Note 4    Property and Equipment

 

Property and equipment are stated at cost.  Depreciation of property and equipment is computed for financial statement purposes using accelerated methods over a five year estimated useful life of the assets. Accumulated depreciation at December 31, 2009 was $158,090 and $148,310 at June 30, 2009.  Management has evaluated the difference between the straight line and accelerated method used and has deemed the difference immaterial.

 

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Note 5   Deferred Commission

 

In August 2007, the Company renegotiated a previous commission agreement that now provides for monthly payments of $3,000 for four years commencing July 1, 2007 and the issuance of 1 million shares of the Company’s common stock.  The determination of the amount was based on the fair value of the issued common stock at the commitment date and is amortized over the life of the contract.

		Six Months Ended December 31, 2009
Long term portion of deferred commission in other assets		$	18,381
Current portion of deferred commission in prepaid expenses		$	36,762
Amount of commission expensed in this period		$	18,381

Note 6    Deferred Credits

 

In January 2006, the Board of Directors, agreed to offer then seven major customers, (“consortium members”) the following options in exchange for any further billing credits: (1) a right to receive $150,000 in billing credits applied against their monthly business intelligence software billings at a rate of 25% of the billings commencing July 1, 2006, or (2) a right to receive an additional 833,333 shares of the Company’s common stock per consortium member. These shares would be in addition to the shares issued to consortium members in exchange for their original $100,000 investment in fiscal 2004.

Two consortium members elected option (1), one commencing January 1, 2006, and the other commencing July 1, 2006.  The five remaining consortium members elected option (2) and in May 2006, the Company issued 4,166,665 shares under this agreement. The deferred credits at December 31, 2009 in the respective amounts of $86,853 and $82,332, net of amortization, are expected to be utilized over a 12 to 13 year period based on their current billing rates using a 5% discount rate that approximated the risk-free rate in effect during the offered option period.

 

 Note 7    Debt Reduction Obligation

 

In October 2008, the Company signed an agreement with its patent counsel to issue 1,000,000 shares of XFMY’s common stock issued on October 24, 2008 at the closing price of $0.14 per share for a total value of $140,000, to pay cash payments of $10,000 that extend over 48 months for a total of $480,000 and three additional debt reduction payments of $65,000 each contingent upon the Company achieving certain revenue targets for a total of $195,000. This represents a maximum payout value of $815,000 in full settlement of the Company’s obligation of $1,578,769 that resulted in a gain of $763,769 in fiscal year ending June 30, 2009.  As of December 31, 2009, the Company has paid $120,000, reflected the remaining $555,000 on its balance sheet and with the concurrence of its patent counsel have agreed to defer further payments until 2010.

 

Note 8   Accounts Payable

Accounts payable represents balances due to trade creditors and fees for professional services incurred for legal, and audit services.

 

Note 9   Accrued Expenses

		December 31,				June 30,
		2009				2009
401 (K) obligation		$	37,585			$	24,813
Accrued interest on convertible debentures and note payable			70,596				59,843
Other			74,045				54,706
Totals		$	182,226			$	139,362

Note 10   Convertible Debentures

As of December 31, 2009 and June 30, 2009, the Company has outstanding an aggregate of $733,635 of the 9% convertible debentures that mature between January 31 and October 31, 2010. Of that amount, $498,554 is held by stockholders who are also customers of the Company and management of the Company and $75,000 is held by employees.  As of December 31, 2009 and June 30, 2009, accrued interest on the debentures was $66,443 and $59,843, respectively.  The Company has no assurance as to how much in additional subscriptions will be received in the private offering.

 

Note 11   Stock Option Grant

 

On August 12, 2009, the Company approved the grant and issuance of options exercisable to purchase an aggregate of 250,000 shares of common stock and recorded a charge of. $17,673 calculated using the Black-Sholes formula. The options are exercisable until August 12, 2016 (the “Expiration Date”) at an exercise price equal to $0.08 per share (the “Exercise Price”), which was equal to 100% of the closing market price of the Company’s common stock on the grant date.  All of the options vest immediately as of the date of the grant.  The options were granted and issued under the Company’s 1999 Equity Incentive Plan and are subject to the terms and conditions of the plan.

 

 

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Note 12    Earnings per Share

Basic earnings per share are calculated based on the weighted-average number of outstanding common shares.  As of December 31, 2009, the Company had 51,931,553 shares outstanding, with no shares payable outstanding.  The Company uses the treasury stock method to determine whether any convertible debentures, outstanding options or warrants are to be included in the diluted earnings per share calculation.  As of December 31, 2009, the Company had convertible debentures of 733,635 convertible at a conversion price of the lesser of (i) 70% of the price per share of common stock or common stock equivalent paid by investors in the Company’s next round of equity or debt financing consisting of at least $1,000,000 in cumulative gross proceeds, or (ii) $0.12, warrants outstanding of 4,802,642 consisting of 2,401,321 with an exercise price of $0.14 and 2,401,321 with an exercise price of $0.18, and options outstanding of 7,025,000.