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, 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
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2478379
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(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
3499 Hwy. 9 No., Ste. 3B, Freehold, NJ 07728
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(Address of principal executive offices)
Registrants telephone number, including area code
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(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
September 30, 2001.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
September 30, 2001
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2001 3.
Consolidated Statements of Operations for the
three months and nine months ended September 30, 2001
and 2000 4.
Consolidated Statements of Cash Flows for the
nine months ended September 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 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
(Unaudited)
September 30, 2001
ASSETS
Current Assets
Cash and cash equivalents $1,012,545
Interest bearing deposits, restricted 31,017
Interest receivable 8,092
Accounts receivable, net of allowance for
bad debts of $72,500 540,742
Inventory 5,000
Prepaid expenses and other current assets 71,724
Note receivable 15,566
---------
Total Current Assets 1,684,686
---------
Property and equipment, at cost,
less accumulated depreciation of $486,176 430,499
Goodwill and customer lists, and covenant, net of
accumulated amortization of $220,184 282,524
Other assets
Deferred taxes 36,460
Security deposits 59,009
---------
Total Other Assets 95,469
---------
TOTAL ASSETS $2,493,178
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 372,993
Deferred revenue 90,000
Customer Deposits 65,000
Current portion of note payable - officers 160,348
Current portion of note payable - other 28,741
Current portion of capitalized lease obligations 169,246
---------
Total Current Liabilities 886,328
---------
Capitalized lease obligations, net of
current portion 89,291
Note payable - officers', net of current portion 482,396
Note payable - other, net of current portion 21,809
Deferred Taxes 78,693
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 648,809
Less: Treasury stock, 3,864,088 shares at cost (1,000,000)
TOTAL STOCKHOLDERS' EQUITY 934,661
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,493,178
=========
See notes to consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 2001 2000 2001
- -------------------------------------------------------------------------------
Revenue:
Revenue telemarketing $1,606,089 $1,551,225 $4,770,594 $4,668,130
Income from tax liens, net - - 4,000 -
--------- --------- --------- ---------
Total revenues 1,606,089 1,551,225 4,774,594 4,668,130
Direct operating expenses 993,885 810,955 2,694,748 2,527,992
--------- --------- --------- ---------
Gross Profit 612,204 740,270 2,079,846 2,140,138
Costs & expenses:
Selling, general &
administrative 513,129 526,889 1,730,222 1,512,488
Depreciation and amortization 65,749 65,730 194,993 197,060
--------- --------- --------- ---------
Total costs & expenses 578,878 592,619 1,925,215 1,709,548
--------- --------- --------- ---------
Income from operatons 33,326 147,651 154,631 430,590
Other (income)/expense:
Loss on disposal of equipment - 44,916 - 44,916
Interest (income) (15,189) (7,023) (39,517) (24,201)
Interest expense 15,759 20,304 50,986 67,267
--------- --------- --------- ---------
Total other expense 570 58,197 11,469 87,982
--------- --------- --------- ---------
Income before income taxes 32,756 89,454 143,162 342,608
Provision for income taxes 12,000 44,000 57,700 124,983
--------- --------- --------- ---------
Net income $ 20,756 $ 45,454 $ 85,462 $ 217,625
========= ========= ========= =========
Basic earnings per common
share $ .002 $ .006 $ .007 $ .027
========= ========= ========= =========
Average common shares
outstanding 11,952,521 8,088,433 11,952,521 8,088,433
========== ========== ========== =========
Diluted earnings per Common
share $ .002 $ .005 $ .007 $ .026
========== ========== ========== =========
Average common shares and
equivalents outstanding for
diluted earnings per common
share 12,899,420 8,344,058 13,001,995 8,344,058
========== ========== ========== =========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
2000 2001
- ------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 85,462 $ 217,625
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 194,993 197,060
Bad debts provision 46,400 22,500
Loss on disposal of equipment - 44,916
Loss on tax lien certificates - 3,655
Deferred income taxes (1,038) 18,759
Changes in assets and liabilties:
Accounts receivable (63,300) (194,773)
Interest receivable (5,245) 1,557
Inventory (32,923) 35,986
Prepaid income taxes (123,187) 165,000
Prepaid expense and other current
assets (26,258) (52,214)
Other assets (4,780) 6,200
Accounts payable and accrued expenses 105,558 (90,249)
Deferred revenue 22,766 (33,496)
Customer Deposits (41,100) (32,474)
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Net cash provided by operating activities 157,348 310,052
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Cash flows used in investing activities:
Redemption of tax lien certificate 8,972 -
Exercise of employee stock options 1,800 -
Purchase of equipment (27,800) (1,956)
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Net cash used in investing activities (17,028) (1,956)
------- --------
Cash flows from financing activities:
Notes receivable advances (17,126) 18,192
Repayment of note to shareholder (26,630) (28,543)
Repayment of acquisition notes (29,448) (31,776)
Repayment of capitalized lease
obligations (110,655) (128,772)
Net cash used in financing ------- --------
activities (183,859) (170,899)
------- --------
Net increase (decrease) in cash and
Cash equivalents (43,539) 137,197
Cash and cash equivalents at
beginning of period 1,235,380 875,348
--------- ---------
Cash and cash equivalents at
end of period $1,191,841 $1,012,545
========= =========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 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 nine-
month period ended September 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 nine months ended September 30, 2001 and 2000,
interest expense on this note was $3,747 and $5,694, 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 nine
months ended September 30, 2001 and 2000, interest expense on this note was
$30,503 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:
September 30, 2001
Total deferred tax assets $ 36,460
Less: Valuation allowance -
Deferred tax liability (78,693)
------
Net deferred tax liability $ 42,733
======
The reconciliation of income tax computed at the U.S. Federal statutory rates
to income tax expense at September 30, 2001 and September 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 (4.0)% (0.0)%
----- -----
Income tax provision 36.0 % 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
Nine months ended September 30, 2001 compared to the nine months ended
September 30, 2000
The Company is reporting net income of $217,625 on total revenues of
$4,668,130 for the nine months ended September 30, 2001 as compared to net
income of $85,462 on total revenues of $4,774,594 for the comparable nine
months ended September 30, 2000.
Basic earnings per share for the nine months ended September 30, 2001 were
$.027 as compared to basic earnings per share of $0.007 for the same period
in 2000.
Selling, general and administrative costs were $1,512,488 for the nine months
ended September 30, 2001 as compared to $1,730,222 for the nine months ended
September 30, 2000. Selling, general and administrative expenses were reduced
by $217,734, or approximately 12%. 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
nine months ended September 30, 2001 was $197,060 as compared to $194,993 for
the same period in 2000.
The Company recorded a loss on the disposal of idle telephone equipment.
This equipment was no longer in service and is no longer supported by the
manufacturer. There was no corresponding item for the nine months ended
September 30, 2000.
The Company recorded $24,201 in interest income for the nine months ended
September 30, 2001 as compared to interest income of $39,517 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 nine months ended September 30, 2001 was
$67,267 as compared to $50,986 for the nine months ended September 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 September 30, 2001 compared to the three months ended
September 30, 2000
The Company is reporting net income of $ 45,454 on total revenues of
$1,551,225 for the three months ended September 30, 2001 as compared to net
income of $20,756 on total revenues of $1,606,089 for the comparable three
months ended September 30, 2000.
Basic earnings per share for the three months ended September 30, 2001 were
$.006 as compared to a basic loss per share of $0.002 for the same period in
2000.
Selling, general and administrative costs were $526,889 for the three months
ended September 30, 2001 as compared to $513,129 for the three months ended
September 30, 2000. Depreciation and amortization expense for the three
months ended September 30, 2001 was $65,730 as compared to $65,749 for the
same period in 2000.
The Company recorded a loss on the disposal of idle telephone equipment.
This equipment was no longer in service and is no longer supported by the
manufacturer. There was no corresponding item for the three months ended
September 30, 2000.
The Company recorded $7,023 in interest income for the three months ended
September 30, 2001 as compared to interest income of $15,189 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 September 30, 2001 was
$20,304 as compared to $15,759 for the three months ended September 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $798,358 at September 30, 2001, as compared
to $611,569 at December 31, 2000. The profitability of the nine-month period
has enabled the Company to increase its working capital by $186,789.
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 that 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:
The Company, its Vice President and a management employee were
defendants in a lawsuit filed by a former employee of the Company
for alleged improper termination. The defendant settled this
lawsuit for a nominal amount.
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, 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.
November 14, 2001 /s/ Ariel Freud
Ariel Freud
President, Chairman