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 June 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 June 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 June 30, 2000 (unaudited) and
December 31, 1999...................................................3
Consolidated Statements of Operations for Three Months and Six Months
Ended June 30, 2000 and 1999 (unaudited)............................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited)............................6
Notes to Unaudited Consolidated Financial Statements................8
Item 2. Management's Discussion and Analysis or Plan of Operations..........8
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 SHEETS
June 30, 2000 (Unaudited) and December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
ASSETS
June 30, 2000 December 31,
(Unaudited) 1999
-------------------------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 53,623 $ 298,331
Accounts receivable 738,928 636,463
---------- ----------
Total Current Assets 792,551 934,794
---------- ----------
PROPERTY AND EQUIPMENT, net 321,788 155,084
--------------------------- ---------- ----------
OTHER ASSETS
------------
Security deposits 8,554 8,554
Prepaid expenses 40,239 68,572
Deferred income tax asset 228,000 185,600
Intangible asset, net 151,318 157,632
---------- ----------
Total Other Assets 428,111 420,358
---------- ----------
TOTAL ASSETS $1,542,450 $1,510,236
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2000 (Unaudited) and December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2000 December 31,
(Unaudited) 1999
-------------------------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 279,824 $ 194,056
Current maturities of capital lease obligations 4,231 8,295
Note payable, bank 34,956 43,274
Loans payable, stockholder 21,280 21,280
Deferred income tax liability 191,000 184,000
---------- ----------
Total Current Liabilities 531,291 450,905
---------- ----------
OTHER LIABILITIES
-----------------
Capital lease obligations, less current maturities -- 1,465
---------- ----------
TOTAL LIABILITIES 531,291 452,370
---------- ----------
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 (374,937) (328,230)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,011,159 1,057,866
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,542,450 $1,510,236
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $1,135,366 $462,607 $2,117,771 $858,285
--------
COST OF SALES 761,643 323,612 1,421,304 585,480
------------- ---------- ---------- ---------- ----------
GROSS PROFIT 373,723 138,995 696,467 272,805
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
455,743 191,890 767,864 336,052
---------- ---------- ---------- ----------
OPERATING LOSS (82,020) (52,895) (71,397) (63,247)
OTHER EXPENSE
-------------
Interest expense, net 1,728 2,437 3,260 4,100
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (83,748) (55,333) (74,657) (67,347)
INCOME (BENEFIT) TAXES (43,401) 370 (27,950) 740
---------------------- ---------- ---------- ---------- ----------
NET LOSS $(40,347) $(55,702) $(46,707) $(68,087)
========== ========== ========== ==========
NET LOSS PER SHARE, BASIC AND DILUTED
(0.01) (0.01) (0.01) (0.01)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,627,471 6,164,264 6,627,471 6,086,253
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
--------------------------------------------------------------------------------------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $ (46,707) $ (68,086)
---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 32,682 17,653
(Increase) decrease in accounts receivable (102,465) (85,896)
Decrease (increase) in prepaid expense 28,333 --
Increase (decrease) in accounts payable and accrued expenses 85,768 3,384
Increase in deferred income taxes (35,400) --
---------- ----------
TOTAL ADJUSTMENTS 8,918 (64,859)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (37,789) (132,945)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchases of property and equipment (193,072) --
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Repayments on capital lease obligations (5,529) (4,434)
Net repayments (advances) of note payable, bank (8,318) 3,268
Proceeds from issuance of common stock subscribed in connection with
offering
-- 86,000
----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (13,847) 84,834
----------- -----------
NET DECREASE IN CASH (244,708) (48,111)
CASH - Beginning 298,331 52,497
---- ----------- -----------
CASH - Ending $ 53,623 $ 4,386
---- =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
--------------------------------------------------------------------------------------------------------------------
2000 1999
---------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
<S> <C> <C>
Interest $3,263 $4,108
Income taxes $9,221 $1,305
NON CASH INVESTING AND FINANCING ACTIVITIES
Issuance of shares resulting from transfer
from common stock subscribed -- $ 430
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. GENERAL
The balance sheet of the Company as of June 30, 2000, the related statements of
operations and cash flows for the six months ended June 30, 2000 and 1999
included in the financial statements have been prepared by Accufacts
Pre-Employment Screening, Inc. (the "Company" or "Accufacts") 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 six months ended June 30, 2000 are not necessarily
indicative of the results of operations for the full year or any other interim
period.
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 PRODUCT
The Company acts as an information service bureau and is in the business of
verifying job applicant background information throughout the United States.
Accufacts has 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. The
Company has additionally initiated Exit Interview, a service for employers that
determines the reason for leaving, creating useful information for future
employee retention.
CURRENT DEVELOPMENTS
On May 24, 2000, the Company announced the completion of the first stage of its
new internet based software program known as "ESP." At the time of this filing,
the software is substantially complete. It is a fully automated and integrated
web-based program that provides client companies with up to the minute resources
for employment screening. Management anticipates that this product along with
the screening products obtained in the Maglio acquisition will substantially
increase revenues in future periods. The combination of products will allow for
cross selling capabilities to the Company's two client bases. Notwithstanding
the foregoing, there can be no assurances given that a substantial increase in
sales will occur.
<PAGE>
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 June 30, 2000 compared to the three months ended June 30,
1999:
Gross revenues increased 145% to $1.1 million for the quarter ended June 30,
2000 as compared to $463,000 for the quarter ended June 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 Compan's new
ESP software will allow for strengthened sales in a business to business
internet environment.
Gross profit for the current quarter was $374,000 or 33% of sales. This compares
to $139,000 or 30% for the prior year quarter. Management anticipates that the
gross profit margin will continue to 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. 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.
General operating expenses were $456,000 for the current quarter, an increase of
138% over the prior year. Expenses associated with the move from New York to
Florida to better consolidate the operations of the Company are the primary
cause for this increase. Management anticipates that the consolidation of
operations to one location will substantially reduce redundant overhead of
maintaining two similar operating facilities. Management continues to closely
monitor operating expenses.
Net loss for the quarter was $40,000 as compared to a prior year quarterly loss
of $56,000.
Six months ended June 30, 2000 compared to the six months ended June 30, 1999:
The same responses cited above for the current and prior year quarters apply
equally as well to the six month periods ended June 30, 2000 and June 30, 1999.
Gross revenues increased 147% to $2.1 million for the first half of fiscal year
2000 as compared to $858,000 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 and cross-selling capabilities. Management cannot insure that
such growth will continue.
Gross profit for the current six months was $696,000 or 33% of sales. This
compares to $273,000 or 32% of sales for the prior year period.
General operating expenses were $768,000 for the current six months, an increase
of 129% over the prior year. Management is in the process of 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.
Net loss for the current period was $47,000 as compared to a prior year
six-month loss of $68,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by approximately $140,000 for the current quarter. The primary
causes for this decrease was the purchase of computer equipment and programming
to meet future operating needs, the relocation expenses and the funding of
on-going operations.
Working capital at June 30, 2000 was $261,000 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,
borrowing and additional capital raisings. Management believes that its
<PAGE>
anticipated cash flow from operations as well as the availability of funds from
existing bank facilities will provide the liquidity to meet its 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 currently has a bank source of funding with a line of credit in the
amount of $100,000 ($35,000 which was outstanding at June 30, 2000) with an
annual interest percentage of 7.75%. The Company also has an overdraft
protection on the operating bank account of $25,000 with an annual interest rate
of 13.75% ($0 of which was outstanding at June 30, 2000).
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. During the current quarter the Company has begun a
re-seller program with various human resource companies which calls for a 30 day
guaranteed payment to the Company for services performed. This substantially
reduces 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 news 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.
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.
<PAGE>
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.
<PAGE>
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 August 12, 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 August 12, 2000
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial Data Schedule
