U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 - FOR THE QUARTERLY
PERIOD ENDED September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NUMBER 0-17394
CORFACTS INC. AND SUBSIDIARY
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2478379
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
3499 Hwy. 9 No., Ste. 3B, Freehold, NJ 07728
(Address of principal executive offices)
Registrants telephone number, including area code
(800) 696-7788
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The number of shares outstanding of the registrant s common stock, no par
value, at September 30, 2000 is 11,952,521.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
September 30, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2000 3.
Consolidated Statements of Operations for the
three months and nine months ended
September 30, 2000 and 1999 4-5.
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999 6.
Notes to Consolidated Financial Statements 7.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10.
PART II - OTHER INFORMATION 12.
Item 1. Legal Proceedings 12.
Item 2. Changes in Securities 12.
Item 3. Defaults Upon Senior Securities 12.
Item 4. Submission of Matters to a Vote of
Securityholders 12.
Item 5. Other Information 12.
Item 6. Exhibits and Reports on Form 8-K 12.
Signatures 13.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORFACTS, INC. & SUBSIDIARY
BALANCE SHEET
(Unaudited)
September 30,2000
ASSETS
Current Assets
Cash and cash equivalents $1,191,841
Interest bearing deposits, restricted 40,234
Interest receivable 8,250
Accounts receivable, net of allowance for
bad debts of $62,826 473,308
Inventory 32,923
Prepaid expenses and other current assets 61,960
Note receivable 31,852
Prepaid Income Tax 63,139
Other receivable-municipal tax liens, net 2,834
---------
Total Current Assets 1,906,341
---------
Property and equipment, at cost,
less accumulated depreciation of $315,401 602,444
Goodwill and customer lists, net of accumulated
Amortization of $168,582 379,758
Other assets
Loan receivable, officer 74,493
Deferred taxes 11,500
Security deposits 68,082
---------
Total Other Assets 154,075
---------
TOTAL ASSETS $3,042,618
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 532,564
Deferred revenue 113,566
Current portion of note payable - shareholder 47,582
Current portion of note payable - purchase 41,973
Current portion of capitalized lease obligations 171,396
---------
Total Current Liabilities 907,081
---------
Capitalized lease obligations, net of
current portion 198,334
Note payable - shareholder, net of current portion 51,894
Note payable - purchase, net of current portion 50,548
Deferred Taxes 28,237
Stockholders' equity
Common stock, no par value, 20,000,000 shares
authorized; 11,952,521 shares issued and
outstanding in 2000 1,285,852
Retained earnings 520,672
---------
TOTAL STOCKHOLDERS' EQUITY 1,806,524
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,042,618
=========
See notes to consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended
September 30,
2000 1999
Revenue:
Revenue telemarketing $ 4,770,594 $ 4,060,200
Income from tax liens, net 4,000 998
Interest income 39,517 33,666
--------- ---------
Total revenues 4,814,111 4,094,864
Direct operating expenses 2,694,748 1,858,857
--------- ---------
Gross Profit 2,119,363 2,236,007
Costs & expenses:
Selling, general & administrative 1,730,222 1,416,328
Depreciation and amortization 194,993 97,518
Interest expense 50,986 26,182
--------- ---------
Total costs & expenses 1,976,201 1,540,028
--------- ---------
Income before income taxes 143,162 695,979
Provision for income taxes 57,700 295,790
--------- ---------
Net income $ 85,462 $400,189
========= =========
Basic earnings per common share $ .007 $ .034
========= =========
Average common shares outstanding 11,952,521 11,940,521
========== ==========
Diluted earnings per common share $ .007 $ .030
========== ==========
Average common shares and equivalents
outstanding for diluted earnings
per common share 13,001,995 13,380,521
========== ==========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,
2000 1999
Revenue:
Revenue telemarketing $ 1,606,089 $1,484,314
Income from tax liens, net - 784
Interest income 15,189 11,179
--------- ---------
Total revenues 1,621,278 1,496,277
Direct operating expenses 993,885 637,306
--------- ---------
Gross Profit 627,393 858,971
Costs & expenses:
Selling, general & administrative 513,129 523,870
Depreciation and amortization 65,749 37,621
Interest expense 15,759 9,885
--------- ---------
Total costs & expenses 594,637 571,376
--------- ---------
Income before income taxes 32,756 287,595
Provision for income taxes 12,000 125,380
-------- ---------
Net income $ 20,756 $162,215
======== =========
Basic earnings per common share $ .002 $ .014
======== ========
Average common shares outstanding 11,952,521 11,940,521
========== ==========
Diluted earnings per common share $ .002 $ .012
========== ==========
Average common shares and equivalents
outstanding for diluted earnings
per common share 12,899,420 13,380,521
========== ==========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
2000 1999
Cash flows from operating activities:
Net income $ 85,462 $400,189
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 194,993 97,518
Bad debts provision 46,400 23,000
Deferred income taxes (1,038) 83,225
Accounts receivable (63,300) (172,320)
Interest receivable (5,245) (6,812)
Inventory (32,923) -
Prepaid expense and other current
assets (26,258) 11,094
Other assets (4,780)
Accounts payable and accrued expenses 105,558 208,760
Deferred revenue 22,766 -
Accrued taxes (123,187) -
Customer deposits (41,100) -
-------- --------
Net cash provided by operating
activities 157,348 644,654
-------- --------
Cash flows used in investing activities:
Purchase of assets - (102,500)
Redemption of tax lien certificate 8,972 2,350
Exercise of employee stock options 1,800 -
Purchase of equipment ( 27,800) (92,276)
Net cash used in investing ------- -------
activities ( 17,028) (192,246)
------- -------
Cash flows from financing activities:
Notes receivable advances (17,126) -
Repayment of note to shareholder (26,630) (15,921)
Repayment of acquisition note (29,448) (7 743)
Repayment of capitalized lease
obligations (110,655) (57,468)
Net cash used in financing ------- -------
activities (183,859) (81,132)
------- -------
Net increase (decrease) in cash and
Cash equivalents (43,539) 371,096
Cash and cash equivalents at
beginning of period 1,235,380 1,125,039
--------- ---------
Cash and cash equivalents at
end of period $1,191,841 $1,496,135
========= =========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Corfacts, Inc. through its subsidiary (Metro Marketing, Inc.) is a leading
provider of inbound and outbound telemarketing services, on both a business
to business and business to consumer basis. Founded in 1983, as the Business
Journal of New Jersey, Inc., in 1990 the company changed its name to Corfacts,
Inc. The company is headquartered in Freehold, New Jersey and has 4 facilities
throughout the state of New Jersey.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the company's Annual Report on form 10-KSB for the year ended December 31,
1999.
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 at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Earnings per share - The Company computes earnings per share in accordance with
Statements of Financial Accounting Standards (SFAS) No. 128. Basic EPS
excludes dilution and is computed by dividing income available to common stock-
holders 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 resulted in the issuance of common stock that
then shared in the earnings of the entity. Common equivalent shares have been
excluded from the computation of diluted EPS since their affect is antidilutive.
Revenue Recognition - As required, the Company has adopted the Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statements, which provides guidance on applying
generally accepted accounting principles to revenue recognition based on the
interpretations and practices of the SEC. The Company recognizes revenues for
its services in accordance with SAB 101. Revenue is recognized when the company
has substantially accomplished what it must do to be entitled the benefits
represented by the revenues at which time no other significant obligations of
the Company exist. The Company does not expect that the adoption of SAB 101
will have a material impact on its results of operations or financial position.
Sales to one customer represent approximately 15% of revenues for the nine
months ended September 30, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of previously fixed stock options or awards, and
the accounting for exchange of stock compensation awards in a business
combination. FIN 44 was effective July 1, 2000. The Company adopted FIN 44
for the third quarter of 2000 and there was no material impact on the Company's
results of operations or financial position for such quarter.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 " Accounting for Certain Derivative
Instruments and Certain Hedging Activities an amendment of FAS 133" (FAS 138).
This statement amends the accounting and reporting standards for certain
derivative instruments and hedging activities. For an entity that has adopted
Statement of Financial Accounting Standards No. 133 prior to June 15, 2000,
FAS 138 is effective for all fiscal quarters beginning after June 15, 2000.
The Company adopted FAS 138 for the third quarter of 2000 and there was no
material impact on its results of operations or financial position for such
quarter.
NOTE 2 - RELATED PARTY TRANSACTIONS
Receivables have been generated by transactions with the President which total
$74,493. This note is secured by 2,414,316 shares of Company stock.
The Note Payable, generated by the purchase of Metro Marketing, Inc., is
payable to the Vice President and shareholder of the Company and bears an
interest rate of 7%. During the nine months ended September 30, 2000 and 1999,
interest expense on this note was $5,694 and $7,510 respectively.
Repurchase of Shares; Resignation of President - On October 17, 2000 Corfacts
entered into a Change of Affiliation Agreement with Lawrence Finkelstein. Mr.
Finkelstein was a founder of Corfacts, and had served as its chairman. Pursuant
to the change of Affiliation Agreement, Mr. Finkelstein has resigned from the
Board of Directors and from his position as chairman. He has signed an
employment Agreement to serve as Vice President of Marketing for Corfacts
through October 31, 2001. Ariel Freud has assumed the position of President
and sole Director of Corfacts. For further information, refer to Form 8-K
filed October 17, 2000.
NOTE 3 - 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.
Deferred taxes consist of the following at:
September 30, 2000
Total deferred tax assets $ 11,500
Less: Valuation allowance -
Deferred tax liability (28,237)
-------
Net deferred tax liability $ (16,737)
=======
Through September 30, 2000, utilization of net operating loss carryforwards
has been substantially reduced. Most of the deferred tax liability is
attributable to net operating loss carryforwards primarily related to fixed
assets.
The reconciliation of income tax computed at the U.S. Federal statutory rates
to income tax expense at September 30, 2000 and September 30, 1999 is as
follows:
Percentage of
Pretax Income
2000 1999
Tax at US statutory rates 34.0% 34.0%
State income taxes, net of
federal tax benefit 6.0% 6.0%
Other adjustments - (2.0%)
---- ----
Income tax provision 40.0% 42.0%
==== ====
CORFACTS, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
RESULTS OF OPERATIONS
Nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999
The Company is reporting net income of $85,462 on total revenues of $4,814,111
for the nine months ended September 30, 2000 as compared to net income of
$400,189 on total revenues of $4,094,864 for the comparable nine months ended
September 30, 1999.
Basic earnings per share for the nine months ended September 30, 2000 were
$0.007 as compared to basic earnings per share of $0.030 for the same period
in 1999.
Selling, general and administrative costs were $1,730,222 for the nine months
ended September 30, 2000 as compared to $1,416,328 for the nine months ended
September 30, 1999. The increase in selling, general and administrative
expenses is directly related to the additional sales, administrative and MIS
personnel needed for the growth in the custom telemarketing division.
Depreciation and amortization expense for the nine months ended September 30,
2000 was $194,993 as compared to $97,518 for the same period in 1999. This
increase in depreciation and amortization of $97,475 is attributable to the
purchase of additional equipment and furniture necessary for the Company's
expansion, as well as amortization related to the purchase of assets of the
Company's three acquisitions in 1999.
The Company recorded $39,517 in interest income for the nine months ended
September 30, 2000 as compared to interest income of $33,666 for the same
period last year.
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
The Company is reporting net income of $20,756 on total revenues of $1,621,278
for the quarter ended September 30, 2000 compared to net income of $162,215
on total revenues of $1,496,277 for the comparable three months ended September
30, 1999.
Basic income per share for the quarter ended September 30, 2000 were $.002
as compared to basic earnings per share of $.014 for the same quarter in 1999.
CORFACTS, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $999,260 at September 30, 2000, as compared
to $962,109 at December 31, 1999. Working capital has continued to grow,
despite the Company's acquisitions during 1999. The Company's inbound
acquisitions from 1999 have not shown any growth, however, this has had a
minimal effect on the Company's working capital.
Management is continually considering various additional equity funding
alternatives to increase its already positive working capital to further
support its planned acquisitions and improve the value of the Company for its
shareholders. To this end, the Board of Directors has authorized management,
if and when it deems appropriate, to purchase back for the Company's treasury,
shares of the Company's common stock when it feels the current market price
is under valued. The Board of Directors has also authorized management, as
market conditions permit, to undertake selective warrant programs to provide
incentives to market makers. The Company feels with the right combination of
capital, marketing assistance and management support it will be an attractive
parent company which can support the acquisition of additional subsidiaries,
while maintaining the current growth rate in its existing subsidiary.
FORWARD LOOKING AND OTHER STATEMENTS
Forward looking statements above and elsewhere in this report that suggest
that the Company will increase revenues, be 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
of 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.
CORFACTS, INC. & SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal proceedings:
None
Item 2. Changes in securities:
None
Item 3. Defaults upon senior securities:
None
Item 4. Submission of matters to a vote of security
holders:
None
Item 5. Other information:
None
Item 6. Exhibits and Reports on Form 8-K:
None
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.
November 14, 2000 /s/ Ariel Freud
Ariel Freud
President, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 2000 /s/ Ariel Freud
Ariel Freud
President, Chairman
