UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2000
Commission File Number 000-14995
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
(Exact name of registrant as specified in 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) (Zip Code)
Registrant's telephone number, including area code (212) 966-0666
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 __
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 2000, the Company
had outstanding 6,627,471 shares of its common stock, par value $0.01.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets for September 30, 2000 (unaudited) and
December 31, 1999...................................................3
Consolidated Statements of Operations for Three Months and Nine
Months Ended September 30, 2000 and 1999 (unaudited)................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (unaudited).......................6
Notes to Unaudited Consolidated Financial Statements................8
Item 2. Management's Discussion and Analysis or Plan of Operations..........9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................N/A
Item 2. Changes in Securities and Use of Proceeds.........................N/A
Item 3. Defaults Upon Senior Securities...................................N/A
Item 4. Submission of Matters to a Vote of Security Holders...............N/A
Item 5. Other Information.................................................N/A
Item 6. Exhibits and Reports on Form 8-K...................................12
Signatures....................................................................13
Exhibits......................................................................14
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 2000 (Unaudited) and December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
ASSETS
September 30, December 31,
2000 1999
(Unaudited)
----------------------------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 81,145 $ 298,331
Accounts receivable 654,891 636,463
---------- ----------
Total Current Assets 736,036 934,794
---------- ----------
PROPERTY AND EQUIPMENT, net 367,385 155,084
---------------------- ---------- ----------
OTHER ASSETS
------------
Security deposits 8,554 8,554
Prepaid expenses 26,072 68,572
Deferred income tax asset 243,000 185,600
Intangible asset, net 148,162 157,632
---------- ----------
Total Other Assets 425,788 420,358
---------- ----------
TOTAL ASSETS $1,529,209 $1,510,236
========== ==========
</TABLE>
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ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 2000 (Unaudited) and December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2000 1999
(Unaudited)
----------------------------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 254,282 $ 194,056
Current maturities of capital lease
obligations 3,520 8,295
Note payable, bank 64,575 43,274
Loans payable, stockholder 31,280 21,280
Deferred income tax liability 188,000 184,000
----------- ----------
Total Current Liabilities 541,657 450,905
----------- ----------
OTHER LIABILITIES
-----------------
Capital lease obligations, less current
maturities 25,076 1,465
---------- ----------
TOTAL LIABILITIES 566,733 452,370
---------- ----------
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, 6,627,471 issued and outstanding 66,275 66,275
Additional paid in capital 1,319,821 1,319,821
Accumulated deficit (423,620) (328,230)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 962,476 1,057,866
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,529,209 $ 1,510,236
========== ===========
</TABLE>
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<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30,2000 and 1999(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $1,011,345 $508,176 $3,129,116 $1,366,461
--------
COST OF SALES 695,165 323,270 2,116,469 908,750
------------- ---------- ----------- ---------- -----------
GROSS PROFIT 316,180 184,906 1,012,647 457,711
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
379,551 241,811 1,147,415 577,861
---------- ----------- ---------- -----------
OPERATING LOSS (63,371) (56,905) (134,768) (120,150)
OTHER EXPENSE
-------------
Interest expense, net 3,112 1,065 6,372 5,165
---------- ----------- ---------- -----------
LOSS BEFORE INCOME TAXES (66,483) (57,970) (141,140) (125,315)
INCOME (BENEFIT) TAXES (17,800) 809 (45,750) 1,549
---------------------- ---------- ----------- ---------- -----------
NET LOSS (48,683) (58,779) (95,390) (126,864)
========== =========== ========== ===========
NET LOSS PER SHARE, BASIC AND DILUTED (0.01) (0.01) (0.01) (0.02)
========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,627,471 6,163,532 6,627,471 6,112,013
========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999 (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $ (95,390) $(126,864)
---------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 55,576 26,496
Increase in accounts receivable (18,428) (52,026)
Decrease (increase) in prepaid expense 42,500 (82,369)
Increase (decrease) in accounts payable and accrued expenses 60,226 (15,593)
Increase in deferred income taxes (53,400) --
--------- ---------
TOTAL ADJUSTMENTS 86,474 (123,492)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (8,916) (250,356)
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchases of property and equipment (231,004) (953)
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Repayments on capital lease obligations (8,567) (6,766)
Net repayments (advances) of note payable, bank 21,301 (15,907)
Proceeds (repayments) from loan payable, stockholder 10,000 (5,000)
Collections on stock subscription receivable -- 448,066
--------- ---------
NET CASH USED IN FINANCING
ACTIVITIES 22,734 420,393
--------- ---------
NET DECREASE IN CASH (217,186) 169,084
CASH - Beginning 298,331 52,497
---- --------- ---------
CASH - Ending $ 81,145 $ 221,581
---- ========= =========
</TABLE>
<PAGE>
<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS, continued
For the Nine Months Ended September 30, 2000 and 1999 (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest 6,375 5,207
Income taxes 9,421 3,654
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquired property and equipment with capital lease 27,403 --
Issuance of shares resulting from transfer from common stock subscribed -- 2,240
</TABLE>
<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Presentation
---------------------
The balance sheets of the Company as of September 30, 2000, the related
statements of operations and cash flows for the nine months ended September 30,
2000 and 1999 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,
2000 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. ("APES") 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.
APES and its subsidiary 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.
On October 13, 1999, APES acquired all of the net assets of Maglio, Inc.
("Maglio"), a Florida corporation, by merging Maglio with and into
Maglio-Accufacts Pre-Employment Screening, Inc. ("MAPES"), a wholly-owned
subsidiary established by APES. The acquisition was accounted for using the
purchase method of accounting and was completed by issuing 177,471 shares of
APES common stock consisting 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 entering into a non-compete agreement. The purchase price
over the fair value of the net assets acquired was $120,125 and is being
amortized using the straight-line method over 20 years. The fair value of the
non-competition agreement was $5,313 and is being amortized using the
straight-line method over the term of the agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the financial statements
of the Company included elsewhere herein.
BUSINESS
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. Simultaneously with this
merger, Southern changed its name to Accufacts Pre-Employment Screening Inc. 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.
On October 13, 1999, Accufacts acquired all of the net assets of Maglio, Inc.
("Maglio"), a Florida corporation, by merging Maglio with and into
Maglio-Accufacts Pre-Employment Screening, Inc. ("Maglio-Accufacts"), a
wholly-owned subsidiary of Accufacts. The acquisition was accounted for using
the purchase method of accounting and was completed by issuing 177,471 shares of
the Company's common stock. Of the 177,471 shares, 174,971 shares of common
stock were issued in consideration for the acquisition and 2,500 shares of
common stock were issued in consideration for a stockholder of Maglio entering
into a non-compete agreement. The purchase price over the fair value of the net
assets acquired was $120,125 and is being amortized using the straight-line
method over 20 years. The fair value of the non-competition agreement was $5,313
and is being amortized using the straight-line method over the term of the
agreement.
Accufacts and its subsidiary acts as an internet 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.
THE PRODUCTS
We act as an information service bureau in verifying job applicant background
information throughout the United States for our customers. We have the
resources to provide companies with criminal record checks, credit reports,
social security verification, driving records, employment and education
verification through direct searches of courts, credit bureaus, educational
institutions and corporations. These services can be provided on a nationwide
scale and performed within a 24 to 72 hour turnaround period. We have
additionally initiated Exit Interview, a service for employers that determines
the reason specific employees are leaving, thus, creating useful information for
future employee retention.
OVERVIEW OF OPERATIONS
As a result of the acquisition of Maglio, Inc., Accufacts is consolidating
operations, eliminating redundant staff, and reducing combined direct and
indirect expenses. As an element of this, virtually all customer work efforts
and direct personnel are being relocated and consolidated in the Florida
facility. As of October 15, 2000, most of this process has been completed.
Management expects that full consolidation will be implemented by the end of
2000.
The New York facility will continue to be the executive offices but will now be
the focus of the Company's marketing and business development efforts. The
Company looks forward to substantial increases in sales through an aggressive
and highly disciplined approach to generating new business. This is expected to
include: targeting smaller diverse clients, bidding on larger corporate clients,
focusing on re-seller relationships and cross selling the Company's existing and
new products. They will also be responsible for increasing the Company's
exposure to the market place and positioning for on-going increased sales.
In order to insure that service to our customers would not be interrupted during
this move, we substantially increased our staffing in the Florida office. This
increase in staffing commenced in June 2000 and continued until October 15,
2000, when a majority of the move to Florida was complete, and increased payroll
by approximately $25,000 per month during the move. We began reducing the extra
staffing on October 15, 2000, when a majority of the move to Florida was
complete. We estimate that the resulting savings (for both the New York and
Florida locations combined) will be approximately $20,000 per month less than
the costs we were incurring prior to the move.
We believe we made considerable strides during the third quarter in enhancing
our future profitability without sacrificing service to our clients. Over the
last 10 months of the current fiscal year we have invested considerable funds in
increasing our server capacity, our web backbone, new products and marketing
efforts. We are continuing to invest in our scalable software and hardware
technology to insure we are positioned for future growth. We believe our efforts
will provide us with the capabilities to bring new products and enhancements to
<PAGE>
our current and future clients with speed and flexibility. We anticipate that
the fourth quarter ending December 31, 2000, will continue to see increased
sales as retailers increase staffing and background checks for the holiday
season, although no assurances can be given.
Based on the above actions to increase marketing efforts and reduce operating
expenses we anticipate achieving profitability by the end of the first or second
quarter of 2001. We also anticipate releasing several new employment-related
screening products during the first quarter of 2001. However, we cannot ensure
that our efforts will have the desired effects of increasing sales and
profitability.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
The following analysis of historical financial condition and results of
operations are not necessarily reflective of the on-going operations of the
Company.
Overall Operating Results
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999:
Gross revenues increased 100% to $1,011,000 for the quarter ended September 30,
2000 as compared to $508,000 for the quarter ended September 30, 1999. The
primary causes for this increase include the revenues generated from the Maglio
product lines (acquired October 1999) as well as increased acceptance of the
Company's products and services by client companies. The combination of products
and services provided by the Company and Maglio allows for increased
cross-selling capabilities to current and prospective clients. In addition, the
Company's new software products will allow for strengthened sales in a business
to business internet environment. We cannot assure you that such sales of these
products will continue to increase in the future.
Gross profit for the current quarter was $316,000 or 31% of sales. This compares
to $185,000 or 36% for the prior year quarter. We anticipate that the gross
profit margin will increase in future periods based on cost efficiencies
associated with the ability to negotiate lower fee structures charged by vendors
that perform some of the investigative procedures, cost savings with
consolidating operations and increased marketing efforts. There can be no
assurances that these negotiations will succeed in obtaining a lower fee
structure. Margins should also increase based on the increased marketing
capacity of selling more than one service (cross-selling) to a given client with
out incurring additional marketing costs, however, we can give no assurances
that these efforts will have desired effect of increasing margins.
General operating expenses were $379,551 for the current quarter, an increase of
57% over the prior year. Expenses associated with the move from New York to
Florida to better consolidate the operations of the Company and the increased
staffing during the move in order to preserve uninterrupted service to our
clients are the primary causes for this increase. We anticipate that the
consolidation of operations to one location will substantially reduce redundant
overhead of maintaining two similar operating facilities. We continue to closely
monitor operating expenses.
Net loss for the quarter was $49,000 as compared to a prior year quarterly loss
of $59,000. The current quarter loss can be primarily attributed to the moving
of the operations and the related temporary increase in staffing.
Nine months ended September 30, 2000 compared to the nine months ended September
30, 1999:
The same responses cited above for the current and prior year quarters apply
equally as well to the nine-month periods ended September 30, 2000 and September
30, 1999.
Gross revenues increased 129% to $3,129,000 for the first nine months of fiscal
year 2000 as compared to $1,366,000 for the comparable period of 1999. The
Company has maintained a steady growth pattern over this time frame with the
addition of the Maglio services, cross-selling capabilities and new product
offerings. We cannot assure you that such growth will continue.
Gross profit for the current six months was $1,013,000 or 32% of revenues. This
compares to $458,000 or 33% of sales for the prior year period.
General operating expenses were $1,147,000 for the current nine months, an
increase of 99% over the prior year. We have begun reducing expenses with the
relocation of the New York operation to Florida and with an increased presence
of business to business internet exposure.
The Company recognized a deferred tax benefit for the current six months
resulting from the net difference of current deferred tax liabilities due to
timing differences and non-current deferred tax assets resulting from net
operating losses expected to be recognized by the Company.
<PAGE>
Net loss for the current year to date period was $95,000 as compared to a prior
year nine-month loss of $127,000. We anticipate that these losses will continue
to decease over the next quarter, however, we cannot guarantee such.
LIQUIDITY AND CAPITAL RESOURCES
Cash on deposit increased by approximately $28,000 for the current quarter. The
primary cause for this increase was better collections of receivables.
Working capital at September 30, 2000 was $194,000 as compared to $484,000 at
December 31, 1999. The Company used working capital in order to achieve future
operating efficiencies (cited above) and to allow for increased growth. The
Company intends to increase its business through the use of operating profits,
borrowings and additional capital raisings. We believe that our anticipated cash
flow from operations as well as the availability of funds from existing bank
facilities will provide the liquidity to meet our current foreseeable cash needs
for at least the next year. There can be no assurances that any of these
intentions will be successful.
The Company is also making progress in increasing cash flow in the following
areas but there can be no assurances that such increases will occur:
1. Vendor negotiations. In prior times the Company had to prepay for
investigation services (while cash revenues had an approximate 90 day lag)
because of its start up status. As business has grown the Company is now in a
position to have some negotiating leverage with these firms. Several of these
companies have agreed to extended credit terms which will substantially increase
cash flow for the Company.
2. Re-seller program. Last quarter the Company began a re-seller program with
various human resource companies, which calls for a 30 day guaranteed payment to
the Company for services performed. This should substantially reduce the revenue
lag time from the 90-day average.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted FASB Statement 128. It is not expected that the Company
will be impacted by other recently issued standards. FASB Statement 128 presents
new standards for computing and presenting earnings per share (EPS). The
Statement is effective for financial statements for both interim and annual
periods ending after December 15, 1997.
FASB Statement 131 presents new standards for disclosures about segment
reporting. The Company does not believe that this accounting standard applies to
the Company as all operations of the Company are integrated for financial
reporting and decision-making purposes.
FASB Statement 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. Management does not anticipate that the
adoption of the new statement will have a significant effect on results of
operations or the financial position of the Company.
YEAR 2000 COMPLIANCE
The Company has not been materially affected with computer problems associated
with the year 2000 as of the date of this filing.
INFLATION
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future.
FORWARD-LOOKING INFORMATION
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
Words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to maximize to the fullest extent possible the protections of
the safe harbor established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
<PAGE>
Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment.
The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b. Reports on Form 8-K
None
<PAGE>
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.
(Registrant) ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
By /s/ Philip Luizzo
Philip Luizzo, President and Chief Executive Officer
Date November 9, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Philip Luizzo
Philip Luizzo, President and Chief Executive Officer
Date November 9, 2000
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule
