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 June 30, 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 June 30, 2001.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
June 30, 2001
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 2001 3.
Consolidated Statements of Operations for the
three months and six months ended June 30, 2001
and 2000 4.
Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8.
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
(Unaudited)
June 30, 2001
ASSETS
Current Assets
Cash and cash equivalents $ 761,820
Interest bearing deposits, restricted 31,017
Interest receivable 8,167
Accounts receivable, net of allowance for
bad debts of $89,649 455,772
Inventory 12,722
Prepaid expenses and other current assets 61,057
Note receivable 19,306
Prepaid and refundable income taxes 107,914
Other receivable-municipal tax liens, net 3,655
---------
Total Current Assets 1,461,430
---------
Property and equipment, at cost,
less accumulated depreciation of $464,267 523,316
Goodwill and customer lists, and covenant, net of
accumulated amortization of $202,355 300,353
Other assets
Deferred taxes 43,960
Security deposits 62,209
---------
Total Other Assets 106,169
---------
TOTAL ASSETS $2,391,268
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 291,414
Deferred revenue 65,000
Customer Deposits 40,000
Current portion of note payable - officers 126,372
Current portion of note payable - other 33,468
Current portion of capitalized lease obligations 149,173
---------
Total Current Liabilities 705,427
---------
Capitalized lease obligations, net of
current portion 154,014
Note payable - officers', net of current portion 526,051
Note payable - other, net of current portion 27,876
Deferred Taxes 88,693
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 603,355
Less: Treasury stock, 3,864,088 shares at cost (1,000,000)
---------
TOTAL STOCKHOLDERS' EQUITY 889,207
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,391,268
=========
See notes to consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2000 2001 2000 2001
- --------------------------------------------------------------------------
Revenue:
Revenue telemarketing $1,509,042 $1,448,945 $3,164,505 $3,116,905
Income from tax liens, net 4,000 - 4,000 -
Interest income 13,033 8,856 24,328 17,178
---------------------------------------------
Total revenues 1,526,075 1,457,801 3,192,833 3,134,083
Direct operating expenses 855,548 850,239 1,700,863 1,717,037
--------------------------------------------
Gross Profit 670,527 607,562 1,491,970 1,417,046
Costs & expenses:
Selling, general &
administrative 600,373 496,344 1,217,093 985,599
Depreciation and amortization 64,623 65,697 129,244 131,330
Interest expense 17,272 22,692 35,227 46,963
--------------------------------------------
Total costs & expenses 682,268 584,733 1,381,564 1,163,892
--------------------------------------------
Loss (income) before
income taxes (11,741) 22,829 110,406 253,154
(Benefit from) provision
for income taxes (3,300) 9,352 45,700 80,983
--------------------------------------------
Net (loss) income $ (8,441) $ 13,477 $ 64,706 $ 172,171
============================================
Basic (loss) earnings per
common share $ (.001) $ .002 $ .005 $ .021
============================================
Average common shares
outstanding 11,946,521 8,088,433 11,946,521 8,088,433
==============================================
Diluted (loss) earnings per
Common share $ (.001) $ .002 $ .005 $ .020
=============================================
Average common shares and
equivalents outstanding for
diluted earnings per
common share 13,062,612 8,416,766 13,062,612 8,416,766
==============================================
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
2000 2001
Cash flows from operating activities:
Net income $ 64,706 $ 172,171
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 129,244 122,018
Bad debts provision 31,400 43,702
Deferred income taxes 3,122 21,259
Changes in assets and liabilties:
Accounts receivable 28,210 (56,693)
Interest receivable (8,510) 1,482
Inventory - 28,264
Prepaid Income Taxes (130,347) 57,086
Prepaid expense and other current
assets 12,313 (41,547)
Other assets 1,185 3,000
Accounts payable and accrued expenses (18,048) (236,828)
Deferred revenue 18,302 (58,496)
Customer Deposits (24,983) (57,474)
-------- --------
Net cash provided by (used in)
Operating activities 106,594 (2,056)
-------- --------
Cash flows used in investing activities:
Redemption of tax lien certificate 8,972 -
Exercise of employee stock options 900 -
Purchase of equipment (5,401) (1,956)
-------- --------
Net cash provided by (used in)
investing activities 4,471 (1,956)
-------- --------
Cash flows from financing activities:
Notes receivable advances (21,935) 14,452
Repayment of note to shareholder (17,599) (18,864)
Repayment of acquisition notes (19,445) (20,982)
Repayment of capitalized lease
obligations (75,129) (84,122)
-------- -------
Net cash used in financing
activities (134,108) (109,516)
-------- -------
Net decrease in cash and cash
equivalents (23,043) (113,528)
Cash and cash equivalents at
beginning of period 1,235,380 875,348
--------- --------
Cash and cash equivalens at
end of period $1,212,337 $ 761,820
========= ========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2001
(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 six-month period ended June 30, 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.
In July 2001, the Financial Accounting Standards Board issued FAS No. 141,
"Business Combinations" and FAS No. 142, "Goodwill and Other Intangible
Assets. "FAS 141 supercedes Accounting Principles Bulletin No. 16,
"Business Combinations" and FAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." FAS 142 supercedes Accounting
Principles Bulletin No. 17, "Intangible Assets." These statements require
use of the purchase method of accounting for all business combinations
initiated after June 30, 2001, thereby eliminating use of the pooling-of-
interests method. Goodwill will no longer be amortized but will be tested
for impairment. Additionally, new criteria have been established that
determine whether an acquired intangible asset should be recognized
separately from goodwill. The statements are effective for business
combinations initiated after June 30, 2001 with the entire provisions of
FAS 141 and FAS 142 becoming effective for Corfacts commencing with its
2002 fiscal year. Corfacts is currently evaluating the impact these
statements will have on its results of operations and financial position.
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 six months ended June 30, 2001 and 2000, interest
expense on this note was $2,666 and $5,154, 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 six
months ended June 30, 2001 and 2000, interest expense on this note was
$20,335 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:
June 30, 2001
Total deferred tax assets $ 43,960
Less: Valuation allowance -
Deferred tax liability (88,693)
------
Net deferred tax liability $ 44,733
======
The reconciliation of income tax computed at the U.S. Federal statutory rates
to income tax expense at June 30, 2001 and June 30, 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
Six months ended June 30, 2001 compared to the six months ended June 30, 2000
The Company is reporting net income of $172,171 on total revenues of
$3,134,083 for the six months ended June 30, 2001 as compared to net income
of $64,706 on total revenues of $3,192,833 for the comparable six months ended
June 30, 2000.
Basic earnings per share for the six months ended June 30, 2001 were $.021 as
compared to basic earnings per share of $0.005 for the same period in 2000.
Selling, general and administrative costs were $985,599 for the six months
ended June 30, 2001 as compared to $1,217,093 for the six months ended June
30, 2000. Selling, general and administrative expenses were reduced by
$231,494, or approximately 19%. 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
six months ended June 30, 2001 was $131,330 as compared to $129,244 for the
same period in 2000.
The Company recorded $17,178 in interest income for the six months ended June
30, 2001 as compared to interest income of $24,328 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 six months ended June 30, 2001 was $46,963 as
compared to $35,227 for the six months ended June 30, 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.
Three months ended June 30, 2001 compared to the three months ended June 30,
2000
The Company is reporting net income of $13,477 on total revenues of $1,457,801
for the three months ended June 30, 2001 as compared to a net loss of $8,441
on total revenues of $1,526,075 for the comparable three months ended June
30, 2000.
Basic earnings per share for the three months ended June 30, 2001 were $.002
as compared to a basic loss per share of $0.001 for the same period in 2000.
Selling, general and administrative costs were $496,344 for the three months
ended June 30, 2001 as compared to $600,373 for the three months ended June
30, 2000. Selling, general and administrative expenses were reduced by
$104,029, or approximately 17.5%. 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 June 30, 2001 was $65,697 as compared to $64,623 for the
same period in 2000.
The Company recorded $8,856 in interest income for the three months ended
June 30, 2001 as compared to interest income of $13,033 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 June 30, 2001 was $22,692 as
compared to $17,272 for the three months ended June 30, 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.
CORFACTS, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $756,003 at June 30, 2001, as compared to
$611,569 at December 31, 2000. The profitability of the six-month period has
enabled the Company to increase its working capital by $133,229.
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.
August 14, 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.
August 14, 2001 /s/ Ariel Freud
Ariel Freud
President, Chairman