10Q, continued,
The Company provides for income taxes based on enacted tax law and
statutory tax rates at which items of income and expenses are expected
to be settled in the Company's income tax return. Certain items of
revenue and expense are reported for Federal income tax purposes in
different periods than for financial reporting purposes, thereby
resulting in deferred income taxes. Deferred taxes are also recognized
for operating losses that are available to offset future
7
Proformix Systems, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. The
Company has incurred net operating losses for financial-reporting and
tax-reporting purposes. The benefit for income taxes has been offset
entirely by a valuation allowance against the related deferred tax
asset.
Net Loss Per Share
Net loss per share, in accordance with the provisions of Financial
Accounting Standards Board No. 128, "Earnings Per Share", is computed
by dividing net loss by the weighted-average number of shares of
Common Stock outstanding during the period. Common Stock equivalents
have not been included in this computation since the effect would be
anti-dilutive.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment
provided that the resulting receivable is deemed probable of
collection.
ACQUISITION OF VANITY SOFTWARE PUBLISHING CORPORATION
On April 30, 1998, the Company signed an agreement to acquire all of
the assets, subject to the assumption of certain liabilities, of
Vanity Software Publishing Corporation, in exchange for 224,000 shares
of the common stock of the Company and warrants to purchase an
additional 224,000 shares at a price of $5.00 per share. The
liabilities assumed by the Company, net of certain other assets,
totaled $131,500 and have been paid at time of closing during the
first week of May, 1998.
The major asset of Vanity Software Publishing Corporation is a
proprietary ergonomic software package sold under the name
ErgoBreak(TM) which the Company is integrating into its own software
products suite marketed under the EMS(TM) label. This asset was
capitalized at a value equal to the net amounts paid in cash -
together $131,500 - plus the fair market value at the time of the
transaction of 224,000 new and restricted shares of the common stock
of the Company issued to Vanity Software Publishing Corporation, for a
total amount of $1,251,500. While management believes this amount to
be fair value for the assets thus acquired, it will move to obtain an
independent appraisal of the value of such assets. Should this
appraisal result in an assessment lower than the currently capitalized
value, a portion thereof will be reclassified in the books of the
Company as goodwill.
PREPAID EXPENSES
Prepaid expenses include a position of $750,000 resulting from an
agreement in February 1998 with BNN Business News Network Inc., a
nationwide media advertising and radio network company , whereby the
Company purchased advertising time on the Business News Network's
broadcasts , usable over a period of three years and aggregating
$900,000 in retail value, against issuance of 150,000 new and
restricted common shares. The services purchased were capitalized at
the fair market value of the stock issued, for a total of $750,000.
The resulting asset will be amortized as utilized, over the timeframe
of the next three years.
8
Proformix Systems, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
INVESTMENT IN INPUT TECHNOLOGIES L.L.C.
Pursuant to verbal agreement-in-principle and subject to negotiation
and execution of a final agreement the Company will acquire a 20%
equity interest in Input Technologies LLC, a privately held Colorado
Limited Liability Company, against payment of an aggregate $60,000 or
delivery of product at wholesale prices in the same amount, or a
combination thereof. At the time of this submission, the investment
has substantially been completed. In accordance with a Distributor
Agreement which is being negotiated in parallel, Input Technologies
LLC will act as a stocking master distributor for the Company's
products, in certain areas of the western United States.
9
Proformix Systems, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
LOANS AND NOTES PAYABLE
Proformix, Inc. had borrowings under short term loan agreements with the
following terms and conditions at June 30, 1998:
On April 17, 1997, Proformix, Inc. issued a $316,849 one-year 5%
promissory note to a private investor in exchange for retiring
other promissory notes and the repayment of a past due
subordinated debenture with the face value of all such
obligations to third parties equaling the 5% note to that
investor. No demand for payment has been made through the date of
this submission. $ 316,849
Pursuant to three promissory notes signed throughout 1995 and
1996, an investor advanced Proformix, Inc. a total of $90,000
payable upon demand with interest at 12% per annum. 90,000
On December 4, 1996, Proformix, Inc. repurchased 500,000 shares
of its common stock and retired same against issuance of a
promissory note maturing twelve months thereafter accruing
interest at 5% per annum and due December 4, 1997. No demand for
payment has been made through the date of this submission. 75,000
Pursuant to a promissory note dated January 22, 1996, an officer
of the Company advanced 64,730, of which $40,000 have been repaid
as per June 30, 1998. The balance of $24,730 is due upon demand
and accruing interest at the rate of 12% per annum. The balance
of $64,730 is due upon demand and accrues interest at the rate of
12% per annum. 24,730
Line of credit extended by Carnegie Bank on March 4, 1996
amounting to $250,000 due to be repaid March 4, 1997, unless
demanded earlier, accruing interest at the prime rate plus 2% per
annum with the prime rate defined by the Wall Street Journal. The
agreement requires that the line shall be completely out of debt
for at least one thirty consecutive day period annually and is
collateralized by all the inventory, accounts receivable,
equipment, and financial instruments of Proformix, Inc. This
obligation remains outstanding as of June 30, 1998. No demand
for payment has been made through the date of this submission. 250,000
--------
Total $756,579
========
LOANS AND NOTES PAYABLE (Proformix Systems, Inc.)
Pursuant to the Acquisition Agreement with Rolina Corporation, a
portion of the cash payments are to be made on a deferred payment
schedule, between June and September 1998. At present, the
outstanding balance under this arrangement is $ 100,000
==========
NOTES PAYABLE FROM PRIVATE PLACEMENT OFFERING
During February through June 1995, an underwriter acting as
placement agent offered on behalf of Proformix, Inc. in a private
placement offering a minimum of five (5) and a maximum of twenty
(20) units, resulting in the placement of $1,600,000 in
promissory notes, all of which are outstanding as of June 30,
1998, and 160,000 shares of Proformix, Inc. common stock. In May
1997 a restructuring agreement caused the reclassification of
$1,150,000 of these notes to long-term debt. These notes were
extended and modified to (i) mature by April 30, 2000, (ii)
change from 12% to 8%, (iii) convert all interest accrued until
April 30, 1997 into shares of common stock of Proformix, Inc. and
(iv) pay future interest in cash an a quarterly basis. One such
note for $25,000 is shown under current liabilities. The
remaining $425,000 of non-restructured notes are shown in current
liabilities pending finalization of ongoing negotiations. $1,600,000
==========
10
Proformix Systems, Inc. and Subsidiaries
Notes to the Financial Statements
LONG-TERM DEBT
Long-term debt as of June 30, 1998 is comprised of the following:
Pursuant to a promissory note signed on July 28, 1993, Proformix,
Inc. borrowed a total of $1,000,000 repayable with interest at 2%
above the lending institutions' prime lending rate. On March 4,
1996, Proformix, Inc. refinanced the repayment of its long-term
debt. The balance is payable with fixed principal payments of
$15,000 per mo |
