, Vendor B accounted for 3% and 14%, respectively, Vendor C accounted for 28% and 12%, respectively, Vendor D accounted for 13% and 6%, respectively, and Vendor E accounted for 12% and 0%, respectively. Accounts payable relating to Vendor A, Vendor B, Vendor C, Vendor D, and Vendor E, were $0, $101,090, $113,860, $27,646, and $162,081, respectively, as of December 31, 2000.

Royalty Agreements

FindEx has entered into certain agreements whereby it is obligated to pay royalties for content of software published. FindEx generally pays royalties based on a percentage of sales on respective products or on a fee per unit sold basis. The Company expenses software royalties as product costs during the period in which the related revenues are recorded.

Cash and Cash Equivalents

FindEx considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventory

Inventory consists primarily of software media, manuals and related packaging materials and is recorded at the lower of cost or market value, determined on a first-in, first-out basis.

Software Development Costs

Statement of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, provides for the capitalization of certain software development costs once technological feasibility is established. Capitalized costs are then amortized on a straight-line basis over the estimated product life, or on the ratio of current revenues to total projected product revenues, whichever is greater. Through December 31, 2000, the Company believes its process for developing software was essentially completed concurrent with the establishment of technological feasibility, and accordingly, no software development costs have been capitalized to date. For 2000, research and development costs incurred and charged to expense were $118,600.

Property and Equipment

Property and equipment are recorded at cost. Furniture, fixtures and computer equipment are depreciated over five years using the straight-line method. Software is depreciated over three years using the straight-line method. Expenditures for maintenance, repairs and other renewals of items are charged to expense when incurred.

Accounting for Long-Lived Assets

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of its carrying amount to future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. Property and equipment to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

F-7
 
Revenue Recognition

The Company recognizes revenue from product sales at shipment provided that collection of the resulting receivable is probable, in accordance with SOP 97-2, Software Revenue Recognition. Software products are sold separately, without future performance such as upgrades or maintenance, and are sold with postcontract customer support (PCS) services. PCS revenue is recognized on delivery of the software and all associated costs are accrued. The Company maintains an allowance for potential credit losses and an allowance for anticipated returns on products sold to distributors, Christian bookstores, and direct customers. The allowance for sales returns is estimated based on a calculation of forecast sales to the end-user in relation to estimated current channel inventory levels.
 
Cooperative Advertising

Advertising costs are charged to operations as incurred. The Company reimburses certain qualified customers for a portion of the advertising costs related to their promotion of the Company’s products. The liability for reimbursement is accrued at the time the advertisement occurs. For 2000 and 1999, cooperative advertising expense totaled approximately, $206,000, and $63,000, respectively.

Stock-based Compensation

As permitted under SFAS No. 123, Accounting for Stock-based Compensation, the Company has elected to follow the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based awards to employees (see Note 11) and, accordingly, does not recognize compensation cost.

Income Taxes

The Company utilizes SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Earnings (Loss) Per Share

The Company follows SFAS No. 128, Earnings Per Share, to calculate and report basic and diluted earnings per share (“EPS”). Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by giving effect to all dilutive potential common shares that were outstanding during the period. For the Company, dilutive potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants for all periods, convertible notes payable and the incremental common shares issuable upon the conversion of convertible preferred stock.

In the case of a net loss, it is assumed that no incremental shares would be issued because they would be anti-dilutive. In addition, certain options and warrants are considered antidilutive because the exercise prices were above the average market price during the period. Anti-dilutive shares are not included in the computation of diluted earnings per share, in accordance with SFAS No. 128. Diluted EPS for the year ended December 31, 1999, has been restated in conformity with SFAS No. 128.

Comprehensive Income (Loss)

The Company has adopted SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards of reporting and displaying comprehensive income and its components of net income and “other comprehensive income” in a full set of general-purpose financial statements. “Other comprehensive income” refers to revenues, expenses, gains and losses that are not included in net income, but rather are recorded directly in stockholders’ equity. The adoption of this Statement had no impact on the Company’s net income or loss or stockholders’ equity.

Fair Value of Financial Instruments

Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such instruments.

F-8
 
Reclassification

Certain amounts in the accompanying 1999 consolidated financial statements have been reclassified in order to conform to the presentation of the 2000 consolidated financial statements. Net cash provided by operating activities decreased from $2,915,533 to $559,393 and net cash used by investing activities decreased from $4,498,473 to $2,142,333 as a result of separating operating transactions previously offset against cash paid for software license agreement.

NOTE 2 - MERGERS AND ACQUISITIONS

EJH Entertainment, Inc.

On April 30, 1999, EJH Entertainment, Inc. (EJH) (a public company) entered into an agreement and Plan of Reorganization with FindEx.com, Inc., (FindEx) (a private company). The agreement provided for the merger of EJH into FindEx to be treated as a reverse merger, thus making FindEx the accounting survivor. Pursuant to the agreement, EJH issued 5,157,625 hares of common stock to the shareholders of FindEx for all shares of their company. Because the historical financial information in these financial statements prior to the reverse merger (April 30, 1999) is that of the accounting acquirer (FindEx), a reorganization adjustment has been shown on the books at April 30, 1999, recording the shares held by the minority shareholders of EJH. The 5,157,625 shares issued to the shareholders of FindEx have been shown retroactively to the beginning of 1998, as though a stock split had occurred. The management of EJH resigned and the management and Board of FindEx filled the vacancy. This business combination was accounted for using the purchase method. EJH had no assets or liabilities and was an inactive public company.

Reagan Holdings, Inc.

On March 7, 2000, the Company acquired Reagan Holdings, Inc., (“Reagan”) a Delaware corporation. The Company issued 150,000 shares of common stock for all the outstanding stock of Reagan. The purchase was recorded at a value of $701. Reagan had assets of $701 and no liabilities at December 31, 1999 and was an inactive public company. The operating history of Reagan is included in the consolidated numbers of the Company effective January 1, 2000. The acquisition was recorded using the purchase method of a business combination.

NOTE 3 - ACCOUNTS RECEIVABLE (Restated)

At December 31, 2000 and 1999, accounts receivable consisted of the following (see Note 1 - Concentrations):

     
2000
    
1999
  
Trade receivables
  
$
3,477,983
  
$
394,367
  
Less: Allowance for doubtful accounts
    
22,000
    
11,000
  
   
$
3,455,983
  
$
383,367
  

NOTE 4 - INVENTORIES

At December 31, 2000 and 1999, inventories consisted of the following:

     
2000
    
1999
  
Finished goods
  
$
435,180
  
$
326,598
  
Raw materials
    
182,722
    
218,750
  
   
$
617,902
  
$
545,348
  

F-9
 
NOTE 5 - PROPERTY AND EQUIPMENT, net

At December 31, 2000 and 1999, property and equipment consisted of the following:

     
2000
    
1999
  
Office furniture and fixtures
  
$
33,287
  
$
51,460
  
Office equipment
    
14,501
    
---
  
Warehouse equipment
    
28,923
    
---
  
Computer software
    
16,731
    
14,833
  
Computer equipment
    
48,496
    
40,107
  
     
141,938
    
106,400
  
Less: Accumulated depreciation
    
34,812
    
8,427
  
   
$
107,126
  
$
97,973
  

NOTE 6 - SOFTWARE LICENSE AGREEMENT

As indicated in Note 1, in July 1999, the Company completed an exclusive license agreement with Parsons Technology, Inc., a subsidiary of TLC, for the Parsons Church Division. In so doing, FindEx obtained the exclusive right to market, sell, and continue to develop several top-selling Bible study software products including the Zondervan NIV Bible and QuickVerse. The agreement calls for a non-refundable license fee in the amount of $5,000,000, payable in installments of: (1) $1,000,000 upon execution of the agreement, (2) $500,000 on August 1, 1999, (3) $500,000 on September 7, 1999, (4) $1,500,000 on December 7, 1999, (5) $1,000,000 on March 7, 2000, and (6) $500,000 on June 7, 2000. The agreement carries a ten-year term from the date of execution and also includes a five-year non-compete provision (see Note 1 - Concentrations and Notes 15 and 16). The license is amortized over the term using the straight-line method.

NOTE 7 - NOTES PAYABLE

At December 31, 2000 and 1999, notes payable consisted of the following:

     
2000
    
1999
  
 
Note payable to a corporation, due December 14, 2001, with interest at 9%. Unsecured.
  
$
650,000
  
$
200,000
  
 
Note payable to a corporation, due November 6, 2001, with interest at 15%. Secured by accounts receivable and convertible, at the option of the holder, into 50,000 common shares.
    
33,000
    
---
  
 
Note payable to a corporation, due November 6, 2001, with interest at 15%. Secured by accounts receivable and convertible, at the option of the holder, into 50,000 common shares.
    
33,000
    
---
  
 
Note payable to a corporation, due November 6, 2001, with interest at 15%. Secured by accounts receivable and convertible, at the option of the holder, into 50,000 common shares.
    
33,000
    
---
  
   
$
749,000
  
$
200,000
  

F-10
 
NOTE 8 - INCOME TAXES (Restated)

The provision (benefit) for taxes on income for the years ended December 31 consisted of the following:

     
2000
    
1999
  
Current:
              
Federal
   $
(3,272
)
$
3,272
  
State
    
(341
)
  
42,897
  
     
(3,613
)
  
46,169
  
Deferred:
              
Federal
    
(1,244,013
)
  
433,658
  
State
    
(313,377
)
  
122,173
  
     
(1,557,390
)
  
555,831
  
Total tax provision (benefit)
   $
(1,561,003
)
$
602,000
  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2000, are as follows:

Current Deferred Tax Assets:
        
Net operating loss carryforward
  
$
210,000
  
Reserve for sales returns
    
119,596
  
Reserve for technical support costs
    
94,290
  
Reserve for rebates payable (restated)
    
104,849
  
Other, net
    
15,714
  
     
544,449
  
Valuation allowance for deferred tax assets (restated)
    
(39,451
)
Net Current Deferred Tax Assets
    
504,998
  

Non-Current Deferred Tax Assets:
        
Software license fees
   $
(1,356,382
)
Net operating loss carryforward (restated)
    
1,884,391
  
Other, net
    
(18,490
)
     
509,519
  
Valuation allowance for deferred tax assets
    
(12,958
)
Net Non-Current Deferred Tax Assets
    
496,561
  
Net Deferred Tax Assets
  
$
1,001,559
  

The valuation allowance for deferred tax assets was increased by $52,409 during the year ended December 31, 2000.

At December 31, 2000, the Company has available net operating loss carryforwards of approximately $5,263,000 for federal income tax purposes that expire in 2020. The federal carryforwards resulted from losses generated in 1996 through 2000. The tax benefit of net operating loss carryforwards available for state income tax purposes was approximately $5,081,000 as of December 31, 2000.

The reconciliation of income tax computed at statutory rates of income tax benefits is as follows:

Benefit at Federal statutory rate - 34%
   $
(1,295,000
)
Nondeductible expenses
    
2,300
  
Change in valuation reserves
    
83,000
  
License fees
    
(311,000
)
Other
    
(40,303
)
Income tax provision
   $
(1,561,003
)

F-11
 
NOTE 9 - STOCKHOLDERS’ EQUITY

Common Stock

On February 1, 2000, pursuant to a consulting agreement with a company to provide investor relations services, FindEx issued 120,000 common shares with 36,000 shares vesting immediately and the remaining 84,000 shares vesting ratably over the twelve-month term of the agreement. The cumulative value based on the closing price of the common stock on the date of vesting was $555,363. On November 30, 2000, FindEx entered into a fee agreement with the company to satisfy a $75,055 debt owed under the terms on the consulting agreement. In settlement of this debt, FindEx issued 89,285 common shares valued at $.84 per share.

On February 1, 2000, pursuant to a consulting agreement with a company to provide business development and finance, FindEx issued 250,000 common shares valued at $8.69 per share.

On March 21, 2000, FindEx issued 150,000 common shares pursuant to the merger with Reagan Holdings, Inc. (see Note 2).

On April 20, 2000, pursuant to a consulting agreement with a company to provide corporate development and growth, FindEx issued 50,000 common shares valued at $3.13 per share.

On May 16, 2000, FindEx entered into a fee agreement with a company to satisfy a $100,000 debt owed under a business development agreement. In settlement of this debt, FindEx issued 23,500 common shares valued at $4.26 per share.

On June 16, 2000, in compromise and settlement of a consulting agreement with a company, FindEx issued 50,000 common shares valued at $3.63 per share. The company has subsequently claimed that additional shares are due.

In July 2000, FindEx converted 5,000 shares of Preferred Series A into 50,000 common shares and 27,500 shares of Preferred Series B into 183,333 common shares. In addition, FindEx converted $3,541 unpaid accumulated Preferred Series A dividends into 695 common shares and $51,133 unpaid accumulated Preferred Series B dividends into 17,109 common shares.

On August 18, 2000, pursuant to a consulting agreement with a company to provide business valuation services, FindEx issued 50,000 common shares valued at $1.31 per share.

On December 15, 2000, pursuant to a consulting agreement with an individual for investor relations services, FindEx issued 12,500 common shares valued at $.81 per share. Terms of the agreement call for monthly compensation of $2,500 plus 12,500 common shares through February 15, 2001, and $5,000 plus 7,000 common shares thereafter until expiration on December 14, 2001, or earlier termination as provided in the agreement.

During 2000, FindEx issued 362,500 common shares to investors for cash of $725,000 pursuant to a stock subscription agreement dated April 28, 2000. As compensation for this subscription agreement, FindEx issued a total of 24,375 common shares to two individuals at a value of $2.00 per share.

Convertible Preferred Stock (Series A)

The rights, preferences and privileges of the preferred shareholders are as follows:

Dividends

Holders of Series A Preferred Stock (the Preferred Stock) are entitled to receive common stock dividends of $.50 per share per annum, in preference to any payment of cash dividends declared or paid on shares of common stock. Dividends on Preferred Stock are fully cumulative and are payable as determined by the Board of Directors. As of December 31, 2000, no dividends have been declared.

Liquidation

Holders of Preferred Stock are entitled to liquidation preferences over common shareholders to the extent of $10.00 per share of Preferred Stock, plus all declared but unpaid dividends. If funds are sufficient to make a complete distribution to the preferred shareholders, such shareholders will share in the distribution of the Company assets on a pro rata basis in proportion to the aggregate preferential amounts owed each shareholder. After payment has been made to the preferred shareholders, any remaining assets and funds are to be distributed equally among the holders of the Common Stock based upon the number of shares of the Common Stock held by each.

F-12
 
Conversion

Each share of Convertible Preferred Stock shall be convertible at the option of the holder thereof, at any time prior to the close of business on the date fixed by the Corporation for redemption or conversion of such shares as herein provided, into fully paid and nonassessable shares of common stock and such other securities and property as hereinafter provided, initially at the rate of 10 shares of common stock for each full share of convertible Preferred Stock.

Redemption

At the election of the Board of Directors, the Company may redeem all or part of the shares of the Preferred Stock (pro rata based upon the total number of shares of the Preferred Stock held by each holder) by paying in cash a sum per share equal to $10.00 plus accrued and unpaid dividends per annum.

Voting Rights

The holder of each share of Preferred Stock is not entitled to vote except as required by law.

Convertible Preferred Stock (Series B)

The rights, preferences and privileges of the preferred shareholders are as follows:

Dividends

The holders are entitled to receive cash dividends at the rate of $1.60 per annum per share, and not more, which shall be fully cumulative, shall accrue without interest from the date of first issuance and shall be payable quarterly in arrears on March 15, June 15, September 15, and December 15 of each year commencing September 15, 1999, to holders of record as they appear on the stock books of the corporation on such record dates, not more than 60 nor less than 10 days preceding the payment dates for such dividends, as are fixed by the Board of Directors. As of December 31, 2000, no dividends have been declared.

Liquidation

The holders are entitled to a liquidation preference of an amount equal to the dividends accrued and unpaid, whether or not declared, without interest, and a sum equal to $20.00 per share, and not more, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of the Corporation’s capital stock ranking junior as to liquidation rights to the Convertible Preferred Stock.

Conversion

Each share of convertible Preferred Stock shall be convertible at the option of the holder thereof, at any time prior to the close of business on the date fixed by the Corporation for redemption of such share as herein provided, into fully paid and nonassessable shares of Common Stock and such other securities and property as hereinafter provided, initially at the rate of one (1) share of Common Stock for each full share of Convertible Preferred Stock.

Redemption

Subject to restrictions, shares of the Series shall be redeemable at the option of the Corporation at any time at the redemption price of $20.00 per share plus, in each case, an amount equal to the dividends accrued and unpaid thereon to the redemption date. The Corporation may not redeem any shares of Preferred Stock unless the current market value of the Corporation’s Common Stock, as defined, immediately prior to the redemption date is not less than $18.00 per share.

Voting Rights

The holder of each share of Preferred Stock is not entitled to vote, except as required by law.

F-13
 
Warrants

On April 20, 2000, pursuant to a consulting agreement with a company to provide corporate development and growth, as mentioned above, FindEx issued warrants to purchase 100,000 common shares exercisable at $3.00 per share. The warrants are currently exercisable and expire in April 2001. The fair value of the warrants is estimated on the date of grant using the Black-Scholes option-pricing model with the same assumptions indicated in Note 11 below. In association with the warrants, the Company recognized $106,696 of consulting expense.

NOTE 10 - EARNINGS PER COMMON SHARE (Restated)

Earnings per common share are computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding during the year. Common stock equivalents are the net additional number of shares that would be issuable upon the exercise of the outstanding common stock options (see Note 11), assuming that the Company reinvested the proceeds to purchase additional shares at market value.

The following table shows the amounts used in computing earnings per share and the effect on income (loss) and the average number of shares of dilutive potential common stock:

For the Year Ended December 31, 1999
    
Income (Loss) (Numerator)
 
  
Shares (Denominator)
 
  
Per-share Amount
  
Net Income (restated)
  
$
822,431
              
Less preferred stock dividends
    
---
              
Income available to common stockholders-basic earnings per share
    
822,431
    
7,767,416
  
$
0.11
  
Effect of Dilutive Securities
                    
Options
    
---
    
169
        
Convertible Preferred Series A
    
---
    
200,000
        
Convertible Preferred Series B
    
---
    
67,500
        
Income available to common stockholders-diluted earnings per share
  
$
822,431
    
8,035,085
  
$
0.10
  
 
For the Year Ended December 31, 2000
    
Income (Loss) (Numerator)
 
  
Shares (Denominator)
 
  
Per-share Amount
  
Net Loss (restated)
  
$ 
(2,255,193
)
            
Less preferred stock dividends
    
(54,874
)
            
Loss available to common stockholders-basic earnings per share
    
(2,310,067
)
  
9,791,535
  
$
(0.24
)
Effect of Dilutive Securities
                    
Options
    
---
    
---
        
Convertible notes payable
    
---
    
---
        
Convertible Preferred Series A
    
---
    
---
        
Convertible Preferred Series B
    
---
    
---
        
Warrants
    
---
    
---
        
Loss available to common stockholders-diluted earnings per share
  
$ 
(2,310,067
)
  
9,791,535
  
$
(0.24
)

A total of 1,887,450 and 587,831 potentially dilutive securities for the years ended December 31, 2000 and 1999, respectively, have been excluded from the computation of diluted earnings per share, as their inclusion would be anti-dilutive.

F-14
 
NOTE 11 - STOCK-BASED COMPENSATION

The Stock Incentive Plan (the “Plan”) authorizes the issuance of various forms of stock-based awards including incentive and nonqualified stock options, stock appreciation rights attached to stock options, and restricted stock awards to directors, officers and other key employees of the Company. Stock options are granted at an exercise price as determined by the Board at the time the Option is granted and shall not be less than the par value of such shares of Common Stock. Stock options vest quarterly over three years and have a term of ten years. At December 31, 2000, 7,638,800 shares were available for future issuance under the Plan.

The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for outstanding stock options. Had compensation cost for the Company’s outstanding stock options been determined based on the fair value at the grant date for those options consistent with SFAS No. 123, the Company’s net loss and primary and diluted earnings per share would have differed as reflected by the pro forma amounts indicated below:

Net loss:
        
As reported (restated)
  
$
(2,255,193
)
Proforma (restated)
  
$
(2,508,932
)
       
 
Basic loss per share:
        
As reported (restated)
  
$
(0.24
)
Proforma (restated)
  
$
(0.26
)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Expected dividend yield
    
0
%
Expected stock price volatility
    
78
%
Risk-free interest rate
    
7.00
%

The weighted average fair value of options granted during 2000 is $.54 per share.

The following table summarizes information about stock options outstanding at December 31, 2000.

Range of Exercise Prices
    
Number Outstanding at December 31, 2000
    
Weighted-Average Remaining Contractual Life (Years)
 
  
Weighted Average Exercise Price
  
$1.00 to $2.00
    
975,000
    
9.8
  
$
1.13
  
$6.00 to $8.00
    
60,000
    
8.6
  
$
6.39
  
$8.01 to $10.00
    
16,200
    
8.8
  
$
9.21
  
$10.01 to $12.00
    
310,000
    
8.7
  
$
11.00
  

Activity under the Company’s stock option plan is summarized as follows:

 
        
Outstanding Options 
 
    
Shares Available for Grant
    
Number of Shares
    
Weighted Average Exercise Price
  
Balance at December 31, 1999
    
8,412,000
    
588,000
  
$
10.47
  
Granted
    
(975,000
)
  
975,000
  
$
1.13
  
Canceled
    
201,800
    
(201,800
)
$
10.98
  
Exercised
    
---
    
---
    
---
  
Balance at December 31, 2000
    
7,638,800
    
1,361,200
  
$
3.71
  

F-15
 
NOTE 12 - RENTAL AND LEASE INFORMATION

The Company leases office space and warehouse facilities under operating leases with third-parties with terms extending through 2002. The Company is responsible for all taxes, insurance and utility expenses associated with these leases. Lease renewal options are present for a period of one year. Rental expense for the years ended December 31, 2000 and 1999 amounted to $170,597 and $60,550, respectively.

At December 31, 2000, the future minimum rental payments required under these leases are as follows:

2001
  
$
119,958
  
2002
    
73,311
  
   
$
193,269
  

NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION

The Company incurred the following non-cash investing and financing activities during the years ended December 31, 2000 and 1999, respectively:

     
2000
    
1999
  
Common stock and warrants issued for services
  
$
3,422,270
    
---
  
Common stock dividend
    
54,874
    
---
  
Conversion of preferred stock to common stock
    
201
    
---
  
Common stock issued to acquire Reagan Holdings, Inc., a Delaware corporation
    
150
    
---
  

NOTE 14 - COMMITMENTS AND CONTINGENCIES

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position of the Company.

The Company maintains a self-insurance program for its employees’ health care costs. The Company is potentially liable for losses on claims up to $10,000 per claim and $518,500 in total for the year. The Company has third-party insurance coverage for any losses in excess of such amounts. Self-insurance costs are accrued based on claims reported as of the balance sheet date as well as an estimated liability for claims incurred but not reported. All accrued costs had been paid to the third-party administrator of the program at both December 31, 2000 and 1999.

NOTE 15 - RISKS AND UNCERTAINTIES

The Company’s future operating results may be affected by a number of factors. The Company is dependent upon a number of major inventory and intellectual property suppliers. If a critical supplier had operational problems or ceased making material available to the Company, operations could be adversely affected. The Company is also dependent upon a few major customers. If any of these customers experienced operational problems or ceased placing orders with the Company, operations could also be adversely affected.

The Company is currently in dispute with TLC over various provisions of several agreements, including the software license agreement (see Note 6). Company management believes the amount of the potential loss cannot be reasonably estimated.

F-16
 
NOTE 16 - GOING CONCERN

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has a current year operating loss, a negative current ratio and is dependent upon financing to continue operations. As indicated in Note 15, the Company is currently in dispute with The TLC. Sales to TLC, and subsidiaries, accounted for 41% of consolidated revenue for 2000. Accounts receivable, net of offsets, relating to TLC was $2,867,293 as of December 31, 2000. Due to the uncertainty regarding the timing and amount of ultimate collection, the Company is dependent upon financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plan to utilize external funding sources, as discussed in Note 17, to provide cash necessary to fund ongoing operations and the Company’s business plan. However, the anticipated offering may not provide proceeds sufficient to fund operations and meet the needs of the Company’s business plans. Management believes collection of the TLC balance and realization of ongoing revenues would be sufficient to fund operations and allow the external funding to meet the needs of the Company’s business plans.

NOTE 17 - SUBSEQUENT EVENTS

On March 20, 2001, the Company entered into a Letter of Agreement with an institutional private equity investor (the “Investor”) whereby the Investor shall execute an irrevocable Investment Agreement for the purchase of Common Stock from FindEx up to an aggregate amount equal to $15 million over a 36-month period. As compensation, the Investor shall receive, upon execution of the Agreement, a warrant to purchase 510,000 shares of FindEx Common Stock exercisable in three increments. In addition, the Investor may be entitled to additional warrants on each six-month anniversary of the closing depending on the number of fully diluted shares of the Company then outstanding or issuable. The consummation of the financing contemplated by the Letter of Agreement is subject to numerous conditions, including completion of due diligence by the Investor, the Company’s entry into definitive agreements with the Investor, and the effectiveness with the Securities and Exchange Commission of a registration statement covering the resale of the shares to be issued to the Investor, and there can be no assurance that the financing will be consummated on the term described herein, or at all.

NOTE 18 - RESTATEMENT AND RECLASSIFICATION
 
The Company has restated its financial statements for the years ended December 31, 2000 and 1999 to reflect issues identified during a regulatory review of our financial statements associated with a certain registration statement filed with the SEC on November 22, 2004 on Form SB-2 and which is pending effectiveness as of the date of this filing of Amendment Number 1 to Form 10-KSB for the year ended December 31, 2000. Management and the board of directors concluded these restatements were necessary to reflect the changes described below.

During the year ended December 31, 2000, we discontinued the use of a third-party to process rebate claims. Rebate program details were obtained from the third-party processor and a liability was recorded for the unpaid rebate claims monthly beginning July 1999 and continuing through October 2000. In 2004, we discovered that the unpaid rebate claims were duplicated between reports received from the third-party processor and as a result the liability recorded upon our assumption of the rebate claim fulfillment was also duplicated. This was previously reported as an adjustment to beginning retained earnings on the 2004 Form 10-KSB filed thereon. Accordingly, we have restated our consolidated balance sheet as of December 31, 2000 and our consolidated statements of operations, consolidated statements of stockholders’ equity, and consolidated statements of cash flows for the year then ended.
 
F-17

A summary of the effects of these changes is as follows:

Findex.com, Inc.
CONSOLIDATED BALANCE SHEETS
December 31, 2000
 
 
  
As Previously Reported 
    
As Restated
   
Change
   
Assets
Current assets:
  
Cash and cash equivalents
        
$
21,768
  
$
21,768
  
$
---
    
Accounts receivable, trade
          
3,884,858
   
3,455,983
   
(428,875
)
(a)
Inventories
          
617,902
   
617,902
   
---
   
Deferred income taxes, net
          
504,998
   
504,998
   
---
   
Other current assets
          
274,847
   
274,847
   
---
   
Total current assets
          
5,304,373
   
4,875,498
   
(428,875
)
  
Property and equipment, net
  
107,126
   
107,126
   
---
   
Software license, net
  
4,279,813
   
4,279,813
   
---
   
Deferred income taxes, net
  
328,561
   
496,561
   
168,000
 
(b)
Other assets
 
11,444
   
11,444
   
---
   
Total assets
        
$
10,031,317
  
$
9,770,442
  
$
(260,875
)
  
 
  
Liabilities and stockholders’ equity
Current liabilities:
  
Accounts payable, trade
        
$
1,188,289
  
$
1,089,343
  
$
(98,946
)
(c)
Notes payable
          
749,000
   
749,000
   
---
 
 
Accrued royalties
         
1,625,427
   
1,599,473
   
(25,954
)
(d)
Accrued income taxes
          
39,284
   
39,284
   
---
   
Reserve for technical support charges
          
224,500
   
224,500
   
---
   
Accrued expenses
          
178,729
   
178,729
   
---
   
Reserve for sales returns
          
284,752
   
284,752
   
---
   
Reserve for rebates
          
380,460
   
380,460
   
---
   
License fee payable
          
1,026,712
   
1,026,712
   
---
   
Total current liabilities
          
5,697,153
   
5,572,253
   
(124,900
)
  
Stockholders’ equity:
  
Preferred stock, $.001 par value
      
5,000,000 shares authorized
      
Series A: 15,000 shares issued and outstanding
          
15
   
15
   
---
   
Series B: 40,000 shares issued and outstanding
          
40
   
40
   
---
   
Common stock, $.001 par value
      
50,000,000 shares authorized
      
10,509,609 shares issued and outstanding
          
10,509
   
10,509
   
---
   
Paid-in capital
         
6,486,881
   
6,486,881
   
---
   
Retained (deficit)
          
(2,163,281
)
  
(2,299,256
)
  
(135,975
)
  
Total stockholders’ equity
          
4,334,164
   
4,198,189
   
(135,975
)
  
Total liabilities and stockholders’ equity
        
$
10,031,317
  
$
9,770,442
  
$
(260,875
)
  
 
              
(a) Decrease from exclusion of revenue from BMG inventory and cost of BMG inventory.
(b) Increase from net income tax effects of changes.
(c) Decrease from elimination of duplicate payable to third-party rebate processor.
(d) Decrease from royalty effects of BMG inventory transaction.
 
F-18
 
Findex.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000
 
 
  
As Previously Reported
    
As Restated
    
Change
    
         
Revenues, net of reserves and allowances
$
7,154,964
  
$
7,038,451
  
$
(116,513
)
(a)
Cost of sales
  
2,270,144
   
2,404,436
   
134,292
 
(b)
Gross profit
          
4,884,820
   
4,634,015
   
(250,805
)
  
Operating expenses:
        
Sales and marketing
          
1,653,232
   
1,429,362
   
(223,870
)
(c)
General and administrative
          
6,471,286
   
6,345,405
   
(125,881
)
(d)
Bad debt expense
          
18,024
   
18,024
   
---
   
Amortization expense
          
585,140
   
585,140
   
---
   
Depreciation expense
          
26,385
   
26,385
   
---
   
Total operating expenses
          
8,754,067
   
8,404,316
   
(349,751
)
  
Earnings (loss) from operations
  
(3,869,247
)
  
(3,770,301
)
  
98,946
 
(e)
Interest income
  
10,171
   
10,171
   
---
   
Other income
  
2,873
   
2,873
   
---
   
Interest expense
  
(58,939
)
  
(58,939
)
  
---
   
Income (Loss) before income taxes
          
(3,915,142
)
  
(3,816,196
)
  
98,946
   
Provision for income taxes
  
1,561,003
   
1,561,003
   
---
   
Income before extraordinary item
          
(2,354,139
)
  
(2,255,193
)
  
98,946
   
Extraordinary item
  
---
   
---
   
---
   
Net income (loss)
        
$
(2,354,139
)
$
(2,255,193
)
$
98,946
    
 
        
Net earnings (loss) per share:
        
Basic
        
$
(0.24
)
$
(0.23
)
$
0.01
    
Diluted
        
$
(0.24
)
$
(0.23
)
$
0.01
    
         
Weighted average shares outstanding (Note 14):
        
Basic
          
9,790,868
   
9,791,535
   
667
 
(f)
Diluted
          
9,790,868
   
9,791,535
   
667
 
(f)
 
        
(a) Decrease from reclassifying rebate expenses from sales and marketing expenses.
(b) Increase from reclassification of fulfillment and freight-out from sales and marketing expenses and general and administrative expenses.
(c) Decrease from reclassification of rebates against revenue and fulfillment to cost of sales.
(d) Decrease from reclassification of freight-out to cost of sales.
(e) Net change from correction of duplicate payable to third-party rebate processor.
(f) Correction of math error.
 
F-19


Findex.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,2000
 
 
  
As Previously Reported
    
As Restated
   
Change
   
Cash flows from operating activities:
  
Cash received from customers
        
$
6,704,383
  
$
6,704,383
  
$
---
    
Cash paid to suppliers and employees
          
(5,725,619
)
  
(5,725,619
)
  
---
   
Interest paid
          
(1,424
)
  
(1,424
)
  
---
   
Interest received
          
4,827
   
4,827
   
---
   
Income taxes paid
          
(3,272
)
  
(3,272
)
  
---
   
Net cash provided by operating activities
          
978,895
   
978,895
   
---
   
Cash flows from investing activities:
  
Cash received in merger with Reagan Holdings, Inc.
          
701
   
701
   
---
   
Cash paid for note receivable
          
(240,000
)
  
(240,000
)
  
---
   
Acquisition of property, plant and equipment
          
(35,538
)
  
(35,538
)
  
---
   
Deposits made
          
(250
)
  
(250
)
  
---
   
Cash paid for software license agreement
          
(2,073,788
)
  
(2,073,788
)
  
---
   
Website development costs
          
(8,343
)
  
(8,343
)
  
---
   
Net cash (used) by investing activities
          
(2,357,218
)
  
(2,357,218
)
  
---
   
Cash flows from financing activities:
  
Proceeds from issuance of note payable
          
549,000
   
549,000
   
---
   
Proceeds from issuance of common stock
          
703,819
   
703,819
   
---
   
Net cash provided by financing activities
          
1,252,819
   
1,252,819
   
---
   
Net increase in cash and cash equivalents
  
(125,504
)
  
(125,504
)
  
---
   
Cash and cash equivalents, beginning of year
  
147,272
   
147,272
   
---
   
Cash and cash equivalents, end of year
        
$
21,768
  
$
21,768
  
$
---
    
 
  
Reconciliation of net income (loss) to cash flows from operating activities:
  
Net income (loss)
        
$
(2,354,139
)
$
(2,255,193
)
$
98,946
    
Adjustments to reconcile net income (loss) to net cash
     
provided by operating activities:
      
Stock and warrants issued for services
          
3,422,270
   
3,422,270
   
---
   
Provision for bad debts
          
18,024
   
18,024
   
---
   
Depreciation & amortization
          
611,525
   
611,525
   
---
   
Change in assets and liabilities:
            
(Increase) in accounts receivable
          
(604,174
)
  
(604,174
)
  
---
   
(Increase) in inventories
          
(72,554
)
  
(72,554
)
  
---
   
(Increase) in prepaid expenses
          
(21,244
)
  
(21,244
)
  
---
   
Increase in accrued royalties
          
870,602
   
870,602
   
---
   
Increase (decrease) in accounts payable
          
92,729
   
(6,216
)
  
(98,945
)
(a)
(Decrease) in income taxes payable
          
(730,716
)
  
(730,716
)
  
---
   
(Decrease) in deferred taxes
          
(833,559
)
  
(833,559
)
  
---
   
Increase in other liabilities
          
580,131
   
580,130
   
(1
)
(b)
Net cash provided by operating activities
        
$
978,895
  
$
978,895
  
$
---
    
 
  
(a) Decrease from correction of duplicate payable to third-party rebate processor.
(b) Rounding difference.

F-20
 
During the year ended December 31, 1999, we erroneously recognized revenue associated with inventory retained by TLC as part of a certain amended Asset Purchase Agreement dated June 30, 1999. The amended Asset Purchase Agreement provided for the purchase of all inventories of raw materials, works-in-process, finished goods and materials of Parsons Technology, Inc., including components that were then located at Parsons’ Cedar Rapids, Iowa locations. The amended Asset Purchase Agreement indicated that any inventories located at any facility of BMG, TLC’s third-party manufacturer, were to be retained by TLC and not included in the purchase. This error was discovered during 2001 and was previously reported as an adjustment to beginning retained earnings on the 2001 Form 10-KSB filed thereon. Accordingly, we have restated our consolidated balance sheet as of December 31, 1999 and our consolidated statements of operations, consolidated statements of stockholders’ equity, and consolidated statements of cash flows for the year then ended.
 
A summary of the effects of these changes is as follows:

Findex.com, Inc.
CONSOLIDATED BALANCE SHEETS
December 31, 1999
 
 
  
As Previously Reported
    
As Restated
   
Change
   
Assets
  
Current assets:
  
Cash and cash equivalents
        
$
147,272
  
$
147,272
  
$
---
    
Accounts receivable, trade (net of allowance of $11,000)
          
942,568
   
383,367
   
(559,201
)
(a)
Inventories (Note 3)
          
545,348
   
545,348
   
---
   
Prepaid Expenses
          
13,603
   
13,603
   
---
   
Total current assets
          
1,648,791
   
1,089,590
   
(559,201
)
  
Property and equipment, net (Note 4)
  
97,973
   
97,973
   
---
   
Software license (Note 5)
  
4,858,695
   
4,858,695
   
---
   
Other assets
 
9,108
   
9,108
   
---
   
Total assets
        
$
6,614,567
  
$
6,055,366
  
$
(559,201
)
  
 
  
Liabilities and stockholders’ equity
  
Current liabilities:
  
Accounts payable, trade
        
$
1,153,561
  
$
1,153,561
  
$
---
    
Accrued royalties
         
754,825
   
728,871
   
(25,954
)
(b)
Accrued income taxes
          
770,000
   
602,000
   
(168,000
)
(c)
Accrued technical support
          
235,300
   
235,300
   
---
   
Accrued expenses
          
253,011
   
253,011
   
---
   
License fee payable (Note 4)
          
744,360
   
614,034
   
(130,326
)
(d)
Total current liabilities
          
3,911,057
   
3,586,777
   
(324,280
)
  
Note payable (Note 3)
  
200,000
   
200,000
   
---
   
Commitments and contingencies (Note 18)
  
Stockholders’ equity (Note 9):
  
Preferred stock, $.001 par value
      
5,000,000 shares authorized
      
Series A: 20,000 shares issued and outstanding
          
20
   
20
   
---
   
Series B: 67,500 shares issued and outstanding
          
68
   
68
   
---
   
Common stock, $.001 par value
      
50,000,000 shares authorized
      
9,072,312 shares issued and outstanding
          
9,072
   
9,072
   
---
   
Paid-in capital
         
2,248,618
   
2,248,618
   
---
   
Retained (deficit)
          
245,732
   
10,811
   
(234,921
)
  
Total stockholders’ equity
          
2,503,510
   
2,268,589
   
(234,921
)
  
Total liabilities and stockholders’ equity
        
$
6,614,567
  
$
6,055,366
  
$
(559,201
)
  
 
  
(a) Decrease from exclusion of inventory at TLC’s BMG facility (originally treated as purchased and re-sold to TLC).
(b) Decrease from excluding royalty effects of BMG inventory.
(c) Decrease from income tax effects of excluding BMG inventory.
(d) Decrease from excluding the cost of BMG inventory (originally treated as purchased and re-sold to TLC).
 
F-21
 
Findex.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
 
 
  
As Previously Reported
    
As Restated
    
Change
    
         
Revenues, net of reserves and allowances
$
6,513,408
  
$
5,954,207
  
$
(559,201
)
(a)
Cost of sales (Note 10)
  
1,800,021
   
1,643,741
   
(156,280
)
(b)
Gross profit
          
4,713,387
   
4,310,466
   
(402,921
)
  
Operating expenses:
        
Sales and marketing
          
1,039,581
   
1,039,581
   
---
   
General and administrative
          
1,550,529
   
1,550,529
   
---
   
Bad debt expense
          
11,000
   
11,000
   
---
   
Amortization expense
          
276,879
   
276,879
   
---
   
Depreciation expense
          
8,427
   
8,427
   
---
   
Total operating expenses
          
2,886,416
   
2,886,416
   
---
   
Earnings from operations
  
1,826,971
   
1,424,050
   
(402,921
)
  
Interest income
  
4,405
   
4,405
   
---
   
Loss on abandonment of property
  
---
   
---
   
---
   
Interest expense
  
(4,024
)
  
(4,024
)
  
---
   
Income (Loss) before income taxes
          
1,827,352
   
1,424,431
   
(402,921
)
  
Provision for income taxes (Note 8)
  
(770,000
)
  
(602,000
)
  
168,000
 
(c)
Net income
        
$
1,057,352
  
$
822,431
  
$
(234,921
)
  
 
        
Net earnings per share:
        
Basic
        
$
0.14
  
$
0.11
  
$
(0.03
)
  
Diluted
        
$
0.13
  
$
0.10
  
$
(0.03
)
  
         
Weighted average shares outstanding (Note 14):
        
Basic
          
7,767,416
   
7,767,416
   
---
   
Diluted
          
8,052,720
   
8,035,085
   
(17,635
)
(d)
 
        
(a) Decrease from exclusion of inventory at TLC’s BMG facility (originally treated as purchased and re-sold to TLC).
(b) Decrease from exclusion of the cost of and royalty effects of inventory at TLC’s BMG facility.
(c) Income tax effects of excluding the BMG inventory transaction.
(d) Decrease from correction of a math error in calculation of potentially dilutive common stock options.
 
F-22
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999
 
 
  
As Previously Reported
    
As Restated
   
Change
   
Cash flows from operating activities:
  
Net income
        
$
1,057,352
  
$
822,431
  
$
(234,921
)
  
Adjustments to reconcile net income to net cash
     
provided (used) by operating activities:
      
Provision for bad debts
          
11,000
   
11,000
   
---
   
Depreciation & amortization
          
285,306
   
285,306
   
---
   
Change in assets and liabilities:
      
(Increase) in accounts receivable
          
(3,308,332
)
  
(2,749,131
)
  
559,201
 
(a)
(Increase) in inventories
          
(545,348
)
  
(545,348
)
  
---
   
(Increase) decrease in prepaid expenses
          
(13,603
)
  
(13,603
)
  
---
   
Increase in accrued royalties
          
754,825
   
728,871
   
(25,954
)
(b)
Increase in accounts payable
          
1,063,417
   
933,091
   
(130,326
)
(c)
Increase in income taxes payable
          
770,000
   
602,000
   
(168,000
)
(d)
Increase in other liabilities
          
484,776
   
484,776
   
---
   
Net cash provided by operating activities
          
559,393
   
559,393
   
---
   
Cash flows from investing activities:
  
Acquisition of property, plant and equipment
          
(106,400
)
  
(106,400
)
  
---
   
Deposits paid
          
(859
)
  
(859
)
  
---
   
Cash paid for software license agreement
          
(2,035,074
)
  
(2,035,074
)
  
---
   
Net cash (used) by investing activities
          
(2,142,333
)
  
(2,142,333
)
  
---
   
Cash flows from financing activities:
  
Proceeds from issuance of note payable
          
200,000
   
200,000
   
---
   
Proceeds from issuance of preferred stock
          
1,550,000
   
1,550,000
   
---
   
Stock offering costs paid
          
(20,000
)
  
(20,000
)
  
---
   
Net cash provided by financing activities
          
1,730,000
   
1,730,000
   
---
   
Net increase in cash and cash equivalents
  
147,060
   
147,060
   
---
   
Cash and cash equivalents, beginning of year
  
212
   
212
   
---
   
Cash and cash equivalents, end of year
        
$
147,272
  
$
147,272
  
$
---
    
 
  
(a) Decrease from exclusion of inventory at TLC’s BMG facility (originally treated as purchased and re-sold to TLC).
(b) Decrease from excluding royalty effects of BMG inventory.
(c) Decrease from excluding the cost of BMG inventory (originally treated as purchased and re-sold to TLC).
(d) Decrease from income tax effects of excluding BMG inventory.

Various footnote disclosures have been restated to reflect the corrections detailed above.

F-23

Signatures

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
FINDEX.COM, INC.
 
       
   
By: /s/ Steven Malone
  
   
Steven Malone
  
   
President and Chief Executive Officer
  


Date: September 28, 2005

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
  
Title
 
Date
         
/s/ Steven Malone
  
Chairman of the Board, President and Chief
 
September 28, 2005
Steven Malone
  
Executive Officer (principal executive officer)
    
         
         
/s/ John A. Kuehne
 
Director
  
September 28, 2005
John A. Kuehne
        
         
         
/s/ Henry M. Washington
  
Director
  
September 28, 2005
Henry M. Washington
        
         
         
/s/ Kirk R. Rowland
 
Director and Chief Financial Officer
  
September 28, 2005
Kirk R. Rowland
 
(principal financial and accounting officer)
    

-9-