SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the year ended December 31, 1996
Transition Report Pursuant to Section 13 or 15(a)of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
to
Commission File Number: 0-17394
CORFACTS, INC. AND SUBSIDIARY
(Name of small business issuer in its charter)
New Jersey 22-2478379
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
41 East Main Street, Freehold, New Jersey 07728
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (908)780-1188
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to the Form 10-KSB. (X)
Transitional Small Business Disclosure Format: Yes x No
Registrant had 11,909,402 shares of Common Stock, no par value, outstanding on
April 14, 1997. <PAGE>
PART I
Item 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
The Company was organized in 1983 under the name "Business Journal of New Jersey
, Inc." In October, 1983 the Company produced two monthly magazines, Business
Journal of New Jersey and Garden State Home & Garden, which were subsequently
sold to Micromedia Affiliates, Inc. in March of 1990. In addition, to coincide
with its new business direction, the company changed its name to Corfacts, Inc.
After the Company sold off its magazine division, it accelerated its efforts to
expand and develop its business information database, which consisted of
approximately 100,000 companies in a tri-market region. After approximately 18
months of unprofitability, management elected to sell the database division. On
October 2, 1991, Corfacts executed a Sale of Assets agreement, dated as of
August 1, 1991 with Ford Publishing Inc. Pursuant to this agreement, Corfacts
sold to Ford certain assets relating to the Information Division.
Since 1991, the operations of Corfacts, Inc. consisted of the management of two
small joint ventures, one of which was a partnership which purchased tax lien
certificates in New Jersey, and the other consisted of various underwritings of
special projects of the buyer of the information division. Additionally, the
Company manages its own investment in tax lien certificates. These activities
include the monitoring and sometimes subsequent purchase of liens on properties
the Company currently holds, the goal of which is to insure a priority position
when the liens are ready for redemption.
To utilize the Company's other liquid assets, which consist primarily of cash,
the Company continues to invest in short-term Certificates of Deposit. The
Company continues to focus its efforts on completing strategic alliances or
other suitable business ventures.
Metro Marketing, Inc.
On January 21, 1997, the Company completed its acquisition of Metro Marketing,
Inc., a New Jersey corporation, to be effective for accounting purposes as of
July 1, 1996. Metro Marketing, Inc., is a telemarketing services company
located in Freehold, New Jersey. Metro Marketing, Inc. provides telemarketing
services, most of which are outgoing call services for customers in various
industries.
EMPLOYEES AND CONSULTANTS
As of December 31, 1996, Corfacts, Inc. had one permanent employee, Larry
Finkelstein, who is the President and Chief Executive Officer. Mr. Finkelstein
is also the Vice President of Metro Marketing, Inc. Metro Marketing employs
approximately 10 full-time administrative and sales personnel and 125 part-time
telemarketing service representatives. Ariel Freud, who is the Vice President
of Corfacts is also the President of Metro Marketing, Inc.
Item 2. PROPERTIES
The Company maintains its offices at 41 East Main St. Freehold, NJ 07728.
The twenty-four (24) month lease commenced August 1, 1996. The monthly rent is
$1,830 per month.
Item 3. LEGAL PROCEEDINGS
The Company is not currently subject to any material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the year ended December 31, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET PRICES OF COMMON STOCK
The following table sets forth the high and low bid prices for the common
stock in each quarter for the fiscal years ended December 31, 1996, and 1995,
which are listed on the "pink sheets" since the Company was delisted from
NASDAQ in 1989.
COMMON STOCK
High Low High Low
1996 Bid Bid Ask Ask
1st quarter .04 .02 .10 .09
2nd quarter .04 .02 .10 .09
3rd quarter .04 .02 .10 .09
4th quarter .08 .05 .125 .05
1995
1st quarter .04 .02 .10 .09
2nd quarter .04 .02 .10 .09
3rd quarter .04 .02 .10 .09
4th quarter .04 .02 .10 .09
The price information stated in the above table, and in the preceding paragraph,
is as reported by the National Quotation Bureau. The prices represent prices
between dealers, do not include retail mark-up, mark-down, or commissions, and
do not represent actual transactions.
(b) HOLDERS
As of December 31, 1996, there were approximately 355 shareholders of record of
issued and outstanding common stock of Corfacts, Inc.
(c) DIVIDENDS
To date, the Company has not declared or paid a dividend on its common stock.
The payment of future dividends by the Company, if any, will depend upon the
Company's short term and long term cash availability, working capital and
working capital needs and other factors, including the achievement of profitable
operations, as determined by the Company's Board of Directors.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PLAN OF OPERATION
Year ended December 31, 1996 as compared to the year ended December 31, 1995
The Company's historical results from operations for the year ended December 31,
1996 consisted of a loss of $88,524 on total revenues of $441,967, as compared
with a loss of $82,458 on revenues of $46,695 for the comparable period ended
December 31, 1995. The revenue figures for the period ended December 31, 1995
do not include the sales of the Metro Marketing subsidiary.
Management has remained focused on completing a strategic alliance or other
suitable business ventures to increase the operating status of the Company. The
first of such acquisitions, which the Company plans to be several, was completed
in January of 1997, with an effective date for accounting purposes of July 1,
1996. Six months of operations of the Company's new subsidiary, Metro Marketing,
Inc., are included in the 1996 Statement of Operations.
The Company now believes with its present corporate management and new marketing
subsidiary it has uniquely positioned itself to provide added value to
traditional small businesses which may need capital, management experience and
marketing assistance. The Company is presently negotiating the purchase of
other operating companies in non-technical industries which, when combined
with the existing resources of Corfacts, provide the opportunity to enhance
the value of the companies acquired.
ABOUT THE SUBSIDIARY, METRO MARKETING, INC.
During the six month period from July 1, 1996 through December 31, 1996, while
under the direction of Corfacts, Metro Marketing recorded revenue of $416,597,
as compared to revenues of $229,495 (unaudited) for the six month period ended
June 30, 1996. The six months ended December 31, 1996 indicate net income of
$10,760 after deduction of expenses for Officer's compensation and amortization
in connection with the purchase, totalling approximately $46,000. Management
believes this compares favorably to the $22,106 (unaudited) historical net
income of Metro Marketing for the six months ended June 30, 1996, which had no
corresponding expenses.
Prior to July 1996, Metro Marketing limited its telemarketing services to one
particular industry. Since July 1996, the Company has expanded its services to
other industries, and has expanded the type of telemarketing services they
provide. As a result management was able to increase the sales of Metro
Marketing, Inc. Management was also able to accomplish this without
significantly depleting the working capital of the parent company, or
incurring a loss in the subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital declined during the year ended December 31, 1996.
Working capital was $420,374 at December 31, 1996 as compared to $588,392 at
December 31, 1995.
The primary reasons for the decrease in working capital was the operating loss
in the parent company, as well as the utilization of some working capital to
support the receivables and payables of the acquired subsidiary. Management
believes that its recent acquisition of the operating subsidiary will provide
income from operations which, in turn, will provide cash flow from operations
which will improve the Company's working capital position.
Management is also considering various equity funding alternatives to increase
its existing positive working capital in an effort to support its planned
acquisitions. The Company feels with the right combination of capital,
marketing assistance and management support it will be able to pursue ongoing
growth through the acquisition of additional subsidiaries, while maintaining
the current growth rate in its existing subsidiary.
Forward looking and other statements
Forward looking statements above and elsewhere in this report that suggest that
the company will increase revenues, become profitable and achieve significant
growth through acquisitions are subject to risks and uncertainties. Forward-
looking statements include the information concerning possible or assumed future
results of operations and cash flows. These statements are identified by words
such as "believes," "expects," "anticipates" or similar expressions. Such
forward looking statements are based on the beliefs of Corfacts, Inc. and its
Board of Directors in which they attempt to analyze the Company's competitive
position in its industry and the factors affecting its business. Stockholders
should understand that each of the foregoing risk factors, in addition to those
discussed elsewhere in this document and in the documents which are incorporated
by reference herein, could affect the future results Corfacts, Inc. and could
cause those results to differ materially from those expressed in the forward-
looking statements contained or incorporated by reference herein. In addition
there can be no assurance that Corfacts, Inc. and its Board have correctly
identified and assessed all of the factors affecting the Company's business.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) (1) The following documents are filed as part of this
report:
a. Consolidated Financial Statements of the Registrant, Corfacts, Inc.
Pages
(a) Financial Statements
Report of Schuhalter, Coughlin & Suozzo, LLC F-1
Consolidated Balance Sheets of Corfacts, Inc. and
Subsidiary as of December 31, 1996 F-2
Consolidated Statements of Operations of Corfacts,
Inc. and Subsidiary for the years ended December
31, 1996 and 1995 F-3
Consolidated Statement of Stockholders' Equity for
the years ended December 31, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 F-5
Notes to Financial Statements F-6 to F-19
(b) Interim Financial Statements
Not applicable.
(c) Financial Statements of Business Acquired and to
be Acquired
"Unavailable at this time"
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CORFACTS, INC. AND SUBSIDIARY
We have audited the consolidated balance sheet of Corfacts, Inc. and Subsidiary
as of December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended December 31,
1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements present fairly, in all material respects, the financial
position of Corfacts, Inc. and Subsidiary as of December 31, 1996 and the
results of its operations and its cash flows for the years ended December 31,
1996 and 1995 in conformity with generally accepted accounting principles.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Certified Public Accountants
Raritan, New Jersey
April 14, 1997
F-1<PAGE>
CORFACTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 406,296
Interest receivable 3,207
Accounts receivable net of allowance for
bad debts of $5,227 68,056
Notes receivable 19,793
Officer loans 25,669
Other receivable - municipal tax liens (net of
estimated disposition costs of $3,500) 22,762
Other interest receivable - tax liens 11,488
TOTAL CURRENT ASSETS 557,271
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $9,468 81,094
OTHER ASSETS
Loan receivable - officer 128,913
Investment in partnership 2,116
Customer lists net of accumulated amortization
of $9,914 128,881
Goodwill net of accumulated amortization of $3,470 135,325
Security deposits 5,509
TOTAL OTHER ASSETS 400,744
TOTAL ASSETS 1,039,109
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 114,669
Deferred revenue 5,940
Current portion of capitalized lease obligations 16,288
TOTAL CURRENT LIABILITIES 136,897
Capitalized lease obligations net of current portion 34,169
Note payable - shareholder 151,385
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized; 11,909,402 shares issued and
outstanding 1,281,573
Retained (Deficit) (564,915)
TOTAL STOCKHOLDERS' EQUITY 716,658
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,039,109
The accompanying notes are an integral part of these financial statements.
F-2<PAGE>
CORFACTS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
Year Ended
December 31,
1996 1995
INCOME
Revenue telemarketing $ 416,597 $ -
Revenue sharing - 9,920
Contract royalty revenue - 1,535
Equity in earnings of unconsolidated
investee 253 3,496
Income from tax lien certificates 4,593 15,252
Interest income 20,524 16,492
TOTAL REVENUES 441,967 46,695
DIRECT OPERATING EXPENSES 262,250 -
GROSS MARGIN 179,717 46,695
COSTS AND EXPENSES
General and administrative 241,972 129,153
Depreciation and amortization 22,492 -
Interest expense 3,777 -
TOTAL COSTS AND EXPENSES 268,241 129,153
NET (LOSS) $ (88,524) $(82,458)
NET (LOSS) PER SHARE $ (.009) $ (.010)
WEIGHTED AVERAGE SHARES OUTSTANDING 9,957,358 8,005,314
The accompanying notes are an integral part of these financial statements.
F-3<PAGE>
CORFACTS, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Number Common
of Shares Stock (Deficit) Total
Balance,
January 1, 1995 8,005,314 $1,159,571 $(393,933) $ 765,638
Net (loss) for
the year - - (82,458) (82,458)
Balance,
December 31, 1995 8,005,314 1,159,571 (476,391) 683,180
Issuance of Common
Stock 3,904,088 122,002 - 122,002
Net (loss) for
the year - - (88,524) (88,524)
Balance,
December 31, 1996 11,909,402 $1,281,573 $(564,915) $ 716,658
The accompanying notes are an integral part of these financial statements.
F-4<PAGE>
CORFACTS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
Year Ended
December 31
1996 1995
Cash flows from operating activities:
Cash received from customers $ 349,254 $ -
Cash received from revenue sharing and
other income 6,376 9,469
Cash paid to employees and suppliers (408,284) (123,992)
Interest received 19,271 16,392
Tax lien certificate income received - 21,871
Partnership distributions of income - 3,496
Interest expense (3,777) -
Net cash (used in) operating activities (37,160) (72,764)
Cash flows from investing activities:
Investment in partnership - (220)
Redemption of tax lien receivables - 93,955
Purchase of equipment (32,485) -
Partnership distribution of capital - 45,013
Net cash (used in) provided by
investing activities (32,485) 138,748
Cash flows from financing activities:
Repayment of capitalized lease obligations (7,260) -
Note receivable advances to buyer (59,034) (57,842)
(Loan to) officer (30,670) (35,725)
Repayments from buyer 54,769 55,865
Net cash (used in) financing activities (42,195) (37,702)
Net (decrease) increase in cash and cash
equivalents (111,840) 28,282
Cash and cash equivalents - beginning of period 518,136 489,854
Cash and cash equivalents - end of period $ 406,296 $ 518,136
Reconciliation of net income to net cash
used by operating activities:
Net (loss) $ (88,524) $ (82,458)
Adjustments:
Depreciation and amortization 22,492 -
Bad debts provision 5,227 -
Changes in assets and liabilities:
Decrease(increase) other receivable - tax
lien interest (4,845) 6,619
(Increase) in interest receivable (1,253) (100)
(Increase) decrease contract royalty receivable 6,376 (2,349)
(Increase) in accounts receivable (73,283) -
Increase in accounts payable and accrued
expenses 91,340 5,524
Increase in deferred revenue 5,940 -
(Increase) in security deposits (630) -
Net cash (used in) operating activities $ (37,160) $ (72,764)
The accompanying notes are an integral part of these financial statements.
F-5<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Corfacts, Inc. was organized in June 1983, originally as the Business
Journal of New Jersey, Inc. Since selling the magazine business in 1990,
and discontinuance and sale of the information division in August of 1991,
the company has directed its efforts to seek potential acquisitions and
investments deemed appropriate for the company to generate a return on
equity.
On December 31, 1996 the Company entered into a merger and acquisition
plan to acquire all of the shares and assets of Metro Marketing Corp., a
telemarketing firm. The Company issued 3,904,088 shares of common stock
and the balance of the purchase price in the sum of $151,385 shall be paid
pursuant to the terms of a promissory note. The accompanying consolidated
financial statements include the accounts of the company and its wholly
owned subsidiary. Intercompany transactions and balances have been
eliminated in consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity Method
The investment in partnership in which the company has a 33% interest is
carried at cost, adjusted for the partnership's proportionate share of
their undistributed earnings.
Property and Equipment
Depreciation is computed using straight-line and accelerated methods over
the five year estimated useful lives of the assets. Repairs and
maintenance which do not extend the useful life of the related assets are
expensed as incurred. Depreciation expense charged to operations in 1996
and 1995 was $9,408 and $0, respectively.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments
with original maturities of three months or less.
Earnings Per Share
Earnings per share of common stock are calculated on the weighted average
number of shares outstanding during each year giving retroactive effect to
the shares issued in connection with the acquisition of Metro Marketing,
Inc. effective July 1, 1996
F-6<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Contract Royalty Revenue
Earnings from royalty contract for the initial receipts from book sales
are recorded based upon the ratio that amounts collected bear to the total
amounts to be collected under the royalty contract.
Intangible Assets
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized using the straight line method over 20 years. Customer lists
were recorded at the estimated fair value the date of acquisition and is
being amortized using the straight-line method over 7 yers. Amortization
expense charged to operations for 1996 was $14,374.
Financial Instruments
The following methods and assumptions were used by the Company to estimate
the fair values of financial instruments as disclosed herein:
Cash and Equivalents: The carrying amount approximates fair value because
of the short period to maturity of the instruments.
Notes Receivable: The fair value of notes receivable is estimated based
on discounted cash flows using a current risk weighted interest rate.
Long-term Debt: The fair value of long-term debt is estimated based on
interest rates for the same or similar debt offered to the Company having
the same or similar remaining maturities and collateral requirements.
Principles of Consolidation
The accompanying consolidated balance sheet as of December 31, 1996
includes the accounts of the Company and the following subsidiaries with
results of operations included for the period subsequent to the
acquisition date:
Date of Acquisition
Metro Marketing, Inc. June 30, 1996
F-7<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Revenue Recognition
During 1996 the Company's revenues were derived mainly from providing
telemarketing services on a flat fee and hourly basis. Revenues are
recognized when earned based upon standard billing rates charged by the
hours worked. Corresponding expenses were recorded for all hours included
in revenue.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
Schedule of Non Cash Investing and Financing Activities
3,904,088 shares in 1996 of common
stock issued in connection with
the acquisition of Metro Marketing
subsidiary in 1996 $ 122,002
Acquisition of Metro Marketing, Inc.
On December 31, 1996 Corfacts, Inc. acquired all of the common stock of
Metro Marketing, Inc. through an acquisition and redemption by Metro
Marketing, Inc. of its common stock. The total value is approximately
$287,589 (exclusive of acquisition costs.) The effective date for the
purchase is July 1, 1996 Metro's principal business was to provide
telemarketing services to various industries. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. The excess (approximately $277,590) of the total
acquisition cost over the recorded value of assets acquired was allocated
$138,795 to customer lists and $138,795 to goodwill and are being
amortized over 7 years and 20 years respectively. The accompanying
balance sheet includes the assets and liabilities of Metro Marketing Inc.
at December 31, 1996. The statement of operations includes the results of
operations for the six months ended December 31, 1996.
F-8<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Acquisition of Metro Marketing, Inc. - (Continued)
The pro forma condensed results of operations that follow assume that the
acquisition had occurred at the beginning of the year ended December 31,
1995. The pro forma calculations include adjustments for the estimated
effect on the Company' shistorical results of operations for amortization
and interest related to the acquisition.
Condensed Pro Forma Information
Year Ended
December 31
(Unaudited)
1996 1995
(Pro Forma)
Total Revenue $ 671,462 $ 299,676
Cost of Revenue 381,411 117,277
Operating Expenses 380,450 243,366
Provision for Taxes 1,000 -
Net (Loss) $ (91,399) $ (60,967)
(Loss) Per Share $ (.008) $ (.005)
Weighted Average Shares
Outstanding 11,909,402 11,909,402
The following is a summary of the financial position of Metro Marketing,
Inc. at June 30, 1996 before giving effect to recording the acquisition
transactions:
Metro Marketing, Inc.
June 30, 1996
Current assets $ 87,344
Property and equipment 74,767
Other assets 4,309
Total 166,420
Current liabilities 140,743
Capitalized lease obligations 42,682
Stockholders' Equity (17,005)
Total $ 166,420
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates include the relative values
ascribed to the acquisition of Metro Marketing, Inc. Actual results could
differ from those estimates.
F-9
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVESTMENTS
The company has an interest in a partnership which is primarily involved
in investing in delinquent municipal tax lien certificates which are
collateralized by the real estate being taxed in Monmouth County, New
Jersey. The investment is accounted for using the equity method and
represents a 33% ownership in the partnership. The Company's accumulated
equity in the undistributed earnings of the partnership included in
Deficit amounted to $1,999 and $1,862 at December 31, 1996 and 1995,
respectively.
Condensed financial information for the partnership is as follows:
Summary of Statements of Financial Condition
December 31,
1996 1995
Assets
Delinquent municipal tax
lien certificates $ 4,705 $ 4,705
Accrued interest - tax
lien certificates 2,104 1,336
Total Assets $ 6,809 $ 6,041
Liabilities and Partners' Equity
Accrued expenses $ 450 $ 450
Total Liabilities 450 450
Partners' Equity
Corfacts, Inc. 1,999 1,863
Other 4,360 3,728
Total Liabilities and
Partners' Equity $ 6,359 $ 6,041
Summary of Statement of Operations
Interest Income $ 768 $ 10,917
Expenses - 427
Net Income $ 768 $ 10,490
F-10<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation.
December 31,
1996
Furniture and fixtures $ 13,383
Equipment 15,502
Leasehold improvements 3,960
Equipment under capital
leases 57,717
90,562
Less: accumulated
depreciation (9,468)
Net assets $ 81,094
NOTE 5 - INTEREST EXPENSE
Interest expense totalled $3,777 and $0 for the years ended December 31,
1996 and 1995, respectively.
NOTE 6 - NOTES PAYABLE
On December 31, 1996 the Company partially financed the purchase of Metro
Marketing, Inc. with a note to the former shareholder for $151,385. The
note is payable as follows:
During the first two years of this note, payment of interest only, at 7%
per annum. Effective annual rate of this note is 7.186% made in quarterly
payments. During the next 4 years, equal quarterly payments of both
principal and interest until this note is paid. Corfacts has the right to
prepay this note without penalty.
Should the company default on this note, the holder becomes a secured
creditor. No current portion of long term debt is included in current
liabilities as no principal is due for the first two years of the loan.
Aggregate maturities required on long term debt at December 31, 1996 are
as follows:
1997 $ 0
1998 0
1999 43,720
2000 43,720
2001 63,945
Total $ 151,385
F-11<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LEASES
Operating Leases
The Company leases office space in Freehold, New Jersey through August 1,
1998. The lease is classified as an operating lease and provides for
annual rentals of $21,960 through 1998. From September 1991 through
September 1996 the company shared office space with the buyer of the
information division with rent due on a month by month basis.
Rental expense for office space was $12,940 in 1996 and $4,560 in 1995.
The total future minimum rental payments required are as follows:
1997 $ 21,960
1998 14,640
Total $ 36,600
Capitalized Leases
The Company is the lessee of computer equipment under capital leases
expiring in 1999. The assets and liabilities are recorded at the lower of
present value of the minimum lease payments or the fair value of the
asset. The assets are amortized over the lower of their related lease
term or their estimated useful life. Amortization of assets under capital
leases is included in depreciation expense for 1996.
Following is a summary of equipment held under capital leases:
Computer equipment $ 57,717
Less: accumulated depreciation (5,772)
$ 51,945
Minimum future lease payments under capital leases as of December 31, 1996
for each of the next five years are as follows:
1997 $ 22,073
1998 22,073
1999 16,753
Total minimum lease payments 60,899
Less amounts representing interest 10,442
Present value of net minimum lease
payment $ 50,457
F-12<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LEASES - (Continued)
Capitalized Leases - (Continued)
The interest rate on capitalized leases varies from 13.5% to 14% and is
imputed based on the lower of the Company's incremental borrowing rate at
the inception of each lease or the lessors implicit rate of return.
This capital lease provides for a 10% purchase option at the end of the
lease based on lessors cost of the equipment or the lease term can be
renewed.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1996
Administrative expenses $ 81,908
Payroll tax liabilities 38,702
Total $ 120,610
NOTE 9 - INCOME TAXES
No provision for income taxes have been made for the periods presented as
the company incurred losses during those periods.
Deferred taxes consist of the following at December 31, 1996:
Metro
Corfacts Marketing
Total deferred tax assets $ 235,100 $ 0
Less: Valuation allowance (235,100) 0
Net deferred tax assets $ 0 $ 0
Deferred tax assets are attributable to available net operating loss
carryforwards. The valuation allowance was increased by $30,600 during
the year.
Current and deferred tax expense has been specifically calculated
individually to each member of the consolidated group as if it were a
separate taxpayer.
F-13<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES - (Continued)
As of 1996 the Company has available operating loss carryforwards which
may be used to reduce Federal and State taxable income and tax liabilities
in future years as follows:
Net Operating Losses
Available Through Federal State
1997 $ - $ 58,824
1998 - 174,793
1999 - 68,262
2000 - -
2005 101,111 104,764
2006 183,445 63,924
2007 68,594 78,354
2008 104,797 88,649
2009 64,780 -
2010 78,761 -
2011 88,524 -
Total $ 690,012 $ 637,570
NOTE 10 - COMMITMENTS
On March 2, 1990, the Company entered into an employment agreement with
its President through March 1, 1992 with annual compensation of $60,000
and automatic renewals for successive twelve month periods. The agreement
specified that the president was to be provided a company owned vehicle.
Additionally, the President was granted an option to purchase 300,000
shares of common stock of the Company pursuant to the Incentive Stock
Option Plan. The option price was $.1875 (3/16) and the option expired
March 2, 1995. On September 1, 1990 the compensation agreement with the
president was changed to a consulting agreement. For 1992 and 1993 the
consulting agreement with the president was for an annual fee of $60,000.
Effective January 1, 1994 the Board of Directors approved an employment
agreement for a two year period with annual base compensation of $67,000.
January 1, 1995 the board of directors increased the annual base
compensation to $85,000.
On November 9, 1991 the company entered into an investment banking
agreement with a former stockholder of the company. The agreement is for
a period of five years from April 1, 1992 through March 31, 1997. The
company has agreed to pay a 5% commission on any transaction which
involves capital received by the company from another party, should the
company approve such a transaction, which was introduced by the former
shareholder. Capital shall include all cash or common stock, whose market
value will be determined by market quotes or independent appraisal.
F-14<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS - (Continued)
As of January 1, 1997, the Company entered into employment agreements with
its president and vice president through December 31, 1999. The
agreements provide for minimum annual compensation of $62,400 plus $4,800
reimbursed auto expenses and medical insurance coverage and discretionary
bonuses.
Covenants
As part of an agreement in 1990, when the magazine division was sold, the
Company provided a covenant not to compete with the buyer for twenty (20)
years whereby the Company will no longer produce magazine products in any
geographic location in which the buyer or any of its subsidiaries serve.
Additionally, the president of the Company provided a covenant not to
compete individually for a period of five (5) years.
The buyer provided a covenant not to compete with the company which based
upon the various terms of the agreement has expired December 31, 1996.
Included in interest income for 1996 and 1995 for interest not waived from
the officer was $0 and $0 respectively.
NOTE 11 - INCENTIVE STOCK OPTION PLANS
On May 9, 1988, the Company adopted an Incentive Stock Option Plan under
which options to purchase an aggregate of 600,000 shares of common stock
may be granted prior to May 8, 1998 at an option price to be determined at
the date of grant. There are no options outstanding as of December 31,
1996
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES
Loans Receivable - Officer
These amounts represent advances by the Company to the President and Vice
President which bear interest rates of 10% and 9% and have various
maturities.
The President initially agreed to repay his initial loan over 3 years at
$1,000 a month including interest at 9%, with a lump sum payment of
$62,952 in March of 1992. In consideration of reducing the monthly
consulting fee and certain automobile expense reimbursements discussed in
Note 9, the company waived interest on these advances for 1996, 1995, and
1994 on the unsecured borrowings. In 1993 the officer repaid, net of
accrued consulting fees, $10,000 of the preceding advances. In 1993 the
officer secured additional borrowings of $29,150 with 414,316 shares of
stock.
F-15<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES - (Continued)
Loans Receivable - Officer - (Continued)
In 1994, the officer repaid $1,147 of prior years accrued interest, $880
current years interest and $16,056 toward principle of the secured 1993
borrowings. In 1995 the officer secured additional borrowings of $35,725
with 2,000,000 shares of stock. In 1996 the president borrowed an
additional $5,001 secured by his shares of stock.
Included in interest income for 1996 and 1995 for interest not waived from
the officer was $0 and $0, respectively.
Officer Loans
During 1996, the vice president has borrowed $25,699 from the Metro
Marketing Division. These loans are non interest bearing with no specific
repayment terms.
Notes Receivable
The company has periodically provided working capital loans to Ford
Publishing, Inc. The interest rate was 10% and the term was generally
ninety days. During 1993 these transactions were combined in a form of a
credit line with interest at 12% which had a balance outstanding at
December 31, 1996 and 1995 of $19,793 and $15,708, respectively. This
note is collateralized by the accounts receivable and inventory of Ford
Publishing, Inc.
The company periodically assists in the collection of Ford Publishing's
credit card sales. During 1996 and 1995 the company collected $54,769 and
$44,854 respectively, net of related bank charges for Ford Publishing.
These funds were used to pay back several working capital loans given to
Ford Publishing during the year.
Included in interest income was $2,808 and $2,348 from Ford Publishing,
Inc. for the periods ended December 31, 1996 and 1995, respectively.
Contract royalty revenue represents earnings on contracts with Ford
Publishing underwritten by the company. Such revenue from Ford Publishing
was $0 and $1,535 for 1996 and 1995.
Contract royalty revenue and revenue sharing included in income from Ford
Publishing, Inc. totaled $0 and $9,920 for the periods ended December 31,
1996 and 1995, respectively.
The company subleased office space from Ford Publishing, Inc. for $380 per
month plus expenses on a month to month basis. The lease is classified as
an operating lease, this lease expired September 1996. Included in rent
expense was $3,420 for 1996 and $4,560 for 1995, respectively, paid to
Ford Publishing.
F-16<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SALE OF INFORMATION DIVISION
During 1991, the company executed a Sale of Assets agreement dated as of
August 1, 1991 with Ford Publishing Inc. The owner of Ford Publishing
Inc., John Ford, was an employee of the company prior to August 1, 1991.
Pursuant to the agreement, Corfacts Inc. sold to Ford (Buyer) all of its
assets relating to its business of publishing and selling books of lists
and directories of business, commercial and industrial data and
information. In payment for these assets, the company received the
following consideration:
a) A two-year promissory note for $10,000, bearing 9.5% interest
b) 5% of the first $1 million in sales by Ford, excluding sales
of directories of the Commerce and Industry Association of New
Jersey ("CIA directory")
c) 40% of all sales of the CIA directory and,
d) assumption of $7,486 of the accounts payable of Corfacts Inc.
in addition to approximately $5,000 of legal fees incurred by
Corfacts.
The obligations of Ford Publishing Inc. are secured by a lien on Ford's
assets. The agreement contains a covenant from Corfacts Inc. that it will
not, for ten years, compete with Ford's business as now constituted.
Through December 31, 1995 the Company has recorded revenue sharing income
of $50,000 for all periods under this agreement and is not entitled to any
future revenue sharing income.
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of temporary cash
investments, non-interest bearing cash deposits, accounts receivable,
notes receivables and investment in a partnership. Metro Marketing Inc.
provides telemarketing services primarily to the chiropractic services
industry and public utility companies. The Company grants credit to
customers substantially all of whom are local chiropractors and
associations in varied locations across the country. The Company has a
major customer which accounted for more than 10% of sales in 1996. Sales
to this customer were 76,691 for the year ended 1996. Accounts receivable
form this customer totaled $14,152 at December 31, 1996.
F-17<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATIONS OF CREDIT RISK - (Continued)
From time to time, the company places its temporary cash investments and
non-interest bearing deposits with financial institutions with balances in
excess of the FDIC insured limits. Management has attempted to reduce its
credit risk by placing its certificates of deposit approximating $100,000
each in various major financial institutions in New Jersey. Consequently,
in managements opinion, no significant concentrations of credit risk
exists for the corporation. On December 31, 1996, $26,834 of cash and
interest bearing deposits exceeded FDIC insured limits.
Management has attempted to reduce its credit risk by accepting credit
card payments for collection against its notes receivable and accounts
receivable. This has limited exposure to uncollectible receivables and
increased cash flow.
Other Receivables
Municipal tax liens subject the company to the potential loss of
investment. If the company is forced to foreclose on the real estate
listed as collateral there is a potential for total loss from the
investment if the property cannot be sold.
Investment in Partnership
The partnership's only assets are municipal tax liens. If the company is
forced to foreclose on the real estate listed as collateral there is a
potential for total loss from this investment if the property cannot be
sold.
NOTE 15 - COMMON STOCK
In connection with the acquisition of Metro Marketing discussed in Note 2,
3,904,088 shares of common stock were issued to shareholders of Metro in
1997. The accompanying balance sheet reflects this transaction as if it
had occurred on December 31, 1996.
F-18<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
December 31, 1996 are as follows:
Non trading instruments
Carrying Fair
Amount Value
Assets:
Cash and equivalents $ 406,926 $ 406,926
Officer loans 154,582 140,334
Interest receivable 3,207 3,207
Notes receivable 19,793 19,793
Other interest receivable -
tax liens 11,488 11,488
Other receivable 22,762 22,762
Liabilities
Note payable shareholder 151,385 144,165
F-19
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The executive officers and directors of the Company are as follows:
Name Age Position
Larry Finkelstein 50 President, Chief Executive Officer,
Secretary and Chairman of the Board
Ariel Freud 27 Vice President, Director (Corfacts Inc.),
President, Metro Marketing,Inc.
Executive officers of the Company are elected annually to hold office until
their successors have been elected and have duly qualified.
Larry Finkelstein was a co-founder of the Company in 1983, and has served as
Chief Executive Officer and Chairman of The Board of Directors since that time.
He also serves as Vice President of Metro Marketing Inc.
Ariel Freud founded Metro Marketing in 1995. He now serves as President of
Metro Marketing, Inc. and Vice President and Director of Corfacts, Inc.
Item 10. EXECUTIVE COMPENSATION
Benefits or
repayment of
Name of individual or Capacities in personal
number of persons in group which served Salary Benefits
Larry Finkelstein President, $85,000 $ 0
Chairman
Ariel Freud Vice President $31,800* $ 0
Director
* For the six months ended December 31, 1996
Employment Agreements
As of January 1, 1997 the company entered into employment agreements with its
president Larry Finklestein and vice president Ariel Freud through December
31, 1999. The agreements provide for minimum annual compensation of $62,400 plus
$4,800 reimbursed auto expenses and medical insurance coverage and discretionary
bonuses.
Director's Compensation
None of the Company's directors receives compensation for or payment of expenses
incurred in connection with their attendance at director meetings. The Company
has no present plan to pay director fees or expenses, but may decide to do so in
the future.
Incentive Stock Option Plan
On May 9, 1988 the Board of Directors of the Company established an Incentive
Stock Option Plan (the "Plan"), adopted by the shareholders on June 28, 1988,
under which the options to purchase an aggregate of 600,000 shares of Common
Stock may be granted prior to May 9, 1998. The Plan is administered by the Board
of Directors, which has the power to determine the manner in which options may
be exercised and to impose conditions on their exercise. Options for Lawrence
Finkelstein to purchase 300,000 common shares expired on March 2, 1995 and have
not yet been renewed or extended. To date, no options have been exercised.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the current record and beneficial shareholdings of
persons who own more than 5% of the Company's Common Stock outstanding as of
December 31, 1995 and all directors and officers individually and all directors
and officers as a group as of December 31, 1996.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership % of Class
Larry Finkelstein 3,904,088 32.78
Corfacts, Inc.
41 East Main St.
Freehold, NJ 07728
Ariel Freud 3,904,088 32.78
Corfacts, Inc.
41 East Main St.
Freehold, NJ 07728
All Officers and Directors
as a Group (2 persons) 65.6
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans Receivable - Officer
These amounts represent advances by the Company to the President and Vice
President which bear interest rates of 10% and 9% and have various
maturities.
The President initially agreed to repay his initial loan over 3 years at
$1,000 a month including interest at 9%, with a lump sum payment of
$62,952 in March of 1992. In consideration of reducing the monthly
consulting fee and certain automobile expense reimbursements discussed in
Note 9, the company waived interest on these advances for 1996, 1995, and
1994 on the unsecured borrowings. In 1993 the officer repaid, net of
accrued consulting fees, $10,000 of the preceding advances. In 1993 the
officer secured additional borrowings of $29,150 with 414,316 shares of
stock.
Item 13. EXHIBITS
(a) (1)
Following is a list of exhibits filed as part of this Annual Report on Form
10-KSB. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.
Exhibit Number
Reference Description
(3a)* Articles of Incorporation, as amended
(3b)* By-laws, as amended
(4)* Specimen of Common Stock certificate
(10b)* Incentive Stock Option Plan
(10c)* Form of Incentive Stock Option
(101)* Agreement for purchase of stock by and between Corfacts inc and
Ariel Freud And Metro Marketing Inc. Dated December 31, 1996.
(10m)* Employment Agreement with Lawrence Finkelstein
Emoloyment Agreement with Ariel Freud
(12)* Sale of Assets Agreement
* The above items were previously filed and are hereby incorporated by
reference.
(c) Reports on Form 8-K
Filed February 5, 1997 in connection with the acquisition of Metro
Marketing, Inc., effective July 1, 1996.
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.
April 30, 1997 Corfacts, Inc.
By:
/s/ Lawrence Finkelstein
Lawrence Finkelstein
President, Chairman
/s/ Ariel Breud
Ariel Freud
Vice President, Director
/s/ Trudy Katz
Trudy Katz
Accounting and Finance
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.
April 30, 1997 /s/ Lawrence Finkelstein
Lawrence Finkelstein
President, Chairman
/s/ Ariel Freud
Ariel Freud
Vice President, Director
/s/ Trudy Katz
Trudy Katz
Accounting and Finance
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<PERIOD-END> DEC-31-1996
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