U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1999
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transaction period from _______________ to _______________
Commission file number 001-14995
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-4056901
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6 Greene Street, New York, New York 10013
(Address of Principal Executive Offices)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO ISSUER INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 6,627,471 as of November 9,
1999
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets for September 30, 1999 (unaudited) and
December 31, 1998.............................................. 3
Statement of Operations for Three Months Ended
September 30, 1999 and 1998 and Nine Months Ended
September 30, 1999 ad 1998 (unaudited)......................... 5
Statement of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited).................. 6
Notes to Unaudited Financial Statements ....................... 8
Item 2. Management's Discussion and Analysis or Plan of Operations...... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 10
Item 2. Changes in Securities and Use of Proceeds....................... 10
Item 3. Defaults Upon Senior Securities .............................. 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Item 5. Other Information............................................... 10
Item 6. Exhibits and Reports on Form 8-K................................ 11
Signatures.................................................................. 12
Exhibits.................................................................... 13
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
BALANCE SHEET
September 30, 1999 (Unaudited) and December 31, 1998
- --------------------------------------------------------------------------------
ASSETS
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $221,581 $ 52,497
Accounts receivable 341,421 289,395
-------- --------
Total Current Assets 563,002 341,892
-------- --------
PROPERTY AND EQUIPMENT, net 63,134 85,827
-------- --------
OTHER ASSETS
Security deposits 2,708 2,708
Prepaid expenses 82,369 --
Intangible asset 13,933 16,783
-------- --------
Total Other Assets 99,010 19,491
-------- --------
TOTAL ASSETS $725,146 $447,210
======== ========
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<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
BALANCE SHEET
September 30, 1999 (Unaudited) and December 31, 1998
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 136,757 $ 152,350
Current maturities of capital lease obligations 9,617 9,179
Note payable, bank 47,428 63,335
Loans payable, stockholder 21,280 26,280
--------- ---------
Total Current Liabilities 215,082 251,144
--------- ---------
OTHER LIABILITIES
Deferred income taxes payable 40,000 40,000
Capital lease obligations, less current maturities 2,556 9,760
--------- ---------
Total Other Liabilities 42,556 49,760
--------- ---------
TOTAL LIABILITIES 257,638 300,904
--------- ---------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.01 par value, 50,000,000 authorized,
6,299,033 and 6,075,000 issued and outstanding at September 30, 1999
(unaudited) and December 31, 1998, respectively 62,990 60,750
Common stock subscribed, 150,967 and 375,000 at September 30, 1999
(unaudited) and December 31, 1998, respectively 1,510 3,750
Additional paid in capital 944,470 944,470
Stock subscription receivable (301,934) (750,000)
Accumulated deficit (239,528) (112,664)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 467,508 146,306
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 725,146 $ 447,210
========= =========
</TABLE>
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<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
STATEMENT OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 508,176 $ 399,893 $ 1,366,461 $ 1,203,512
COST OF SALES 323,270 261,421 908,750 809,976
----------- ----------- ----------- -----------
GROSS PROFIT 184,906 138,472 457,711 393,536
GENERAL AND
ADMINISTRATIVE EXPENSES 241,811 158,577 577,861 369,757
----------- ----------- ----------- -----------
OPERATING (LOSS)
INCOME (56,905) (20,105) (120,150) 23,779
OTHER EXPENSE
Interest expense, net 1,065 3,152 5,165 7,046
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE
INCOME TAXES (57,970) (23,257) (125,315) 16,733
INCOME TAXES 809 687 1,549 1,025
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (58,779) $ (23,944) $ (126,864) $ 15,708
=========== =========== =========== ===========
NET (LOSS) INCOME PER SHARE, BASIC AND DILUTED
$ (0.01) $ (0.00) $ (0.02) $ 0.00
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 6,163,532 6,075,000 6,112,013 6,075,000
=========== =========== =========== ===========
</TABLE>
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<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(126,864) $ 15,708
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 26,496 24,909
(Increase) decrease in accounts receivable (52,026) 70,140
Increase in security deposits -- (508)
Decrease in accounts payable and accrued expenses (15,593) (62,268)
Increase in prepaid expenses (82,369) --
--------- ---------
TOTAL ADJUSTMENTS (123,492) 32,273
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (250,356) 47,981
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (953) (20,594)
Purchase of intangible asset -- (19,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (953) (39,594)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on capital lease obligations (6,766) (4,288)
Net advances (repayments) of note payable, bank (15,907) 5,420
Collections on stock subscription receivable 448,066 --
Repayments in shareholder loans (5,000) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES
420,393 1,132
--------- ---------
NET INCREASE IN CASH 169,084 9,519
CASH - Beginning 52,497 3,655
--------- ---------
CASH - Ending $ 221,581 $ 13,174
========= =========
</TABLE>
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<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
STATEMENT OF CASH FLOWS, continued
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ 5,207 $ 7,046
Income taxes $ 3,654 $ --
Noncash investing and financing activities:
Additions to capital leases $ -- $25,334
Issuance of shares resulting from transfer from common
stock subscribed $ 2,240 $ --
</TABLE>
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<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - Presentation
The balance sheet of the Company as of September 30, 1999, the related
statements of operations and cash flows for the nine months ended September
30, 1999 and 1998 and the three months ended September 30, 1999 and
September 30, 1998 included in the financial statements have been prepared
by the Company without audit. In the opinion of management, the
accompanying financial statements include all adjustments (consisting of
normal, recurring adjustments) necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for
the nine months ended September 30, 1999 are not necessarily indicative of
the results of operations for the full year or any other interim period.
NOTE 2 - Description of Business
Accufacts Pre-Employment Screening, Inc. ("Accufacts") was incorporated on
October 6, 1994 in the State of New York. On August 31, 1998 Accufacts
consummated a merger with a public shell, Southern Cargo Company
("Southern"), a Florida corporation. Southern simultaneously with this
merger changed its name to Accufacts Pre-Employment Screening Inc. (the
"Company") and shortly thereafter re-incorporated in the State of Delaware.
Under the terms of the merger all of the outstanding shares of Accufacts
were acquired by Southern in exchange for 3,750,000 shares of Southern's
$.01 par value common stock. This transaction was accounted for as a
reverse acquisition whereby Accufacts was the acquirer for accounting
purposes. The historical financial statements prior to August 31, 1998 are
those of Accufacts.
The Company acts as an information service bureau and is engaged primarily
in the business of verifying job applicant background information for
employers using databases and a national network of agents throughout the
United States.
NOTE 3 - Business Acquisition
On October 13, 1999, the Company acquired all of the operating assets of
Maglio, Inc. ("Maglio") by issuing 177,471 shares of the Company's common
stock ("Acquisition Shares"). The Acquisition Shares consist of 174,971
shares of common stock in consideration for the acquisition and 2,500
shares of common stock in consideration for a stockholder of Maglio (the
"Stockholder") entering into a non-competition agreement. In connection
with the acquisition, the Company entered into a three-year employment
agreement with the Stockholder.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
included in this Quarterly Report on Form 10-QSB. This Report contains
forward-looking statements. The term, "forward-looking statements," is defined
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this Report as well as
our other filings with the Securities and Exchange Commission, press releases
and oral statements, words or phrases such as "believes," "anticipates,"
"expects," "intends," "will likely result in," "estimates," "projects" or
similar expressions are intended to denote forward-looking statements. The
possible results that may be suggested by forward-looking statements are subject
to risks and uncertainties which may cause actual results to differ materially.
Some of the factors which might cause such differences include, without
limitation, risks associated with expansion of marketing efforts; limited sales
and marketing experiences; heightened competition; general economic and business
conditions; our ability or inability to implement our business strategy and/or
maintain our cost efficiency; dependence on proprietary technology, including,
without limitation, the adequacy of patent and trade secret protection;
continued availability of key personnel; retention of key personnel and
recruitment of additional qualified skilled personnel.
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Revenues for the nine months ended September 30, 1999 were $1,366,461, up
$162,949, or 13.5%, as compared to the nine months ended September 30, 1998. The
increase in revenues reflected increased marketing efforts by the Company during
the period.
Gross profit for the nine months ended September 30, 1999 was $457,711, up
$64,175, or 16.3%, from the nine months ended September 30, 1998.
Cost of sales for the nine months ended September 30, 1999 was $908,750, up
$98,744, or 12.2%, from the nine months ended September 30, 1998.
Net cash (used in) provided by operating activities for the nine months
ended September 30, 1999 and 1998 was ($250,356) and $47,981, respectively. Net
cash used in investing activity was $953 and $39,594 for the nine months ended
September 30, 1999 and 1998, respectively. The net cash used in investing
activities for the nine months ended September 30, 1998 was for the purchase of
property and equipment and a marketing list. The Company's financing activities
included net borrowing from a bank and subscriptions received relating to stock
subscribed from the private placement offering. The Company's financing
activities resulted in net cash of $420,393 and $1,132 for the nine months ended
September 30, 1999 and 1998, respectively.
-9-
<PAGE>
General administrative expenses for the nine months ended September 30,
1999 were $577,861, up $208,104, or 56.3%, from the nine months ended September
30, 1998. This increase reflects, among other things, payment in the third
quarter of 1999 of the increased legal and accounting costs incurred in
conjunction with the 504D offering of common stock, which terminated on December
18, 1998, the preparation of audited financial statements, the preparation for
the filing of a Form 10-SB registration statement with the Securities and
Exchange Commission, and due diligence in connection with a merger which was
consummated in October 1999, as well as expenses related to the introduction and
construction of two new websites for an enhanced e-commerce initiative, the
development of new software programs to achieve more automation of marketing
efforts and an increased level of attendance at national trade shows, and the
implementation of new employment contracts for executive officers.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital at September 30, 1999 was $347,920 as compared to a working
capital deficit of ($22,492) at September 30, 1998. The increase in working
capital reflects the increase in liquidity provided to the Company by the
proceeds of the 504D offering. Subsequent to September 30, 1999, the Company
received additional payments of the subscriptions payable under the 504D
offering. $301,934 in subscriptions receivable remain outstanding from the
offering. Current cash projections indicate that the funding requirements of the
Company over the next twelve months will be met from cash sales of search
services and the remaining proceeds from the subscription receivable relating to
the 504D offering.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
-10-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2.1 Plan and Agreement of Merger of Maglio, Inc. and Maglio-Accufacts
Pre-Employment Screening, inc., dated October 11, 1999, by and among
Accufacts Pre-Employment Screening, Inc., Maglio-Accufacts Pre-Employment
Screening, Inc. and Maglio, Inc.*
2.2 Supplemental Agreement, dated as of October 11, 1999, by and among
Accufacts Pre-Employment Screening, Inc., Maglio-Accufacts Pre-Employment
Screening, Inc., Maglio, Inc. and Richard J. Maglio*
4.1 Shareholder Rights and Registration Rights Agreement, dated as of October
11, 1999, by and between Accufacts Pre-Employment Screening, Inc. and
Richard J. Maglio*
10.1 Amendment, dated October 5, 1999, to the Employment Agreement, dated
September 5, 1998, between the Registrant and Philip Luizzo.
27.1 Financial Data Schedule.
- ----------
* Filed as an exhibit to the Registrant's Current Report on Form 8-K, dated
October 13, 1999, filed with the Commission on October 28, 1999 (SEC File
No.: 001-14995), and is incorporated by reference herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarterly
period ended September 30, 1999
-11-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
Date: November 12, 1999 By: /s/ Philip Luizzo
-------------------------
Philip Luizzo, President
and Chief Executive Officer
(Principal Executive Officer)
-12-
<PAGE>
Exhibits Page
10.1 Amendment, dated October 5, 1999, to the
Employment Agreement, dated September 1, 1998,
between the Registrant and Philip Luizzo .......................
27.1 Financial Data Schedule ........................................
-13-
Exhibit 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment made this 5th day of October, 1999 to Employment Agreement
("Employment Agreement") entered into on September 1, 1998 by and between
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC., ("ACCUFACTS"), a New York corporation
("Corporation") with offices located at 6 Greene Street, New York, New York
10013 and PHILIP LUIZZO ("Employee"), residing at 750 East Broadway, Long Beach,
New York 11561.
This Amendments amends the Employment Agreement among the parties
originally entered into on September 1, 1998 as follows:
1. Section 7 is deleted in its entirety and a revised Section 7 reading as
follows is inserted in lieu thereof:
"Section 7. Termination.
Except for the provisions in Section 22, in the event the Corporation
elects to terminate Employee without cause, it shall continue to pay to
Employee, the salary at the rate in effect on the Effective Termination Date,
for a period of two years. The effective termination date shall be that date so
stated in the corporation's Notice of Termination. This provision shall also
apply in the event of a change of control of the Corporation. For purposes of
this Agreement, a "Change in Control" of the Company shall occur if any "person"
(as such term is used in Sections 13 (d) and 14 (d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) become the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, of more than fifty
(50%) percent of the voting stock of the Corporation other than through the sale
of Employee Corporate Shares owned by Employee."
2. Section 8 is deleted in its entirety and a revised Section 8 reading as
follows is inserted in lieu thereof:
"Section 8. Non Compete. In the event Employee is terminated with cause
then Employee agrees not to engage in the business of the corporation with any
other company, sole proprietorship or other entity, as employee, consultant or
otherwise for a period of two (2) years. The corporation shall be entitled to
all remedies provided by law including but not limited to injunctive relief and
the termination of any post termination payments to which employee would be, but
for this breach, be entitled. Upon Termination without Cause, Employee shall not
be subject to any non competition restrictions."
3. Section 22 is deleted in its entirety and a revised Section 22 reading
as follows is inserted in lieu thereof:
"Section 22. In the event employee is discharged for cause which shall
include but not be limited to conviction of a felony, or is in material breach
of his duties under this agreement, then the Corporation at its option may
terminate this agreement, and the employee shall not be entitled to any post
termination payments as provided in Section 7 hereof."
4. Except as provided above, the Employment Agreement remains in full force
and effect with no other amendments.
<PAGE>
WHEREFORE, the parties have hereunder set their hand and seal on the day
above written.
ACCUFACTS PRE-EMPLOYMENT
SCREENING, INC.
by: /s/ John Svedese
-----------------------------
JOHN SVEDESE, Vice President
by: /s/ Philip Luizzo
-----------------------------
PHILIP LUIZZO, Employee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data schedule contains summary financial information extracted
from the September 30, 1999 10-Q balance sheet and income statement and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 221,581
<SECURITIES> 0
<RECEIVABLES> 341,421
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 563,002
<PP&E> 159,705
<DEPRECIATION> 96,571
<TOTAL-ASSETS> 725,146
<CURRENT-LIABILITIES> 215,082
<BONDS> 0
0
0
<COMMON> 62,990
<OTHER-SE> 404,518
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 725,146
<TOTAL-REVENUES> 1,366,461
<CGS> 1,366,461
<TOTAL-COSTS> 908,750
<OTHER-EXPENSES> 908,750
<LOSS-PROVISION> 577,861
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,165
<INCOME-TAX> (125,315)
<INCOME-CONTINUING> 1,549
<DISCONTINUED> (126,864)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,864)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
