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, 1999
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, 2000.
Corfacts, Inc. and Subsidiary
PART I
Item 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
We are a full service telemarketing company, providing traditional outbound and
inbound call services and customized marketing programs since the acquisition
of Metro Marketing, Inc., effective July 1, 1996.
The Company was organized in 1983 under the name "Business Journal of New
Jersey, Inc." Through 1989 the Company produced two monthly magazines,
Business Journal of New Jersey and Garden State Home & Garden, which were
subsequently sold to Micromedia Affiliates, Inc. in March of 1990. In 1990
the company changed its name to Corfacts, Inc. and was in the business
information industry, reselling information from the Company s data base in
paper and diskette format, until it sold this database and affiliated assets
to Ford Publishing, Inc. effective for August 1, 1991.
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 which included
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.
METRO MARKETING, INC.
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., located in Freehold, New Jersey, provides telemarketing services, most
of which are outgoing call services for customers in various industries. These
include practice building services to the medical industry, customer service
and pilot program services for the utility industry, lead generating programs
for the insurance and mortgage industry, and newspaper and magazine
subscription telemarketing services.
RECENT ACQUISITIONS
The Company acquired the assets of a northern New Jersey inbound telemarketing
company in June, 1999. The acquired company had approximately 165 current
accounts. This division operates independently of the Freehold location. In
October, 1999 the Company purchased the assets of another inbound telemarketing
company with approximately 125 accounts. These accounts were incorporated into
our new facility in Wayne, New Jersey, helping to increase the revenues of this
new inbound division with minimal additional costs. Management continues to
closely monitor the operations of this division in an effort to keep this
division independently profitable.
EMPLOYEES AND CONSULTANTS
The Company employs approximately 40 full-time administrative and sales
personnel as well as 50 full-time and 150 part-time inbound and outbound
telemarketing service representatives.
Item 2. PROPERTIES
The Company maintains its principal offices at 3499 Hwy. 9 No., Ste. 3B,
Freehold, NJ 07728. The twenty-four (24) month lease commenced January 1,
1999 through December, 2000 which was subsequently extended through 2004.
The monthly rent is $10,707 per month.
We also entered into a lease in Wayne, New Jersey for our newly acquired
inbound telemarketing service. This office space, located at 1599 Hamburg
Turnpike, Wayne, New Jersey, 07470, has a monthly rent of $1,600 and an
initial term of two years. This lease commenced in August, 1999.
The Company entered into two additional office leases for telemarketing
production centers corresponding with the Company's growth in these services.
One office is located on Shanck Road, Freehold, New Jersey. The monthly rent
for this facility is $2,475 with a term of one year and an option to renew for
five additional years, commencing in December 1999. The second new production
office, located in Hightstown, New Jersey, commenced in October 1999, and has
a monthly rent of $1,375. This lease is for a period of 6 months, with an
option to renew after the first six months.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company, its President and a management employee are the defendants in a
lawsuit filed by a former employee of the Company for alleged improper
termination. The Company and its co-defendants deny the allegations and intend
to vigorously defend their position. Any outcome and its effect on the
financial position of the Company, if any, can not be determined at this time.
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, 1999.
Corfacts, Inc. and Subsidiary
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, 1999, and 1998, as
provided by the NASD's OTCBB System. The prices represent prices between
dealers, do not include retail mark-up, mark-down, or commissions, and do not
represent actual transactions.
COMMON STOCK
High Low High Low
1999 Bid Bid Ask Ask
- -------------------------------------------------------------------
1st quarter $ .22 $ .1875 $ .51 $ .24
2nd quarter $ .25 $ .21 $ .34 $ .3125
3rd quarter $1.625 $ .25 $2.375 $ .40
4th quarter $ .875 $ .625 $1.125 $ .875
1998
- -------------------------------------------------------------------
1st quarter $ .13 $ .11 $ .15 $ .12
2nd quarter $ .28 $ .14 $ .37 $ .16
3rd quarter $ .25 $ .14 $ .27 $ .125
4th quarter $ .21 $ .08 $ .23 $ .11
(b) HOLDERS
As of December 31, 1999, 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, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
The Company's results from operations for the year ended December 31, 1999
consisted of net income of $366,786 on total revenues of $5,385,731, as
compared with a net income of $210,487 on revenues of $3,262,930 for the
comparable period ended December 31, 1998.
Net income per share for the year ended December 31, 1999 was $.031 as compared
to a net income per share of $.018 for the year ended December 31, 1998, an
increase of 74%.
Direct operating expenses rose from $1,642,426 in 1998 to $2,593,286 in 1999,
corresponding with the increase in the Company service revenue, while the costs
as a percentage of sales decreased from 50% in 1998 to 48% in 1999. Selling,
general and administrative expenses rose from $1,173,762 in 1998 to
$1,975,034 primarily due to additional personnel for the custom marketing
division, an expanded MIS Department and increased rent and maintenance costs
relating to the relocation of our corporate headquarters in January 1999. As
a result, there was a slight increase in selling, general and administrative
costs as a percentage of sales in 1999 to 36.7% as compared to 36.0% in
1998. The increase in Depreciation and Amortization expense relates to
increases in amortization due to the acquisitions made during the year and
increased depreciation expense relating to the equipment purchased for the
Company's expansion in 1999.
Interest income increased to $48,281 from $47,078 for the comparable period in
1998. Interest expense increased to $41,333 in 1999 as compared to $20,445 in
1998. Interest expense for 1999 increased due to the two notes payable entered
into this year for the business acquisitions and new equipment acquired
through leases during this year.
The Company completed the purchase of a small local telemarketing company in
February 1999. This new acquisition has helped 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 our existing resources and
personnel, has provided the opportunity for immediate growth in this segment
of the business during 1999. The acquisition of Paramount and E-Z Connections
have positioned the Company for expansion in the inbound telemarketing segment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital nominaly decreased during the year ended December
31, 1999. Working capital was $962,109 at December 31, 1999 as compared to
$992,510 at December 31, 1998. $78,300 of the $255,500 provision for income
taxes in 1999 represents the utilization of the deferred tax asset, thus not
requiring cash.
Cash flow from operations of $537,966 for 1999 exceeded the $413,923 reported
in 1998.
The primary reason for this decrease in working capital was the additional
call centers we opened this year, the additional equipment purchases, and the
down payments made for the three acquisitions completed during the year.
Management is also considering various equity funding and future acquisition
alternatives to increase its already positive working capital and growing
profitability. 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 were reviewed for modification and conversion to allow date code
fields to accept dates beginning with the year 2000. Major system failures
or erroneous calculations could result if computer systems are not year 2000
compliant. The Company did not experience any material difficulties this past
December 31, 1999.
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.
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.
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. and
Subsidiary
Pages
(a) Financial Statements
Report of Schuhalter, Coughlin & Suozzo, LLC F-1
Consolidated Balance Sheet of Corfacts, Inc. and
Subsidiary as of December 31, 1999 F-2
Consolidated Statements of Operations of Corfacts,
Inc. and Subsidiary for the two years ended
December 31, 1999 F-3
Consolidated Statement of Changes in Stockholders'
Equity for the two years ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for the
two years ended December 31, 1999 F-5
Notes to Financial Statements F-6 to F-19
(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.
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,
DIRECTOR'S FEES,
CAPACITIES IN COMMISSION STOCK
NAME WHICH SERVED AND BONUSES AWARD
- --------------------------------------------------------------------
Larry Finkelstein President, $140,250 100,000 options
Chairman at $.12
Ariel Freud Vice President, $130,500 100,000 options
Director at $.12
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, 1999.
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.
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 $74,493 and $94,743 at December 31, 1999 and 1998 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 $20,250 and $12,500 toward principle of this note in 1999 and 1998,
respectively.
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,
which had a balance outstanding at December 31, 1999 of $14,726 and a balance
of $0 at December 31, 1998. In addition, the Company periodically assists in
the collection of Ford Publishing's credit card sales.
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 approved an increase in
annual compensation to $85,000 for both the President and Vice President.
Effective January 1, 2000 the Board of Directors approved a salary increase to
$115,000 per year and an increase in reimbursed auto expenses to $6,000 per
year for both the President and Vice President. Additionally, the board of
directors approved bonuses of $35,000 each for 1999 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.
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 December 15, 1999, the Company adopted an incentive stock options plan
under which options to purchase an aggregate of 1,200,000 shares of common
stock may be granted prior to August 31, 2009 at 100% of the fair market value
of a share on the date the option is granted. As of December 31, 1999 there
are 195,000 outstanding options. To date none 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.
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.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
March 31,2000
Corfacts, Inc.
By:
/s/Lawrence Finkelstein
-----------------------
Lawrence Finkelstein
President, Chairman
/s/Ariel Freud
-----------------------
Ariel Freud
Vice President, Director
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.
March 31, 2000 Corfacts, Inc.
By:
/s/Lawrence Finkelstein
-----------------------
Lawrence Finkelstein
President, Chairman
/s/Ariel Freud
-----------------------
Ariel Freud
Vice President, Director
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, 1999, 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 1999, and the results of its operations and its cash flows for
the two years then ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Schuhalter, Coughlin & Suozzo, LLC
----------------------------------
Schuhalter, Coughlin & Suozzo, LLC
Certified Public Accountants
Raritan, New Jersey
March 23, 2000
F-1
<PAGE>
CORFACTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,235,380
Interest bearing deposits - restricted 40,234
Interest receivable 3,005
Accounts receivable net of allowance for
bad debts of $55,010 412,068
Notes receivable 14,726
Other receivable - municipal tax liens (net of
estimated disposition costs of $6,500) 4,994
Other interest receivable - tax liens 6,813
Prepaid expenses and other current assets 80,042
---------
TOTAL CURRENT ASSETS 1,797,262
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $171,780 661,920
Goodwill and customer lists, net of accumulated
amortization of $117,211 431,129
OTHER ASSETS
Loan receivable - officer 74,493
Security deposits 63,302
Deferred taxes 11,340
TOTAL OTHER ASSETS 149,135
---------
TOTAL ASSETS 3,039,446
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 406,436
Deferred revenue 90,800
Customer deposits 48,510
Income taxes payable 73,208
Current portion of capitalized lease obligations 131,386
Current portion - note payable - stockholder 45,169
Current portion - other notes payable 39,644
TOTAL CURRENT LIABILITIES 835,153
Capitalized lease obligations, net of current portion 292,654
Note payable - stockholder, net of current portion 80,937
Other notes payable, net of current portion 82,325
Deferred taxes 29,115
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized; 11,940,521 shares issued and
outstanding 1,284,052
Retained Earnings 435,210
---------
TOTAL STOCKHOLDERS' EQUITY 1,719,262
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,039,446
=========
The accompanying notes are an integral part of these financial statements.
F-2
CORFACTS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
Year Ended
December 31,
1999 1998
--------- ---------
INCOME
Revenue telemarketing $5,335,367 $3,213,603
Equity in earnings of unconsolidated investee 784 -
Income from tax lien certificates 1,299 2,249
Interest income 48,281 47,078
--------- ---------
TOTAL REVENUES 5,385,731 3,262,930
DIRECT OPERATING EXPENSES 2,593,286 1,642,426
--------- ---------
GROSS PROFIT 2,792,445 1,620,504
COSTS AND EXPENSES
Selling, general and administrative 1,975,039 1,173,762
Depreciation and amortization 153,787 63,078
Interest expense 41,333 20,445
--------- ---------
TOTAL COSTS AND EXPENSES 2,170,159 1,257,285
--------- ---------
INCOME BEFORE INCOME TAXES 622,286 363,219
PROVISION FOR INCOME TAXES (255,500) (152,732)
--------- ---------
NET INCOME $ 366,786 $ 210,487
========= =========
BASIC EARNINGS PER COMMON SHARE $ .031 $ .018
========= =========
AVERAGE COMMON SHARES OUTSTANDING 11,940,521 11,924,961
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ .028 $ .016
======== =========
AVERAGE COMMON SHARES AND EQUIVALENTS
OUTSTANDING 13,266,312 13,069,961
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
CORFACTS, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
Number Common Retained
of Shares Stock Earnings Total
----------------------------------------------
Balance, January 1, 1998 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
Net income for the year - - 366,786 366,786
---------- --------- -------- ---------
Balance, December 31, 1999 11,940,521 $1,284,052 $ 435,210 $1,719,262
========== ========= ======== =========
The accompanying notes are an integral part of these financial statements.
F-4
CORFACTS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
Year Ended
December 31,
1999 1998
------ ------
Cash flows from operating activities:
Cash received from customers $5,061,758 $3,229,851
Cash paid to employees and suppliers (4,419,027) (2,827,595)
Interest received 46,325 45,048
Tax lien certificate cash received 1,175 9,081
Interest expense (41,333) (20,445)
Income taxes paid (110,932) (22,017)
Net cash provided by (used in) operating --------- ---------
activities 537,966 413,923
--------- ---------
Cash flows from investing activities:
Return of capital from partnership 2,166 -
Purchase of restricted certificates of deposit (1,954) (2,030)
Purchase of equipment (189,209) (24,672)
Acquisitions of customer lists and goodwill (132,660) -
--------- --------
Net cash used in investing activities (321,657) (26,702)
--------- --------
Cash flows from financing activities:
Repayment of note payable - (16,410)
Repayment of capitalized lease obligations (80,750) (37,147)
Notes receivable advances (4,158) (10,512)
Repayment from officer 20,250 12,501
Repayment of note payable - stockholder (25,279) -
Common stock issued - 2,479
Repayment of other notes payable (16,031) -
Net cash provided by (used in) financing -------- --------
activities (105,968) (49,089)
Net increase (decrease) in cash and cash
equivalents 110,341 338,132
Cash and cash equivalents - beginning of period 1,125,039 786,907
--------- ---------
Cash and cash equivalents - end of period $1,235,380 $1,125,039
========= =========
Reconciliation of net income to net cash provided
by (used in) operating activities:
Net income (loss) $ 366,786 $ 210,487
Adjustments:
Depreciation and amortization 153,787 63,078
Bad debts provision 34,128 1,130
Deferred income taxes 78,300 133,675
Changes in assets and liabilities:
Decrease(increase) other receivable - tax
lien interest (908) 9,024
(Increase) decrease in interest receivable (1,956) 57
(Increase) in accounts receivable (322,539) (69,205)
Increase in accounts payable and accrued expenses 169,160 47,012
Increase in deferred revenue 420 76,955
(Increase) in security deposits (33,983) (11,153)
(Increase) in prepaid expenses and other current
assets (20,007) (44,177)
Increase (decrease) in income taxes payable 66,268 (2,960)
Increase in customer deposits 48,510 -
-------- --------
Net cash provided by (used in) operating
activities $ 537,966 $ 413,923
======== ========
The accompanying notes are an integral part of these financial statements.
F-5
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., a telemarketing firm, deemed to be
effective June 30, 1996. 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 1999 and 1998 was $104,458
and $36,310, 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.
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 1999 and 1998 was $48,379 and $26,768 respectively.
F-6
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
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.
F-7
CORFACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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
1999 1998
Assets acquired under capital leases $ 322,504 $ 144,937
Seller financing provided by acquisitions $ 138,000 $ -
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising
costs during the period ended December 31, 1999 and 1998 amounted to
$31,448 and $15,939 respectively.
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 1999 and 1998 and
thus, net income is equal to comprehensive income for each year presented.
NOTE 3 - BUSINESS COMBINATIONS
For the year ended December 31, 1999 the Company made a number of purchase
acquisitions. The consolidated financial statements include the operating
results of each business from the date of acquisition. Pro forma results
of operations have not been presented because the effects of these
acquisitions were not material on either an individual or an aggregate
basis. Amounts allocated to goodwill and other intangibles are amortized
on a straight-line basis over periods not exceeding twenty years. Each
transaction is outlined as follows:
Form of Consideration and
Acquired Companies Consideration Date Other Notes to Acquisition
- -----------------------------------------------------------------------------
E-Z Connection Answering $193,500 June 1999 $85,500 in Cash,$108,000
Service, Inc. note payable; equipment,
goodwill and customer
list recorded
Paramount Telephone $ 96,750 Oct. 1999 $66,750 in Cash, $30,000
Answering Service, Inc. note payable; equipment,
goodwill, customer list
recorded
Advanced Marketing $ 30,500 March 1999 $30,500 in Cash; customer
list recorded; contingent
compensation
NOTE 4 - 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 Earnings amounted to $0 and $2,166 at December 31, 1999 and 1998,
respectively.
Condensed financial information for the partnership is as follows:
Summary of Statements of Financial Condition
December 31,
1999 1998
Assets
Delinquent municipal tax lien certificates $ - $ 4,705
Accrued interest - tax lien certificates - 2,420
----- ------
Total Assets - $ 7,125
===== ======
Liabilities and Partners' Equity
Accrued expenses $ - $ 608
Total Liabilities - 608
----- ------
Partners' Equity
Corfacts, Inc. - 2,166
Other - 4,405
----- ------
Total Liabilities and Partners' Equity $ - $ 7,125
===== ======
Summary of Statement of Operations
Interest Income $ 784 $ -
Expenses - -
----- ------
Net Income $ 784 $ -
===== ======
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation.
December 31,
1999 1998
Furniture and fixtures $ 145,887 $ 99,243
Equipment 669,305 223,782
Leasehold improvements 18,508 3,960
------- -------
833,700 326,985
Less: accumulated depreciation (171,780) (73,193)
------- -------
Net fixed assets $ 661,920 $ 253,792
======= =======
NOTE 6 - INTEREST EXPENSE
Interest expense totaled $41,333 and $20,445 for the years ended December
31, 1999 and 1998, respectively.
NOTE 7 - NOTES PAYABLE - STOCKHOLDER AND OTHER NOTE PAYABLE
Stockholder
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. On December 31, 1999
$126,106 was outstanding on this note.
Other Notes 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 were due for five months. This note was repaid in full during the
year ended December 31, 1998.
The Company financed $108,000 of the purchase of the EZ Connection
Answering Services assets with a note to the sellers. The terms of the
note is payable as follows:
For four years equal monthly installments of $2,636 including interest at
8%.
The Company financed $30,000 of the purchase of the Paramount Answering
Service assets with a note to the sellers. The terms of the note is
payable as follows:
For two years equal monthly installments of $1,343 including interest at
8%.
On December 31, 1999 $121,969 was outstanding on these two notes.
Aggregate maturities required on long term debt at December 31, 1999 are
as follows:
2000 $ 84,813
2001 79,148
2002 71,191
2003 12,923
-------
Total $ 248,075
=======
NOTE 8 - 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 in Freehold. The lease provides for minimum monthly rentals of
$9,503 including certain operating charges through December 2001. The
Company also paid $15,960 to the landlord as a security deposit.
As of January 1, 2000 the Company renegotiated this lease to December 31,
2004. The lease provides for minimum monthly rentals of $10,707 including
certain operating charges through December 2004. The Company also paid
$2,305 to the landlord as additional security deposit.
In September 1999 the Company entered into a new lease for office space
located in East Windsor, New Jersey effective October 1, 1999 and ending
on March 31, 2000. To date this lease has not been renewed. The Company
is leasing the premises on a month to month basis at $1,375 per month.
In July 1999 the Company entered into a lease for office space in Wayne,
NJ. The lease provides for minimum monthly rentals of $1,600 through July
2001. The Company also paid $3,200 to the landlord as a security deposit.
In October 1999 the Company entered into a lease for an apartment located
in New York City effective October 1999 and ending on October 2001. The
lease provides for minimum monthly rentals of $2,500 through October 2001.
The Company also paid $3,750 to the landlord as a security deposit.
In December 1999 the Company entered into a new lease for additional
office space in Freehold, NJ. The lease provides for minimum monthly
rentals of $2,472 including certain operating charges through November
2000. The Company also paid $4,250 to the landlord as a security deposit.
Following is a summary of renewal options.
Renewal Option
Description Expiration Annual
Of Property Date Terms Rental
-------------------------------------------------------------------
Office Space 11/30/2000 5 years $ 29,664
Freehold
Office Space 3/31/2000 5 years $ 20,250
Hightstown
Rental expense for office space was $128,798 in 1999 and $21,960 in 1998.
The total future minimum rental payments required are as follows:
2000 $ 209,001
2001 164,684
2002 128,484
2003 128,484
2004 128,484
-------
$ 759,137
=======
Capital Leases
The Company is the lessee of computer equipment and office fixtures under
capital leases expiring at various dates through 2004. 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 1999 and 1998.
Following is a summary of equipment held under capital leases:
1999 1998
Equipment $ 465,715 $ 166,768
Furniture and fixtures 109,417 85,860
------- -------
Total 575,132 252,628
Less: accumulated depreciation(108,541) (44,675)
------- -------
$ 466,591 $ 207,953
======= =======
Minimum future lease payments under capital leases as of December 31, 1999
for each of the next five years are as follows:
2000 $ 177,309
2001 165,673
2002 137,909
2003 31,958
2004 0
-------
Total minimum lease payments 512,849
Less amounts representing interest (91,147)
-------
Present value of net minimum lease
payment $ 421,702
=======
The interest rate on capitalized leases varies from 8.4% 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 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1999 1998
Administrative expenses $ 364,422 $ 189,727
Payroll tax liabilities 42,014 47,549
------- -------
Total $ 406,436 $ 237,276
======= =======
NOTE 10 - INCOME TAXES
Deferred taxes consist of the following at:
December 31,
1999 1998
Total deferred tax assets $ 11,340 $ 63,590
Deferred tax liability (29,115) (3,065)
------- ------
Net deferred tax assets (liability) $ (17,775) $ 60,525
======= ======
The deferred tax assets are attributable to available net operating loss
carryforwards and the excess amortization for financial reporting purposes
over tax purposes. No valuation allowance has been calculated due to the
reasonable expectation that they will be utilized because of the Company's
profitability.
During 1999 and 1998, a provision for taxes was recorded as computed
below.
1999 1998
Current Income Tax (Expense)
Federal $ (150,700) $ -
State (26,500) (19,087)
------- --------
Total (177,200) (19,087)
Deferred Tax (Expense)
Federal (61,800) (117,700)
State (16,500) (15,945)
-------- --------
Total income tax expense $(255,500) $(152,732)
======== ========
The reconciliation of income tax computed at the U.S. Federal statutory
rates to income tax expense is as follows:
Percentage of Pretax Income
1999 1998
Tax at US statutory rates (34.0) % (34.0) %
State income taxes, net of federal
tax benefit (5.9) (6.2)
Other reconciling items (1.2) (1.8)
---- -----
Income tax provision (41.1) % (42.0) %
==== ====
As of December 31, 1999 the Company has no available operating loss
carryforwards which may be used to reduce Federal and State taxable income
and tax liabilities in future years.
NOTE 11 - 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 which has been
extended through 2001. The agreements provide for annual compensation of
$115,000 and $85,000 plus $6,000 reimbursed auto expenses. Additionally
the board of directors approved bonuses of $35,000 and $25,000 each for
1999 and 1998, respectively.
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 12 - STOCK OPTIONS
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. This plan has expired and no options
are outstanding from this
plan.
In January 1999 the president and vice president were granted 100,000
options to purchase the Company stock at $.12 for a period of
10 years through January 2009. To date none of these options have been
exercised.
On December 15, 1997 the Company adopted the 1997 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. In December 1998 and
January 1999, 10,000 and 96,000 options at $.15, respectively, were
granted under this plan. During 1999, 120,000 options were canceled under
this plan. As of December 31, 1999 there are 1,126,000 outstanding options
under this plan. None have been exercised to date.
On October 22, 1999 the Company adopted the 1999 incentive stock option
plan under which options to purchase an aggregate of 1,200,000 shares of
common stock may be granted prior to August 31, 2009 at 100% of the fair
market value on the date the option is granted. During November and December
1999, 100,000 options at $.85 and 95,000 options at $.83, respectively,
were granted under this plan. As of December 31, 1999 there are 195,000
outstanding options. None have been exercised to date.
A summary of the stock option activity for the years ended December 31,
1999 and 1998, including options subject to the terms of the Plans and
fixed priced non-qualified options, is set forth below:
Weighted
Number of Average
Options Exercise Price
---------------------------
Outstanding at January 1, 1998 1,140,000 $ .10
Granted 10,000 .15
Exercised - .--
Canceled - .--
Outstanding at December 31, 1998 1,150,000 .10
Granted 491,000 .42
Exercised - .--
Canceled (120,000) .15
Outstanding at December 31, 1999 1,521,000 $ .19
Exercisable at December 31, 1999 1,521,000 $ .19
The weighted average fair value of options granted in 1999 and 1998 was
estimated as of the date of grant using the Black-Scholes stock option
pricing model, based on the following weighted average assumptions: annual
expected return of 0%, annual volatility of 164%, risk-free interest rate
of 5.5% and expected option life of 3 years.
The per share weighted-average fair value of stock options granted during
1999 and 1998 was $185,574 and $1,290, respectively. The per share
weighted average remaining life of the options outstanding at December 31,
1998 and 1999 is 9.8 and 8.9 years, respectively.
The Company has elected to continue to account for stock-based
compensation under APB Opinion No. 25, under which no compensation expense
has been recognized for stock options granted to employees at fair market
value. Had compensation expense for stock options granted under the Plan
been determined based on fair value at the grant dates, the Company s net
income, net of the income tax effect, for 1999 and 1998 would have been
decreased to the pro forma amounts shown below.
December 31,
1999 1998
Net Income:
As reported $ 366,786 $ 210,487
Pro forma $ 257,296 $ 209,727
NOTE 13 - 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 $74,493 and $94,743 December 31, 1999 and 1998
respectively. Through December 31, 1999 the founder and president has
secured this note with 2,414,316 shares of the Company s common stock. The
founder and president repaid $20,250 toward principle of this note in 1999
and $12,500 in 1998.
Included in interest income for 1999 and 1998 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 acquisitions discussed in Note 2, the
president was paid a finders fee of $20,250 in 1999 and $12,500 in 1998.
The vice president also received $9,717 of interest in 1999 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, 1999 and 1998 of $14,726
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 1999 and 1998 the Company collected $69,975 and $59,321
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, 1999 and 1998, respectively.
NOTE 14 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of temporary cash
investments, non-interest bearing cash deposits, accounts receivable,
notes receivables and investment in a partnership. Metro Marketing Inc.
provides telemarketing services primarily to the chiropractic services
industry and public utility companies. The Company grants credit to
customers including chiropractors, publishers and other major companies in
varied locations across the country. The Company has a major customer
which accounted for more than 18.8% of sales in 1999 and 0% in 1998.
Sales to this customer were $1,006,452 and $0 for the years ended 1999 and
1998. Accounts receivable from this customer totaled $249,102 and $0 at
December 31, 1999 and 1998 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, 1999 and 1998, $522,527 and $637,585
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 were municipal tax liens. Had the company
been forced to foreclose on the real estate listed as collateral there
was a potential for total loss from this investment. This partnership
terminated in 1999, without any such loss.
NOTE 15 - RETIREMENT PLAN
The company maintains a 401(k) profit sharing plan that covers
substantially all employees of the company and its subsidiaries who have
completed one year of service and have attained age 20. The Company may
make discretionary matching contributions equal to a percentage of the
amount of the employee s salary reduction amount. The Company may also make
discretionary contributions in addition to the matching provision above.
All required contributions have been provided for and funded when due. The
401(k) plan expense totaled $10,806 in 1999.
NOTE 16 - COMMON STOCK
In connection with the acquisition of Metro Marketing 3,904,088 shares of
common stock were issued to the shareholder of Metro and current vice
president of the Company.
Reserved Shares
1,521,000 stock options are outstanding on December 31, 1999. See note 12.
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.
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 17 - 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
1999 1998 1999 1998
Assets: ---------------------------------------------
Cash and equivalents $1,235,380 $1,125,039 $1,235,380 $1,125,039
Restricted cash 40,234 38,280 40,234 38,280
Officer loans 74,493 94,743 74,493 86,500
Interest receivable 3,005 1,049 3,005 1,049
Notes receivable 14,726 10,568 14,726 10,568
Other interest receivable -
tax liens 6,813 7,533 6,813 7,533
Other receivable 925 3,366 925 3,366
Liabilities
Note payable shareholder 126,106 151,385 126,106 151,385
Other notes payable 121,969 - 121,969 -
NOTE 18 - SUBSEQUENT EVENTS
Legal Proceedings
The Company, its President and a management employee are the defendants
in a lawsuit filed by a former employee of the Company for alleged
improper termination. The Company and its co-defendants deny the
allegations and intend to vigorously defend their position. Any outcome
and its effect on the financial position of the Company, if any, cannot
be determined at this time.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,235,380
<SECURITIES> 0
<RECEIVABLES> 467,078
<ALLOWANCES> 55,010
<INVENTORY> 0
<CURRENT-ASSETS> 1,797,262
<PP&E> 833,700
<DEPRECIATION> 171,780
<TOTAL-ASSETS> 3,039,446
<CURRENT-LIABILITIES> 835,153
<BONDS> 0
0
0
<COMMON> 1,284,052
<OTHER-SE> 435,210
<TOTAL-LIABILITY-AND-EQUITY> 1,719,262
<SALES> 5,337,450
<TOTAL-REVENUES> 5,385,731
<CGS> 2,593,286
<TOTAL-COSTS> 2,128,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,333
<INCOME-PRETAX> 622,286
<INCOME-TAX> 255,500
<INCOME-CONTINUING> 366,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,786
<EPS-BASIC> .031
<EPS-DILUTED> .028
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