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, 1998
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.)
3499 HWY 9 No., Ste. 3B Freehold, NJ 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 11,940,521 shares of Common Stock, no par value,
outstanding on March 31, 1999.
<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. To name a few, Metro provides practice building
services to the medical industry, customer service and pilot
program services in the utility industry,lead generating programs
for the insurance and mortgage industry, and has recently begun
newspaper subscription telemarketing services. 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 30 full-time administrative and sales personnel as
well as 45 full-time and 125 part-time telemarketing service
representatives.
Item 2. PROPERTIES
The Company maintains its offices at 3499 Hwy. 9 No., Ste. 3B,
Freehold, NJ 07728. The twenty-four (24) month lease commenced
January 1, 1999 and is set to expire in December, 2000. The
monthly rent is $9,503 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, 1998.
<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, 1998, and 1997, which are listed on the "pink
sheets" since the Company was delisted from NASDAQ in 1989.
COMMON STOCK
High Low High Low
1998 Bid Bid Ask Ask
1st quarter .13 .11 .15 .12
2nd quarter .28 .14 .37 .16
3rd quarter .25 .14 .27 .125
4th quarter .21 .08 .23 .11
1997
1st quarter .10 .06 .10 .06
2nd quarter .10 .06 .12 .06
3rd quarter .12 .09 .125 .06
4th quarter .12 .09 .15 .12
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, 1998, the Company had 11,940,521 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, 1998 AS COMPARED TO THE YEAR ENDED
DECEMBER 31, 1997
The Company's results from operations for the year ended December
31, 1998 consisted of net income of $210,487 on total revenues of
$3,262,930, as compared with a net income of $422,852 on revenues
of $2,174,805 for the comparable period ended December 31, 1997.
Included in income for the year ended December 31, 1997 is an
income tax benefit of $183,750, derived from prior year tax loss
carryforwards. The 1998 income before taxes rose $124,117 from
$239,102 in 1997 to $363,219 in 1998, or 52%.
Net income per share for the year ended December 31, 1998 was
$.018 as compared to a net income per share of $.036 for the year
ended December 31, 1997. The Company also moved its office to a
recently updated facility in Freehold and though it slowed down
some of the momentum the Company had in the fourth quarter 1998,
it has increased the Company's capacity and the outlook for the
first quarter is very strong.
All of the 1998 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. Management is actively seeking other suitable mergers and
or acquisitions to enhance and utilize the services of its
subsidiary, Metro Marketing.
The Company has completed the purchase of a small local
telemmarketing company in February 1999. This new acquisition
will help the Company to expand its telemarketing services on a
custom level by offering individualized script writing and
marketing programs tailored to any industry. The customer base
of this new acquisition, when combined with the existing
resources and personnel of Corfacts and Metro Marketing, will
provide the opportunity for immediate growth.
ABOUT THE SUBSIDIARY, METRO MARKETING, INC.
For the twelve month period ended December 31 1998, Metro
Marketing reported net income of $105,332, after management fees
to the parent of approximately $257,000, on total revenues of
$3,213,603, as compared to net income of $112,080 after
management fees of $176,000 to the parent, on revenues of
$2,151,081 for the period ended December 31, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the year ended
December 31, 1998. Working capital was $992,510 at December 31,
1998 as compared to $845,668 at December 31, 1997. $135,675 of
the $152,732 provision for income taxes in 1998 represents the
utilization of the deferred tax asset, and thus will not reduce
the Company's cash balance. Cash flow from operations of
$413,923 for 1998 exceeded the $392,506 reported in 1997.
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.
YEAR 2000 ISSUES
Many computer systems and software programs, including several
used by the Company may require modification and conversion to
allow date code fields to accept dates beginning with the year
2000. Major system failures or erroneous calculations can result
if computer systems are not year 2000 compliant.
The Company is in the process of evaluating the computer systems
they now have in use and does not anticipate a major undertaking
to be compliant.
All costs associated with year 2000 compliance that have been
incurred by the Company have been expensed and have not been
capitalized. The overall cost to the Company of modifications
and conversion for year 2000 compliance with relation to the
financial statements taken as a whole is not material. The
Company is advised by a substantial majority of its vendors of
computer products upgraded to be year 2000 compliant, or will not
be affected by the year 2000 problem. The Company's business
could be materially adversely affected if the Company's computer
based systems are not year 2000 compliant in a timely manner, the
Company incurs significant additional expenses pursuing year 2000
compliance, the Company's vendors do not timely provide year 2000
compliant products, or the Company is subject to warranty or
other claims by the Company's clients related to product failures
caused by the year 2000 problem.
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, 1998 F-2
Consolidated Statements of Operations of Corfacts,
Inc. and Subsidiary for the two years ended
December 31, 1998 F-3
Consolidated Statement of Stockholders' Equity for
the two years ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for the
two years ended December 31, 1998 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, $87,500;
Chairman $12,500 finders fee
Ariel Freud Vice President, $87,500
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, 1998.
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS OWNED
Larry Finkelstein 3,864,088* President, 32%
3499 Hwy. 9 No. Chairman
Freehold, NJ 07728
Ariel Freud 4,194,088* Vice Pres. 35%
3499 Hwy. 9 No.
Freehold, NJ 07728
* Does not include 40,000 shares owned by Mr. Finkelstein's
sibling.
* Does not include 90,000 shares owned by Mr. Freud's father.
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 $94,743 and
$107,244 at December 31, 1998 and 1997 respectively. Through
December 31, 1998 the founder and president has secured this note
with 2,414,316 shares of the Company's common stock. The founder
and president repaid $21,669 toward principle of this note in
1997 and $12,500 in 1998.
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, 1998 of $0 and a balance of
$0 at December 31, 1997. In addition, the Company periodically
assists in the collection of Ford Publishing's credit card sales.
During 1998 and 1997 the Company collected $59,321 and $53,778
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. Effective January
1, 1999, the board of directors has approved an increase in
annual compensation to $85,000 for the President and Vice
President. Additionally, the board of directors approved bonuses
of $22,000 each for 1997 and $25,000 for 1998.
In connection with the acquisition of Metro Marketing,
3,904,088 shares of common stock were issued to the shareholder
of Metro in 1997, who is the vice president of the Company.
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.
In January 1999 the president and vice president were granted
100,000 options to purchase the Company stock at $.12 for a
period of 5 years which was extended by the Board of Directors
for a period of 5 more years until 2003.
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. Through July 1, 1998, 31,119 shares
were issued to employees for net proceeds of $2,479 under this
plan and the Company discontinued this plan effective that date.
<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>
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, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the two years then ended 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 1998, and the results of its operations and its
cash flows for the two years then ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Certified Public Accountants
Raritan, New Jersey
March 31, 1999
F-1
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,125,039
Interest bearing deposits - restricted 38,280
Interest receivable 1,049
Accounts receivable net of allowance for
bad debts of $21,510 123,029
Notes receivable 10,568
Other receivable - municipal tax liens (net of
estimated disposition costs of $6,500 3,366
Other interest receivable - tax liens 7,533
Prepaid expenses 60,663
Deferred taxes 63,590
---------
TOTAL CURRENT ASSETS 1,433,117
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $68,195 253,792
OTHER ASSETS
Loan receivable - officer 94,743
Investment in partnership 2,166
Customer lists net of accumulated amortization
of $49,570 89,225
Goodwill net of accumulated amortization of $17,439 121,446
Security deposits 29,319
---------
TOTAL OTHER ASSETS 336,899
---------
TOTAL ASSETS 2,023,808
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 237,276
Deferred revenue 90,380
Deferred taxes 3,065
Income taxes payable 6,940
Current portion - note payable 34,002
Current portion of capitalized lease obligations 68,944
--------
TOTAL CURRENT LIABILITIES 440,607
Capitalized lease obligations net of current portion 113,342
Note payable - stockholder 117,383
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares authorized;
11,940,521 shares issued and outstanding 1,284,052
Retained Earnings 68,424
---------
TOTAL STOCKHOLDERS' EQUITY 1,352,476
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,023,808
==========
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,
-----------------
1998 1997
---- ----
INCOME
Revenue telemarketing $3,213,603 $2,151,081
Equity in earnings of unconsolidated
investee - 50
Income from tax lien certificates 2,249 1,293
Interest income 47,078 22,381
--------- ---------
TOTAL REVENUES 3,262,930 2,174,805
DIRECT OPERATING EXPENSES 1,642,426 1,167,623
GROSS PROFIT 1,620,504 1,007,182
COSTS AND EXPENSES
General and administrative 1,173,762 692,720
Depreciation and amortization 63,078 54,184
Interest expense 20,445 21,176
--------- ---------
TOTAL COSTS AND EXPENSES 1,257,285 768,080
--------- ---------
INCOME BEFORE INCOME TAXES 363,219 239,102
INCOME TAX (PROVISION) BENEFIT (152,732) 183,750
-------- ---------
NET INCOME $ 210,487 $ 422,852
======== ========
BASIC EARNINGS PER COMMON SHARE $ .018 $ .036
========== ==========
AVERAGE COMMON SHARES OUTSTANDING 11,924,961 11,909,402
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ .016 $ .035
========== ==========
AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING 13,069,961 11,956,902
========== ==========
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 TWO YEARS ENDED DECEMBER 31, 1998
Number Common Equity
of Shares Stock (Deficit) Total
---------- ---------- --------- --------
Balance, January 1, 1997 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
Stock issued 31,119 2,479 - 2,479
Net income for the year - - 210,487 210,487
---------- ---------- -------- ---------
Balance, December 31, 1998 11,940,521 $1,284,052 $ 68,424 $1,352,476
========== ========== ======= =========
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
----------------------
1998 1997
Cash flows from operating activities: ---- ----
Cash received from customers $3,229,851 $2,156,515
Cash paid to employees and suppliers (2,827,595) (1,782,328)
Interest received 45,048 24,482
Tax lien certificate cash received 9,081 15,563
Interest expense (20,445) (21,176)
Income taxes paid (22,017) (550)
-------- --------
Net cash provided by operating activities 413,923 392,506
-------- --------
Cash flows from investing activities:
Purchase of restricted certificates of deposit (2,030) (36,250)
Purchase of equipment (24,672) (16,841)
------- ------
Net cash used in investing activities (26,702) (53,091)
------- ------
Cash flows from financing activities:
Repayment of note payable (16,410) -
Repayment of capitalized lease obligations (37,147) (25,935)
Credit line receivable advances to buyer (69,832) (33,985)
Loan (to) repayment from officer 12,501 47,338
Credit line receivable repayments 59,321 53,778
Common stock issued 2,479 -
Net cash provided by (used in) financing ------- ------
activities (49,088) 41,196
------ ------
Net increase in cash and cash equivalents 338,132 380,611
Cash and cash equivalents - beginning of period 786,907 406,296
--------- -------
Cash and cash equivalents - end of period $1,125,039 $ 786,907
========= =======
Reconciliation of net income to net cash provided
by (used in) operating activities:
Net income $ 210,487 $ 422,852
Adjustments:
Depreciation and amortization 63,078 54,184
Bad debts provision 1,130 15,153
Deferred income taxes 133,675 (194,200)
Changes in assets and liabilities:
Decrease in other receivable - tax lien interest 9,024 14,220
Decrease in interest receivable 57 2,101
Increase in accounts receivable (69,205) (2,051)
Increase in accounts payable and accrued expenses 47,012 92,005
Increase in deferred revenue 76,955 7,485
Increase in security deposits (11,153) (12,657)
Increase in prepaid expenses (44,177) (16,486)
Increase (decrease) in income taxes payable (2,960) 9,900
------- -------
Net cash provided by operating activities $ 413,923 $ 392,506
======= =======
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 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., deemed to be effective June 30, 1996 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 1998 and 1997 was $36,310
and $27,416, 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
thereafter, 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)
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 1998 and 1997 was $26,768 and $26,768 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, 1998
includes the accounts of the Company and the its wholly owned subsidiary,
Metro Marketing, Inc. with results of operations included for the period
since the effective date of acquisition, June 30, 1996. All material
intercompany accounts and transactions have been eliminated.
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 AAccounting 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
1998 1997
-------- -------
Assets acquired under capital leases $ 144,937 $ 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, 1998.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising
costs during the period ended December 31, 1998 and 1997 amounted to
$15,939 and $20,097 respectively.
F-8
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
Comprehensive Income
There were no items of other comprehensive income in 1998 and 1997 and
thus, net income is equal to comprehensive income for each year presented.
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,
1998 1997
Assets
Deliquent municipal tax lien certificates $ 4,705 $ 4,705
Accurued interest - tax lien certificates 2,420 2,420
----- -----
Total Assets $ 7,125 $ 7,125
===== =====
Liabilities and Partners' Equity
Accrued expenses $ 608 $ 608
----- -----
Total Liabilities 608 608
----- -----
Partners' Equity
Corfacts, Inc. 2,203 2,203
Other 4,314 4,314
------ -----
Total Liabilities and Partners' Equity $ 6,517 $ 6,517
===== =====
Summary of Statement of Operations
Interest Income $ - $ 316
Expenses - 158
------ ------
Net Income $ - $ 158
====== ======
F-9
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation.
December 31,
1998 1997
---- ----
Furniture and fixtures $ 13,383 $ 13,383
Equipment 57,014 32,343
Leasehold improvements 3,960 3,960
Equipment under capital leases 252,628 107,691
------- -------
326,985 157,377
Less: accumulated depreciation (73,193) (36,884)
------- ------
Net fixed assets $ 253,792 $ 120,493
======= =======
NOTE 5 - INTEREST EXPENSE
Interest expense totaled $21,176 and $20,445 for the years ended December
31, 1997 and 1998, respectively.
NOTE 6 - NOTES PAYABLE - STOCKHOLDER AND OTHER NOTE PAYABLE
On December 31, 1996 the Company partially financed the purchase of Metro
Marketing, Inc. with a note to the former sole shareholder of Metro, who
is presently an officer and stockholder of Corfacts for $151,385. The
terms of the note is payable as follows:
During the first two years of the 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, Inc. has the
right to prepay this note without penalty. Should the company default on
this note, the holder becomes a secured creditor.
Aggregate maturities required on long term debt at December 31, 1998 are
as follows:
1999 $ 34,002
2000 36,446
2001 39,065
2002 41,872
-------
Total $ 151,385
=======
Other Note Payable
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 were due for five months. This note was repaid in full during
the year ended December 31, 1998.
F-10
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES
Operating Leases
The Company leases office space in Freehold, New Jersey. At its prior
location the lease originally had a term through August 1, 1998 which was
extended on a month to month basis until December 1998.
In December, 1998 the Company entered into a new lease, at a different
location again in Freehold, effective for January 1, 1999 for a period of
two years with basic rent and certain operating charges of which total
$9,503 per month during the lease term. The Company also paid $15,960 to
the landlord as a security deposit.
Rental expense for office space was $21,960 in 1998 and $21,960 in 1997.
The total future minimum rental payments required are as follows:
1999 $ 114,035
2000 114,035
-------
$ 228,070
=======
Capital Leases
The Company is the lessee of computer equipment and office fixtures under
capital leases expiring at various dates through 2002. The assets and
liabilities are recorded at the lower of the 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 1998 and 1997.
Following is a summary of equipment held under capital leases:
1998 1997
---- ----
Computer equipment $ 252,628 $ 107,691
Less: accumulated depreciation (44,675) (22,988)
-------- -------
$ 207,953 $ 84,703
======== =======
F-11
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES - (Continued)
Capital Leases - (Continued)
Minimum future lease payments under capital leases as of December 31, 1996
for each of the next five years are as follows:
1999 $ 85,882
2000 57,794
2001 46,158
2002 27,882
-------
Total minimum lease payments 217,716
Less amounts representing interest (35,430)
-------
Present value of net minimum lease
payment $ 182,286
=======
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,
1998 1997
---- ----
Administrative expenses $ 189,727 $ 95,919
Payroll tax liabilities 47,549 66,408
------- ------
Total $ 237,276 $ 162,327
======= =======
NOTE 9 - INCOME TAXES
Deferred taxes consist of the following at:
December 31,
1998 1997
---- ----
Total deferred tax assets $ 63,590 $ 200,700
Less: Valuation allowance - -
Deferred tax liability (3,065) (6,500)
------ -------
Net deferred tax assets $ 60,525 $ 194,200
====== =======
The deferred tax assets are attributable to available net operating loss
carryforwards. The valuation allowance was decreased by $235,100 during
1997 due to the reasonable expectation that they will be utilized because
of the Company's profitability.
F-12
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES - (Continued)
During 1997 and 1998, a benefit (provision) for taxes was recorded as
computed below.
1998 1997
Current Income Tax (Expense) ---- ----
Federal $ - $ -
State (19,087) (9,900)
------ -----
Total (19,087) (9,900)
------ -----
Deferred Tax (Expense) Benefit
Federal (117,700) (66,000)
State (15,945) (19,000)
Federal benefit of net operating
loss carryovers - 220,000
State benefit of net operating
loss carryovers - 58,650
Total income tax expense ------- -------
(benefit) $(152,732)$ 183,750
======= =======
The reconciliation of income tax computed at the U.S. Federal statutory
rates to income tax expense is
Percentage of Pretax Income
---------------------------
1998 1997
---- ----
Tax at US statutory rates (34.0) (34.0)
State income taxes, net of federal
tax benefit (6.2) (9.0)
Current year utilization net operating
loss carryforward - 38.5
Reduction of valuation allowance - 90.5
Other reconciling items (1.8) -
---- ----
Income tax provision (benefit) (42.0) (86.0)
As of 1998 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
------- -----
2000 - $ 74,909
2001 - 65,636
2002 - 79,168
2003 - 66,300
2010 30,503 -
2011 73,416 -
------- -------
Total $ 103,919 $ 286,013
======= =======
F-13
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS
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. Effective January 1, 1999, the board of
directors approved an increase in annual compensation for the President and
Vice President to $85,000. Additionally the board of directors approved
bonuses of $25,000 each for 1997 and 1998.
The Company has agreed to purchase a minimum of $17,500 in telephone
services per month for one year from a local phone service provider.
Should the Company discontinue the plan before the term is complete a
termination charge equal to 50% of the monthly commitment will be assessed
multiplied by the remaining months of the term agreement.
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.
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. In January 1999 the president and vice president
were granted 100,000 options to purchase the Company stock at $.12 for a
period of 5 years which was extended by the Board of Directors for a
period of 5 more years until 2003.
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, 1998 there are
1,150,000 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 $94,743 and $107,244 at December 31, 1998 and 1997
respectively. Through December 31, 1998 the founder and president has
secured this note with 2,414,316 shares of the Company's common stock.
The founder and president repaid $21,669 toward principle of this note in
1997 and $12,500 in 1998.
F-14
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES - (Continued)
Included in interest income for 1998 and 1997 from the officer was $0 and
$0, as the board of directors agreed to waive the interest on this note.
Additionally, in connection with the acquisition discussed in Note 16, the
president was paid a finders fee of $12,500.
During 1996, the vice president was advanced $25,699 from the Metro
Marketing Division. These advances were non interest bearing with no
specific repayment terms. This loan was repaid in 1997.
The vice president also received $10,597 of interest in 1997 and $10,597
in 1998 for the note payable discussed in Note 6.
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, 1998 and 1997 of $0 and
$0, respectively. This note is collateralized by the accounts receivable
and inventory of Ford Publishing, Inc.
The company assists in the collection of Ford Publishing's credit card
sales. During 1998 and 1997 the Company collected $59,321 and $53,778
respectively, net of related bank charges for Ford Publishing. These
funds were used to pay back the working capital loans given to Ford
Publishing during the year.
Included in interest income was $0 and $0 from Ford Publishing, Inc. for
the periods ended December 31, 1998 and 1997, respectively.
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 7% of sales in 1998 and 10%
in 1997. Sales to this customer were $248,553 and $533,529 for the years
ended 1998 and 1997. Accounts receivable from this customer totaled
$46,562 and $27,506 at December 31, 1998 and 1997 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, 1998 and 1997, $637,585 and $240,928
of cash and interest bearing deposits exceeded FDIC insured limits
respectively.
F-15
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONCENTRATIONS OF CREDIT RISK - (Continued)
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 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
and current vice president of the Company.
Reserved Shares
On December 22, 1997 the Company granted the president and vice president,
as well as 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. During 1998 a key employee was granted options
to purchase 10,000 shares. The option prices are $.05 for officers and
$.15 for other key employees 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 were to be
made on two semi annual investment dates through payroll deductions.
During 1998 the company discontinued this plan.
F-16
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMON STOCK - (Continued)
The activity in ESPP during 1998 follows:
Shares
Available beginning 432
Authorized during year 44,147
Purchased through plan (31,119)
------
Available before termination 13,460
------
Canceled due to discontinuance of the
plan (13,460)
------
Available at the end of year 0
======
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
1998 1997 1998 1997
---- ---- ---- ----
Assets:
Cash and equivalents $1,125,039 $786,907 $1,125,039 $786,907
Restricted cash 38,280 36,350 38,280 36,250
Officer loans 94,743 107,244 86,500 97,360
Interest receivable 1,049 1,106 1,049 1,106
Notes receivable 10,568 - 10,568 -
Other interest receivable -
tax liens 7,533 9,788 7,533 9,788
Other receivable 3,366 10,192 3,366 10,192
Liabilities
Note payable shareholder $ 151,385 $151,385 $151,385 $118,500
NOTE 16 - SUBSEQUENT EVENTS
On February 8, 1999 the Company purchased the assets of a local
telemarketing company in Sea Bright, NJ. In connection with the purchase,
the Company agreed to employ the former owner of the company as a
commissioned salesman. The employment agreement is for four years if the
former owner maintains certain sales levels. The aggregate purchase
price, including customer lists, finder fees and a liability to complete
several projects is expected to be less than $50,000.
NOTE 17 -YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company may require modification and conversion to allow date code fields
to accept dates beginning with the year 2000. Major system failures or
erroneous calculations can result if computer systems are not year 2000
compliant.
The Company is in the process of evaluating the computer systems they now
have in use and does not anticipate a major undertaking to be compliant.
F-17
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -YEAR 2000 ISSUES - (Continued)
All costs associated with year 2000 compliance that have been incurred by
the Company have been expensed and have not been capitalized. The overall
cost to the Company of modifications and conversion for year 2000
compliance with relation to the financial statements taken as a whole is
not material. The Company is advised by a substantial majority of its
vendors of computer products upgraded to be year 2000 compliant, or will
not be affected by the year 2000 problem. The Company's business could be
materially adversely affected if the Company's computer-based systems are
not year 2000 compliant in a timely manner, the Company incurs significant
additional expenses pursuing year 2000 compliance, the Company's vendors
do not timely provide year 2000 compliant products, or the Company is
subject to warranty or other claims by the Company's clients related to
product failures caused by the year 2000 problem
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,125,039
<SECURITIES> 0
<RECEIVABLES> 167,055
<ALLOWANCES> 21,510
<INVENTORY> 0
<CURRENT-ASSETS> 1,433,117
<PP&E> 321,987
<DEPRECIATION> 68,195
<TOTAL-ASSETS> 2,023,808
<CURRENT-LIABILITIES> 440,607
<BONDS> 0
0
0
<COMMON> 1,284,052
<OTHER-SE> 68,424
<TOTAL-LIABILITY-AND-EQUITY> 2,023,808
<SALES> 3,213,603
<TOTAL-REVENUES> 3,262,930
<CGS> 1,642,426
<TOTAL-COSTS> 1,257,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,445
<INCOME-PRETAX> 363,219
<INCOME-TAX> 152,732
<INCOME-CONTINUING> 210,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,487
<EPS-PRIMARY> .018
<EPS-DILUTED> .016
</TABLE>
