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, 1997
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: (800)696-7788
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 13, 1998. <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. To
coincide with its new business direction, which was the sale of
business information products, the company changed its name to
Corfacts, Inc.
After the Company sold off its magazine division, it then
developed a business information database and ran an information
division marketing various lead products which provided
information from this 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, effective August 1, 1991 with Ford
Publishing Inc. Pursuant to this agreement, Corfacts sold to Ford
certain assets relating to the Information Division.
From 1991 to 1996, the primary 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, while
the Company actively searched for an operating concern which
could utilize management's experience in marketing.
Additionally, the Company manages its own investment in tax lien
certificates. These activities, which have greatly diminished due
to the redemption of most of these certificates, 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 and money market funds. The Company
continues to focus its efforts on completing strategic alliances
or other suitable business ventures.
Metro Marketing, Inc. (The Company's Current Operations)
On January 21, 1997, the Company completed its acquisition of
Metro Marketing, Inc., a New Jersey corporation, which became a
wholly owned subsidiary of the Company 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. Metro provides practice building services to the
medical industry as well as customer service and pilot program
services in the utility industry. The Company is evaluating
whether to undertake pilot incoming programs and no time frame
has been set for the same.
EMPLOYEES AND CONSULTANTS
The Company and its subsidiary, other than two officers; Larry
Finkelstein, President and Ariel Freud, Vice President, employs
approximately 15 full-time administrative and sales personnel as
well as 25 full-time and 100 part-time telemarketing service
representatives.
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 and is set to expire in August, 1998. 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, 1997.
<PAGE>
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, 1997, and 1996, which are listed on the "pink
sheets" since the Company was delisted from NASDAQ in 1989.
COMMON STOCK
High Low High Low
1997 Bid Bid Ask Ask
--------------------------------
1st quarter .10 .06 .10 .06
2nd quarter .10 .06 .12 .06
3rd quarter .12 .09 .125 .06
4th quarter .12 .09 .15 .12
1996
1st quarter .04 .02 .10 .09
2nd quarter .04 .02 .10 .09
3rd quarter .04 .02 .10 .09
4th quarter .04 .05 .125 .05
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, 1997, the Company had 11,909,402 shares of
common stock outstanding, held by individual shareholders and
brokerage firms and/or clearing houses holding the Company's
shares in "street name" for their clients. The Company believes
that there are approximately 600 beneficial owners of its common
stock.
(c) DIVIDENDS
The Company has not paid or declared any dividends upon its
common stock except for the "capital event" when the Company
completed a proportionate tender offer for shareholders during
1990, subsequent to the sale of its magazine division.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PLAN OF OPERATION
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996
The Company's results from operations for the year ended December
31, 1997 consisted of net income of $422,852 on total revenues of
$2,174,805, as compared with a loss of $88,524 on revenues of
$441,967 for the comparable period ended December 31, 1996. The
1996 historical figures only include six months of operating
revenues from the Metro subsidiary as the acquisition was
effective July 1, 1996. On a proforma basis, the twelve month
activity of the Company was calculated with total revenues for
the twelve months ended December 31, 1996 of $671,462 and a net
loss for the proforma period ended December 31, 1996 of
$91,399.
Included in current year income is an income tax benefit of
$183,750, derived from prior year tax loss carryforwards.
Earnings per share for the year ended December 31, 1997 was $.036
as compared to a net loss per share of $.009 for the year ended
December 31, 1996.
Management has remained focused on completing a strategic
alliance or other suitable business ventures to further increase
the operating revenue of the Company. All of the 1997 growth
comes from the telemarketing operations in Metro. The acquisition
of Metro, which the Company plans to be the beginning of several,
was effective July 1, 1996 and in the first 18 months the Company
has more than quadrupled annual sales. Although management
cannot expect to do the same growth in 1998, they can expect
their strong revenue growth to continue. Management is actively
seeking other suitable mergers and or acquisitions to enhance and
utilize the services of its subsidiary, Metro Marketing.
Management recently submitted an offer to purchase a regional
telemarketing competitor with accounts in other industries, such
as fund raising. The Company's offer was rejected for another
competitive offer and management is now in the process of
evaluating other regional telemarketing companies that are for
sale.
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.
For the twelve month period ended December 31 1997, Metro
Marketing reported net income of $112,080, after management fees
to the parent of approximately $176,000, on total revenues of
$2,151,081, as compared to a loss of $21,751 after management
fees of $35,000 to the parent, on revenues of $416,597 for the
period ended December 31, 1996. The 1996 historical figures
include only six months of operating revenues as the acquisition
of Metro was effective July 1, 1996.
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 the Metro
subsidiary. Management was also able to accomplish this while
increasing the working capital of the parent company, and earning
income in the subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the year ended
December 31, 1997. Working capital was $845,668 at December 31,
1997 as compared to $420,374 at December 31, 1996.
The primary reason for this increase in working capital is the
profitability of the Company. In addition to the income from
operations, net deferred tax assets of $194,200 were recorded for
the year ended December 31, 1997, based upon realistic
expectations that the Company can now utilize its net operating
loss carryforwards in the near term.
Management is also considering various equity funding
alternatives to increase its already positive working capital to
further support its planned acquisitions and improve the value of
the Company for its shareholders. To this end, the Board of
Directors has authorized management, if and when it deems
appropriate, to purchase back for the Company's treasury, shares
of the Company s common stock when it feels the current market
price is under valued. The Board of Directors has also
authorized management, as market conditions permit, to undertake
selective warrant programs to provide incentives to market
makers. The Company feels with the right combination of capital,
marketing assistance and management support it will be an
attractive parent company which can support 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.
INFLATION
The rate of inflation has had little impact on the Company's
results of operations and is expected to not have a significant
impact on continuing operations.
<PAGE>
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, 1997 F-2
Consolidated Statements of Operations of Corfacts,
Inc. and Subsidiary for the years ended December
31, 1997 and 1996 F-3
Consolidated Statement of Stockholders' Equity for
the years ended December 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996 F-5
Notes to Financial Statements F-6 to F-17
(b) Interim Financial Statements
Not applicable.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in accountants and there have been
no disagreements with the accountants regarding financial
disclosure.
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a) Directors and Officers. The following schedule sets
forth the name of each director and officer of the Company and
the nature of all positions and offices with the Company
presently held by them.
NAME POSITION HELD
- ----------------- ------------------------
Larry Finkelstein President, Chairman
Ariel Freud Vice President, Director
Item 10. EXECUTIVE COMPENSATION
SALARIES, FEES,
CAPACITIES IN DIRECTOR'S FEES,
NAME WHICH SERVED COMMISSION AND BONUSES
- ----------------- ------------- ----------------------
Larry Finkelstein President, $84,400
Chairman
Ariel Freud Vice President, $84,400
Director
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of common shares of the
Company owned by record, or to the knowledge of the Company,
beneficially, by each Director of the Company and by each person
owning five percent or more of the Company's outstanding shares
as of December 31, 1997.
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS OWNED
- ------------------- -------------------- --------------
Larry Finkelstein 3,864,088* President, 32%
41 East Main St. Chairman
Freehold, NJ 07728
Ariel Freud 3,904,088 Vice Pres. 33%
41 East Main St.
Freehold, NJ 07728
* Does not include 40,000 shares owned by Mr. Finkelstein's sibling
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OFFICER LOANS
From time to time the Company advanced loans to the founder
and president, interest at 10% and 9% with notes having various
maturities. Together with the advance to the vice president,
these notes and loans had an aggregate balance of $107,244 and
$154,582 at December 31, 1997 and 1996 respectively. The
President initially agreed to pay his initial loan over 3 years
at $1,000 per month, including interest at 9%, with a lump sum
payment of $62,952 in March of 1992. In 1993, the President
repaid, net of accrued consulting fees, $10,000 of the
advances. In 1993, the officer secured additional borrowings of
$29,150 with 414,316 shares of stock. 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 1997, 1996 and 1995 on the
unsecured borrowings. In 1994, the Officer repaid $1,147 of
prior years accrued interest, $880 of the 1994 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. In 1997, the
President repaid $21,669 towards principle of the secured
borrowings.
During 1996, the Vice President was advanced $21,669 from
the Metro Marketing division. These advances were non-interest
bearing with no specific repayment terms. This advance was
repaid in 1997.
Notes Receivable
The Company has periodically provided working capital loans
to Ford Publishing Inc., the buyer of the information division,
in the form of a credit line with interest at 12%, which had a
balance outstanding at December 31, 1997 of $0 and a balance of
$19,793 at December 31, 1996. In addition, the Company
periodically assists in the collection of Ford Publishing's
credit card sales. During 1997 and 1996 the Company collected
$53,778 and $54,769 respectively, net of related bank charges.
These funds were used to pay back the working capital credit line
balances mentioned above.
OTHER TRANSACTIONS
On September 16, 1997, the Company guaranteed the debts of
the vice president and a key employee in the amounts of $26,250
and $10,000 respectively. The Company has assigned as collateral
two certificates of deposit for each loan balance. These certificates are
subject to withdrawal restrictions for the loan balance until paid in full.
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 annual compensation of $62,400
plus $4,800 reimbursed auto expenses and medical insurance coverage.
Additionally the board of directors approved bonuses of $22,000 each
for 1997.
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.
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 were no options outstanding as of December 31, 1997 or 1996. The
board of directors does not plan to extend this plan.
On December 15, 1997 the Company adopted an incentive option
plan under which options to purchase an aggregate of 1,200,000
shares of common stock may be granted prior to December 15, 2008
at an option price to be determined at the date of grant.
On December 22, 1997 the Company granted key employees options
to purchase 600,000 and 540,000 shares of common stock of the Company
pursuant to the incentive stock option plan dated December 15, 1997.
The option prices are $.05 and $.15 respectively and expire on December 22,
2007. To date none of these options have been exercised.
On January 1, 1998 the Company adopted the 1997 Employee Stock
Purchase Plan of Corfacts, Inc. The plan provides employees of the Company
and subsidiary with an opportunity to purchase common stock of the Company.
The option price per share of the shares offered in a given offering period
shall be the lower of 85% of the fair market value of a share of the common
stock of the Company on the offering date or 85% of the fair market value of
a share of the Company stock on the exercise date. Determined by the board
of directors in its discretion based on the closing price (the mean of the
bid and ask price per share as reported by NASDAQ) of the common stock for
such date. These purchases are made on two semi annual investment dates
through payroll deductions. During 1997 432 options were authorized under
this plan.
<PAGE>
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
Employment 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
None.
<PAGE>
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
C O N T E N T S
PAGE
AUDITORS REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operation 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CORFACTS, INC. AND SUBSIDIARY
We have audited the consolidated balance sheets of Corfacts, Inc. and
Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1997 and 1996 in the accompanying index to
financial statements and schedules (Item 7 (A)). 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 and schedules listed in the
accompanying index to financial statements (Item 7 (A)) present fairly, in all
material respects, the financial position of Corfacts, Inc. and Subsidiary as
of December 31 1997 and, 1996 and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
/s/ Schuhalter, Coughlin & Suozzo, LLC
---------------------------------------
Schuhalter, Coughlin & Suozzo, LLC
Certified Public Accountants
Raritan, New Jersey
March 31, 1998
F-1<PAGE>
CORFACTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
1997 1996
ASSETS -------- -------
CURRENT ASSETS
Cash and cash equivalents $ 786,907 $ 406,296
Interest bearing deposits - restricted 36,250 -
Interest receivable 1,106 3,207
Accounts receivable net of allowance for
bad debts of $20,380 and $5,227 respectively 54,954 68,056
Notes receivable - 19,793
Officer loans - 25,669
Other receivable - municipal tax liens (net of
estimated disposition costs of $5,500 and
$3,500 respectively) 10,192 22,762
Other interest receivable - tax liens 9,788 11,488
Prepaid expenses 16,486 -
Deferred taxes 200,700 -
--------- -------
TOTAL CURRENT ASSETS 1,116,383 557,271
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $36,884 and $9,468 120,493 81,094
OTHER ASSETS
Loan receivable - officer 107,244 128,913
Investment in partnership 2,166 2,116
Customer lists net of accumulated amortization
of $29,742 and $9,914 respectively 109,053 128,881
Goodwill net of accumulated amortization of
$10,410 and $3,470 respectively 128,385 135,325
Security deposits 18,166 5,509
--------- ---------
TOTAL OTHER ASSETS 365,014 400,744
--------- ---------
TOTAL ASSETS 1,601,890 1,039,109
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 190,264 114,669
Deferred revenue 13,425 5,940
Deferred taxes 6,500 -
Income taxes payable 9,900 -
Current portion of capitalized lease obligations 34,216 16,288
Note payable - vendor 16,410 -
--------- --------
TOTAL CURRENT LIABILITIES 270,715 136,897
Capitalized lease obligations net of current portion 40,280 34,169
Note payable - shareholder 151,385 151,385
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized; 11,909,402 shares issued and
outstanding 1,281,573 1,281,573
Retained (Deficit) (142,063) (564,915)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,139,510 716,658
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,601,890$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,
----------------
1997 1996
---- ----
INCOME
Revenue telemarketing $2,151,081 $ 416,597
Equity in earnings of unconsolidated investee 50 253
Income from tax lien certificates 1,293 4,593
Interest income 22,381 20,524
--------- --------
TOTAL REVENUES 2,174,805 441,967
DIRECT OPERATING EXPENSES 1,167,623 262,250
GROSS PROFIT 1,007,182 179,717
COSTS AND EXPENSES
General and administrative 692,720 241,972
Depreciation and amortization 54,184 22,492
Interest expense 21,176 3,777
--------- --------
TOTAL COSTS AND EXPENSES 768,080 268,241
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES 239,102 (88,524)
INCOME TAX BENEFIT 183,750 -
--------- --------
NET INCOME (LOSS) $ 422,852 $ (88,524)
========= =========
BASIC EARNINGS PER COMMON SHARE $ .036 $ (.009)
========= =========
AVERAGE COMMON SHARES OUTSTANDING 11,909,402 9,957,358
========== =========
DILUTED EARNINGS PER COMMON SHARE $ .035 $ (.009)
========== =========
AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING 11,956,902 9,957,358
========== =========
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 1997
Number Common
of Shares Stock (Deficit) Total
Balance, January 1, 1996 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
Net income for the year - - 422,852 422,852
---------- ---------- --------- ----------
Balance, December 31, 1997 11,909,402 $1,281,573 $(142,063) $1,139,510
========== ========== ========= ==========
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
-----------------
1997 1996
Cash flows from operating activities: ---- ----
Cash received from customers $2,156,515 $ 349,254
Cash received from revenue sharing and
other income - 6,376
Cash paid to employees and suppliers (1,782,328) (408,284)
Interest received 24,482 19,271
Tax lien certificate cash received 15,563 -
Interest expense (21,176) (3,777)
Income taxes paid (550) -
Net cash provided by (used in) operating ---------- --------
activities 392,506 (37,160)
---------- --------
Cash flows from investing activities:
Purchase of restricted certificates of deposit (36,250) -
Purchase of equipment (16,841) (32,485)
---------- --------
Net cash used in investing activities (53,091) (32,485)
---------- --------
Cash flows from financing activities:
Repayment of capitalized lease obligations (25,935) (7,260)
Credit line receivable advances to buyer (33,985) (59,034)
Loan (to) repayment from officer 47,338 (30,670)
Credit line receivable repayments 53,778 54,769
Net cash provided by (used in) financing ---------- --------
activities 41,196 (42,195)
---------- --------
Net increase (decrease) in cash and cash
equivalents 380,611 (111,840)
Cash and cash equivalents - beginning of period 406,296 518,136
---------- --------
Cash and cash equivalents - end of period $ 786,907 $ 406,296
========== =========
Reconciliation of net income to net cash provided
by (used in) operating activities:
Net income (loss) $ 422,852 $ (88,524)
Adjustments:
Depreciation and amortization 54,184 22,492
Bad debts provision 15,153 5,227
Deferred income taxes (194,200) -
Changes in assets and liabilities:
Decrease(increase) other receivable - tax
lien interest 14,220 (4,845)
(Increase) decrease in interest receivable 2,101 (1,253)
(Increase) decrease contract royalty receivable - 6,376
(Increase) decrease in accounts receivable (2,051) (73,283)
Increase (decrease) in accounts payable and
accrued expenses 92,005 91,340
Increase in deferred revenue 7,485 5,940
(Increase) in security deposits (12,657) (630)
Increase in prepaid expenses (16,486) -
Increase in income taxes payable 9,900 -
---------- ---------
Net cash provided by (used in) operating
activities $ 392,506 $ (37,160)
========== =========
The accompanying notes are an integral part of these financial statements.
F-5<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 Corfacts, Inc. acquired all the shares and assets
of Metro Marketing, Inc., 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
Property and equipment are valued at cost. Gains and losses on
disposition of property are reflected in income. 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 1997 and 1996
was $27,416 and $9,408, 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 Common Share
For the year ending December 31, 1997, and all periods presented herein,
the Company adopted FASB 128 to compute earnings per share. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
F-6<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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.
Goodwill
Goodwill represents the cost of acquired businesses in excess of fair
value of the related net assets at acquisition and is amortized on a
straight line basis over 20 years. Amortization expense charged to
operations for 1997 and 1996 was $26,768 and $14,374 respectively.
Income Taxes
The Company and its wholly owned subsidiary file a consolidated Federal
income tax return. Corfacts uses the asset and liability method in
providing income taxes on all transactions that have been recognized in
the consolidated financial statements. The asset and liability method
required that deferred taxes be adjusted to reflect the tax rates at
which future taxable amounts will be settled or realized. The effects
of tax rate changes on future deferred tax liabilities and deferred tax
assets, as well as other changes in income tax laws, are recognized in
net earnings in the period such changes are enacted. Valuation
allowances are established when necessary to reduce deferred tax assets
to amounts expected to be realized.
Intangible Assets
Intangible assets are being amortized as follows:
Goodwill 20 years
Customer List 7 years
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 sheetS as of December 31, 1997
includes the accounts of the Company and the following subsidiaries with
results of operations included for the period subsequent to the
acquisition date. All material intercompany accounts and transactions
have been eliminated.
Date of Acquisition
-------------------
Metro Marketing, Inc. June 30, 1996
F-7<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Revenue Recognition
The Company's revenues are 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
In March, 1995 the Financial Accounting Standards Board issued SFAS No.
121 Accounting for the Impairment of Long-Lived Assets for Long-Lived
Assets to be Disposed Of . SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable and
long-lived assets and certain identifiable intangibles to be disposed of
to be reported at the lower of carrying amount of fair value less cost
to sell. SFAS No. 121 also establishes the procedures for review of
recoverability and measurement of impairment, if necessary, of long-
lived assets and certain identifiable intangibles to be held and used by
an entity. The Company adopted SFAS No. 121 for the year ended December
31, 1996. The carrying value of assets of the Company have not been
effected by this statement.
Schedule of Non Cash Investing and Financing Activities
1997 1996
3,904,088 shares of common stock issued in ------ ------
connection with the acquisition of Metro
Marketing subsidiary in 1996 $ - $ 122,002
========
Assets acquired under capital leases $ 49,974 $ -
========
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 is to provide
telemarketing services for chiropractors and public utility companies.
The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16. The excess (approximately
$138,795) of the total acquisition cost over the recorded value of
assets acquired was allocated to goodwill and is being amortized over 20
years. The accompanying balance sheet include the assets and
liabilities of Metro's at December 31, 1997. The statement of
operations for the year ended December 31, 1996 includes the results of
operations of Metro Marketing, Inc. for the six months ended December
31, 1996.
F-8<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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, 1996. The pro forma calculations include adjustments for the
estimated effect on the Company s historical results of operations for
amortization and interest related to the acquisition.
Pro Forma Information
Year Ended
December 31
1996
Proforma
----------
Total Revenue $ 671,462
--------
Cost of Revenue 381,411
Operating Expenses 380,450
Provision for Taxes 1,000
--------
Net Income (Loss) $ (91,399)
========
Income (Loss) Per Share $ (.008)
========
Weighted Average Shares Outstanding 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 statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Other Accounting Pronouncements
The FASB has issued SFAS No. 130, Reporting Comprehensive Income
effective for fiscal years beginning after December 15, 1997, which
establishes standards for the reporting of comprehensive income and its
components. The Company believes that the effect of the adoption of
SFAS No. 130 will not be material to its financial position or results
of operations.
F-9<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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
Retained Deficit amounted to $2,203 and $1,999 at December 31, 1997 and
1996, respectively.
Condensed financial information for the partnership is as follows:
Summary of Statements of Financial Condition
December 31,
----------------
1997 1996
Assets ---- ----
Delinquent municipal tax
lien certificates $ 4,705 $ 4,705
Accrued interest - tax
lien certificates 2,420 2,104
------ ------
Total Assets $ 7,125 $ 6,809
====== ======
Liabilities and Partners' Equity
Accrued expenses $ 608 $ 450
------ ------
Total Liabilities 608 450
------ ------
Partners' Equity
Corfacts, Inc. 2,203 1,999
Other 4,314 4,360
Total Liabilities and ------ ------
Partners' Equity $ 6,517 $ 6,359
====== ======
Summary of Statement of Operations
Interest Income $ 316 $ 768
Expenses 158 -
------ ------
Net Income $ 158 $ 768
====== ======
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation.
December 31,
1997 1996
------ -------
Furniture and fixtures $ 13,383 $ 13,383
Equipment 32,343 15,502
Leasehold improvements 3,960 3,960
Equipment under capital leases 107,691 57,717
------- ------
157,377 90,562
Less: accumulated depreciation (36,884) (9,468)
Net assets $ 120,493 $ 81,094
======= =======
NOTE 5 - INTEREST EXPENSE
Interest expense totaled $21,176 and $3,777 for the years ended December
31, 1997 and 1996, respectively.
F-10<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997 are
as follows:
1998 $ 0
1999 34,002
2000 36,466
2001 39,065
2002 41,872
-------
Total $ 151,385
=======
On September 26, 1997 the Company agreed to convert amounts payable to a
former vendor to a non interest bearing note payable. Monthly payments
of $5,470.04 are due for five months. The balance at December 31, 1997
is $16,410.
NOTE 7 - LEASES
Operating Leases
The Company leases office space in Freehold, New Jersey through August
1, 1998. The lease is classified 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 $21,960 in 1997 and $12,940 in 1996.
The total future minimum rental payments required are as follows:
1998 $ 14,640
======
Capital Leases
The Company is the lessee of computer equipment under capital leases
expiring in 2000. 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 1997 and 1996.
F-11<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES - (Continued)
Capital Leases - (Continued)
Following is a summary of equipment held under capital leases:
1997 1996
---- -----
Computer equipment $ 107,691 $ 57,717
Less: accumulated depreciation (22,988) (5,772)
-------- -------
$ 84,703 $ 51,945
======== =======
Minimum future lease payments under capital leases as of December 31,
1996 for each of the next five years are as follows:
1998 $ 42,226
1999 36,906
2000 8,060
------
Total minimum lease payments 87,192
Less amounts representing interest (12,696)
-------
Present value of net minimum lease
payment $ 74,496
=======
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.
These capital lease agreements provide 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,
1997 1996
------ ------
Administrative expenses $ 95,919 $ 81,908
Payroll tax liabilities 66,408 38,702
-------- --------
Total $ 162,327 $ 120,610
======== ========
NOTE 9 - INCOME TAXES
Deferred taxes consist of the following at:
December 31,
1997 1996
------ ------
Total deferred tax assets $ 200,700 $ 235,100
Less: Valuation allowance - (235,000)
Deferred tax liability (6,500) -
------- -------
Net deferred tax assets $ 194,200 $ -
======== ========
Deferred tax assets are attributable to available net operating loss
carryforwards. The valuation allowance was decreased by $235,100 during
1997.
F-12<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES - (Continued)
No provision for income taxes have been made for 1996 as the Company
incurred a loss during the period. During 1997, a benefit was recorded
as computed below.
Income tax provisions (benefits) on earnings consisted of the following
1997 1996
Taxes currently payable ------ -------
Federal $ - $ -
State 9,900 -
------ ------
Total 9,900 -
------ ------
Deferred Tax Expense (Benefit)
Federal 66,000 -
State 19,000 -
Federal benefit of net operating
loss carryovers (220,000) -
State benefit of net operating
loss carryovers (59,200) -
------- -------
Total income tax expense
(benefit) $(184,300) $ -
======== =======
The reconciliation of income tax computed at the U.S. Federal statutory
rates to income tax expense is:
Percentage of
Pretax Income
Tax at US statutory rates $ 34.0%
State income taxes, net of federal
tax benefit 9.0%
Current year utilization net operating
loss carryforward (38.5%)
Reduction of valuation allowance (90.5%)
-------
Income tax provision (benefit) $(86.0%)
=======
As of 1997 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
2001 - $ 35,433
2002 - 68,926
2003 - 104,830
2004 - 65,636
2005 - 79,168
2006 51,173 73,300
2007 68,594 -
2008 104,797 -
2009 64,780 -
2010 78,761 -
2011 73,300 -
-------- --------
Total $ 441,405 $ 427,293
======== ========
F-13<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 had 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. No commissions were paid under this agreement.
On September 16, 1997 the Company guaranteed the debts of the vice
president and a key employee in the amounts of $26,250 and $10,000
respectively. The Company has assigned as collateral two certificates
of deposit for each loan balance. These certificates are subject to
withdrawal restrictions for the loan balance until paid in full.
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 annual compensation of $62,400 plus $4,800
reimbursed auto expenses and medical insurance coverage. Additionally
the board of directors approved bonuses of $22,000 each for 1997.
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 which has since
expired.
The buyer of the information division provided a covenant not to compete
with the company which based upon the various terms of the agreement has
expired December 31, 1996.
F-14<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 were no options outstanding as of December
31, 1996 or 1997.
On December 15, 1997 the Company adopted an incentive stock option plan
under which options to purchase an aggregate of 1,200,000 shares of
common stock may be granted prior to December 15, 2008 at an option
price to be determined at the date of grant. As of December 31, 1997
there are 1,140,000 outstanding options. None have been exercised to
date.
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES
From time to time the Company advanced loans to the founder and
president, interest at 10% and 9% with notes having various maturities.
Together with the advance to the vice president, these notes and loans
had an aggregate balance of $107,244 and $154,582 at December 31, 1997
and 1996 respectively.
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 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.
In consideration of reducing the monthly consulting fee and certain
automobile expense reimbursements discussed in Note 10, the company
waived interest on these advances for 1997, 1996, and 1995 on the
unsecured borrowings.
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. In 1997 the
president repaid $21,669 toward principle of the secured borrowings.
During 1996, the vice president was advanced $21,669 from the Metro
Marketing Division. These advances were non interest bearing with no
specific repayment terms. This loan was repaid in 1997.
Included in interest income for 1997 and 1996 for interest income from
the officer was $0 and $0, respectively.
The company has periodically provided working capital loans to Ford
Publishing, Inc. the purchaser of the information division. 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, 1997 and
1996 of $0 and $19,793, 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 1997 and 1996 the company collected $53,778
and $54,769 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.
F-15<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES - (Continued)
Included in interest income was $0 and $2,808 from Ford Publishing, Inc.
for the periods ended December 31, 1997 and 1996, respectively.
The company sublet 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.
NOTE 13 - 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 1997 and
1996. Sales to this customer were $533,529 and $76,691 for the years
ended 1997 and 1996. Accounts receivable from this customer totaled
$27,506 and $14,152 at December 31, 1997 and 1996 respectively.
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 financial institutions in New Jersey.
Consequently, in managements opinion, no significant concentrations of
credit risk exists for the corporation. On December 31, 1997 and 1996,
$240,928 and $26,834 of cash and interest bearing deposits exceeded FDIC
insured limits respectively.
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.
F-16<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMON STOCK
In connection with the acquisition of Metro Marketing discussed in Note
2, 3,904,088 shares of common stock were issued to the shareholder of
Metro in 1997. The accompanying balance sheet reflects this transaction
as if it had occurred on December 31, 1996.
Reserved Shares
On December 22, 1997 the Company granted key employees options to
purchase 600,000 and 540,000 shares of common stock of the Company
pursuant to the incentive stock option plan dated December 15, 1997.
The option prices are $.05 and $.15 respectively and expire on December
22, 2007. To date none of these options have been exercised.
On January 1, 1998 the Company adopted the 1997 Employee Stock Purchase
Plan of Corfacts, Inc. The plan allows employees of the Company and
subsidiary with an opportunity to purchase common stock of the Company.
The option price per share of the shares offered in a given offering
period shall be the lower of 85% of the fair market value of a share of
the common stock of the Company on the offering date or 85% of the fair
market value of a share of the Company stock on the exercise date.
Determined by the board of directors in its discretion based on the
closing price (the mean of the bid and ask price per share as reported
by NASDAQ) of the common stock for such date. These purchases are made
on two semi annual investment dates through payroll deductions. To date
no options have been granted under this plan.
The activity in ESPP during 1997 follows:
Available beginning $ -
Authorized during year 432
Purchased through plan -
-----
Available ending $ 432
=====
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of
December 31 are as follows:
Non trading instruments
Carrying Amount Fair Value
---------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Assets:
Cash and equivalents $786,907 $406,926 $786,907 $406,926
Restricted cash 36,350 - 36,250 -
Officer loans 107,244 154,582 97,360 140,334
Interest receivable 1,106 3,207 1,106 3,207
Notes receivable - 19,793 - 19,793
Other interest receivable
tax liens 9,788 11,488 9,788 11,488
Other receivable 10,192 22,762 10,192 22,762
Liabilities
Note payable shareholder 151,385 151,385 118,500 118,500
F-17
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 15, 1998 Corfacts, Inc.
By:
/s/ Lawrence Finkelstein
Lawrence Finkelstein
President, Chairman
/s/ Ariel Freud
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 15, 1998 /s/ Lawrence Finkelstein
Lawrence Finkelstein
President, Chairman
/s/ Ariel Freud
Ariel Freud
Vice President, Director
/s/ Trudy Katz
Trudy Katz
Accounting and Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 786,907
<SECURITIES> 0
<RECEIVABLES> 95,314
<ALLOWANCES> 20,380
<INVENTORY> 0
<CURRENT-ASSETS> 1,116,383
<PP&E> 157,377
<DEPRECIATION> 36,884
<TOTAL-ASSETS> 1,601,890
<CURRENT-LIABILITIES> 270,715
<BONDS> 0
0
0
<COMMON> 1,281,573
<OTHER-SE> (142,063)
<TOTAL-LIABILITY-AND-EQUITY> 1,601,890
<SALES> 2,151,081
<TOTAL-REVENUES> 2,174,805
<CGS> 0
<TOTAL-COSTS> 1,914,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,176
<INCOME-PRETAX> 239,102
<INCOME-TAX> (183,750)
<INCOME-CONTINUING> 422,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,852
<EPS-PRIMARY> .036
<EPS-DILUTED> .035
</TABLE>
