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 March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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]
Registrant had 8,088,433 shares of Common Stock, no par value, outstanding
on March 31, 2001.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
March 31, 2001
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2001 3.
Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000 4.
Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9.
PART II - OTHER INFORMATION 11.
Item 1. Legal Proceedings 11.
Item 2. Changes in Securities 11.
Item 3. Defaults Upon Senior Securities 11.
Item 4. Submission of Matters to a Vote of Securityholders 11.
Item 5. Other Information 11.
Item 6. Exhibits and Reports on Form 8-K 11.
Signatures 12.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORFACTS, INC. & SUBSIDIARY
BALANCE SHEET
March 31, 2001
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 943,366
Interest bearing deposits, restricted 31,017
Interest receivable 3,867
Accounts receivable, net of allowance for
bad debts of $105,399 321,886
Inventory 12,722
Prepaid expenses and other current assets 43,484
Note receivable 22,511
Prepaid and refundable income taxes 125,000
Other receivable-municipal tax liens, net 3,655
---------
Total Current Assets 1,507,508
---------
Property and equipment, at cost,
less accumulated depreciation of $416,399 569,228
Goodwill and customer lists, and covenant, net of
accumulated amortization of $184,526 318,182
Other assets
Deferred taxes 34,313
Security deposits 65,209
---------
Total Other Assets 99,522
---------
TOTAL ASSETS $2,494,440
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 342,314
Deferred revenue 47,500
Customer Deposits 50,000
Current portion of note payable - officers 92,983
Current portion of note payable - other 28,402
Current portion of capitalized lease obligations 134,067
---------
Total Current Liabilities 695,266
---------
Capitalized lease obligations, net of
current portion 213,540
Note payable - officers', net of current portion 568,954
Note payable - other, net of current portion 43,532
Deferred Taxes 97,418
Stockholders' equity
Common stock, no par value, 20,000,000 shares
authorized; 8,088,433 shares issued and
outstanding in 2001 1,285,852
Retained earnings 589,878
Less: Treasury stock, 3,864,088 shares at cost (1,000,000)
TOTAL STOCKHOLDERS' EQUITY 875,730
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,494,440
=========
See notes to consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
2000 2001
--------------------
Revenue:
Revenue telemarketing $ 1,655,463 $ 1,667,960
Interest income 11,295 8,322
--------- ---------
Total revenues 1,666,758 1,676,282
Direct operating expenses 845,315 866,798
--------- ---------
Gross Profit 821,443 809,484
Costs & expenses:
Selling, general & administrative 616,720 489,255
Depreciation and amortization 64,621 65,633
Interest expense 17,955 24,271
--------- ---------
Total costs & expenses 699,296 579,159
--------- ---------
Income before income taxes 122,147 230,325
Provision for income taxes (49,000) (71,631)
--------- ---------
Net income $ 73,147 $158,694
========= =========
Basic earnings per common share $ .006 $ .020
Average common shares outstanding 11,940,521 8,088,433
Diluted earnings per common share $ .006 $ .019
Average common shares and equivalents
outstanding for diluted earnings
per common share 13,068,484 8,416,766
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
2000 2001
-------------------
Cash flows from operating activities:
Net income $ 73,147 $ 158,694
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 64,621 65,633
Bad debts provision 17,000 36,202
Deferred income taxes 3,122 39,631
Accounts receivable 37,025 (22,093)
Interest receivable (3,530) 5,782
Inventory - 28,264
Prepaid Income Taxes (73,208) 40,000
Prepaid expense and other current
assets 4,152 (23,974)
Other assets (3,317) -
Accounts payable and accrued expenses (64,462) (88,454)
Deferred revenue (3,800) (75,996)
Customer Deposits - (47,474)
------- -------
Net cash provided by operating
activities 50,750 116,215
------- -------
Cash flows used in investing activities:
Redemption of tax lien certificate 4,069 -
Exercise of employee stock options -
Purchase of equipment (2,878) -
Net provided by (used in) investing ------- -------
activities 1,191 -
------- -------
Cash flows from financing activities:
Notes receivable advances (7,746) 11,247
Repayment of note to shareholder (8,723) (9,350)
Repayment of acquisition notes (9,630) (10,392)
Repayment of capitalized lease
obligations (33,985) (39,702)
Net cash used in financing ------- -------
activities (60,084) (48,197)
------- -------
Net increase (decrease) in cash and
Cash equivalents (8,143) 68,018
Cash and cash equivalents at
beginning of period 1,235,380 875,348
--------- --------
Cash and cash equivalents at
end of period $1,227,237 $ 943,366
========= ========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 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 three-month period ended March 31, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001. 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, 2000.
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
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 resulted in the issuance of common stock that
then shared in the earnings of the entity.
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.
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.
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.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Note Payable, generated by the purchase of Metro Marketing, Inc., is
payable to the President and shareholder of the Company and bears an interest
rate of 7%. During the three months ended March 31, 2001 and 2000, interest
expense on this note was $1,416 and $2,054 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. The Note Payable generated by the Repurchase of
Shares from the Vice President bears an interest rate of 7%. During the
three months ended March 31, 2001 and 2000, interest expense on this note
was $10,168 and $0, respectively.
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:
March 31, 2001
Total deferred tax assets $ 34,313
Less: Valuation allowance -
Deferred tax liability (97,418)
-------
Net deferred tax liability $(63,105)
=======
The reconciliation of income tax computed at the U.S. Federal statutory rates
to income tax expense at March 31, 2001 and March 31, 2000 is as follows:
Percentage of
Pretax Income
2001 2000
------------------
Tax at US statutory rates 34.0 % 34.0 %
State income taxes, net of
federal tax benefit 6.0 % 6.0 %
Other adjustments (9.0)% (0.0)%
----- -----
Income tax provision 31.0 % 40.0 %
===== =====
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
Three months ended March 31, 2001 compared to the three months ended
March 31, 2000
The Company is reporting net income of $158,694 on total revenues of
$1,676,282 for the three months ended March 31, 2001 as compared to net
income of $73,147 on total revenues of $1,666,758 for the comparable three
months ended March 31, 2000.
Basic earnings per share for the three months ended March 31, 2001 were
$0.020 as compared to basic earnings per share of $0.006 for the same period
in 2000.
Selling, general and administrative costs were $489,255 for the three months
ended March 31, 2001 as compared to $616,720 for the three months ended March
31, 2000. Selling, general and administrative expenses were reduced by
$127,465, or approximately 21%. The Company has reduced sales expenses by
downsizing the outside sales force that was established early last year.
Management feels that the sales generated by these efforts did not justify
the increased sales expenses. Depreciation and amortization expense for the
three months ended March 31, 2001 was $65,633 as compared to $64,621 for the
same period in 2000.
The Company recorded $8,322 in interest income for the three months ended
March 31, 2001 as compared to interest income of $11,295 for the same period
last year. This decrease in interest income is attributable to lower
interest rates available on short-term investments. In addition, the Company
had a reduction in cash during the last quarter of 2000 due to the down
payment made to the former President of the Company for the buyback of his
shares. Interest expense for the three months ended March 31, 2001 was
$24,271 as compared to $17,955 for the three months ended March 31, 2000.
The increase in interest expense is directly attributable to the note payable
due to the former President for the buyback of his 3.8 million shares, as
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $812,242 at March 31, 2001, as compared to
$611,569 at December 31, 2000. The profitability of the first quarter has
enabled the Company to increase its working capital by $200,673.
Management is continually considering various equity funding and future
acquisition alternatives to increase its already positive working capital,
tempered by the volatile changes in the capital markets. 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.
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.
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.
May 15, 2001 /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.
May 15, 2001 /s/ Ariel Freud
Ariel Freud
President, Chairman