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, 2002
[ ] 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
------------------------------- ----------------------
(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: (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, 2002.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
March 31, 2002
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2002 3.
Consolidated Statements of Operations for the
three months ended March 31, 2002 and 2001 4.
Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001 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)
March 31, 2002
ASSETS
Current Assets
Cash and cash equivalents $1,589,129
Interest receivable 6,416
Accounts receivable, net of allowance for
bad debts of $106,260 661,867
Note receivable 1,516
Prepaid expenses and other current assets 64,301
Other receivable municipal tax liens and
Accrued interest net of estimated
Disposition costs of $6,155 -
---------
Total Current Assets 2,323,229
---------
Property and equipment, at cost,
less accumulated depreciation of $448,302 476,567
Goodwill and customer lists, and covenant, net of
accumulated amortization of $181,065 171,018
Other assets
Security deposits 59,983
Deferred taxes 24,533
---------
Total Other Assets 84,516
---------
TOTAL ASSETS $3,055,330
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 506,250
Deferred revenue 263,000
Customer deposits 40,000
Income taxes payable 36,509
Current portion of note payable - officers 165,937
Current portion of note payable - other 29,909
Current portion of capitalized lease obligations 163,214
---------
Total Current Liabilities 1,204,819
---------
Capitalized lease obligations, net of
current portion 117,140
Note payable - officers', net of current portion 403,701
Note payable - other, net of current portion 5,221
Deferred Taxes 83,624
Stockholders' equity
Common stock, no par value, 20,000,000 shares
authorized; 8,088,433 shares issued and
outstanding in 2002 1,285,852
Retained earnings 954,973
Less: Treasury stock, 3,864,088 shares at cost (1,000,000)
---------
TOTAL STOCKHOLDERS' EQUITY 1,240,825
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,055,330
=========
See notes to consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
2001 2002
------------------
Revenue:
Net sales of telemarketing services $ 1,667,960 $ 2,500,307
--------- ---------
Total revenues 1,667,960 2,500,307
--------- ---------
Direct operating expenses 866,798 1,250,797
--------- ---------
Gross Profit 801,162 1,249,510
Costs & expenses:
Selling, general & administrative 489,255 785,445
Depreciation and amortization 65,633 52,326
--------- ---------
Total costs & expenses 554,888 837,771
Income from operations 246,274 411,739
Other income/(expense)
Interest income 8,322 8,406
Interest expense (24,271) (19,083)
--------- ---------
Total other income/(expense) (15,949) (10,677)
--------- ---------
Income before income taxes 230,325 401,062
Provision for income taxes (71,631) (162,800)
--------- ---------
Net income $ 158,694 $ 238,262
========= =========
Basic earnings per common share $ .020 $ .029
========= =========
Weighted Average common shares outstanding 8,088,433 8,088,433
========= =========
Diluted earnings per common share $ .019 $ .028
========= =========
Weighted Average common shares and equivalents
outstanding for diluted earnings
per common share 8,416,766 8,470,933
========= =========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
2001 2002
------------------
Cash flows from operating activities:
Net income $ 158,694 $ 238,262
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 65,633 52,326
Bad debts provision 36,202 7,500
Deferred income taxes 39,631 5,400
Accounts receivable (22,093) 271,696
Interest receivable 5,782 (2,925)
Inventory 28,264 -
Prepaid Income Taxes 40,000 -
Prepaid expense and other current
assets (23,974) (49,664)
Accounts payable and accrued expenses (88,454) (80,198)
Deferred revenue (75,996) (36,300)
Customer Deposits (47,474) (34,239)
Income taxes payable - (62,554)
-------- --------
Net cash provided by operating
activities 116,215 309,304
-------- --------
Cash flows used in investing activities:
Purchase of equipment - (13,688)
-------- --------
Net provided by (used in) investing
activities - (13,688)
-------- --------
Cash flows from financing activities:
Notes receivable advances 11,247 12,717
Repayment of note to shareholder (9,350) (42,148)
Repayment of acquisition notes (10,392) (7,113)
Repayment of capitalized lease
obligations (39,702) (49,884)
Net cash used in financing -------- --------
activities (48,197) (86,428)
-------- --------
Net increase (decrease) in cash and
Cash equivalents 68,018 209,188
Cash and cash equivalents at
beginning of period 875,348 1,379,941
-------- ---------
Cash and cash equivalents at
end of period $ 943,366 $ 1,589,129
======== =========
See notes to the consolidated financial statements.
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2002
(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.
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 March 31, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002. 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, 2001.
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 has implemented
these rules during 2001. This standard has had no effect on the current years
financial statements.
In October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." FAS No. 144 provides guidance on the
accounting for the impairment or disposal of long-lived assets. The objectives
of FAS No. 144 are to address issues relating to the implementation of FAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", and to develop a model for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
FAS No. 144 was effective for Corfacts commencing with its 2002 fiscal year.
Upon adoption, this accounting pronouncement did not have a significant
impact on the company's financial position or results of operations.
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, 2002 and 2001, interest
expense on this note was $732 and $1,416, respectively.
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, 2002
and 2001, interest expense on this note was $9,611 and $10,168, 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, 2002
--------------
Total deferred tax assets $ 24,533
Less: Valuation allowance -
Deferred tax liability (83,624)
------
Net deferred tax liability $(59,091)
======
The reconciliation of income tax computed at the U.S. Federal statutory rates
to income tax expense at March 31, 2002 and March 31, 2001 is as follows:
Percentage of
Pretax Income
2002 2001
-------------------
Tax at US statutory rates 34.0 % 34.0 %
State income taxes, net of
federal tax benefit 6.0 % 6.0 %
Other adjustments .6 % (4.0)%
---- ----
Income tax provision 40.6 % 36.0 %
==== ====
NOTE 4 - EARNINGS PER SHARE OF COMMON STOCK
The following reconciles amounts reported in the financial statements:
For the three months ended March 31, 2001 2002
Weighted-average number of shares on which
earnings per share calculations are based:
Basic 8,088,433 8,088,433
Add - incremental shares under stock
option plans 328,333 382,500
--------- ---------
Assuming dilution 8,416,766 8,470,933
========= =========
Net income applicable to
common stockholders $ 158,694 $ 238,262
======= =======
Net income on which diluted earnings
per share is calculated $ 158,694 $ 238,262
======= =======
Earnings per share of common stock:
Basic $ .020 $ .029
===== =====
Assuming dilution $ .019 $ .028
===== =====
Stock options to purchase 375,000 and 130,000 common shares in 2001 and 2002
respectively, were outstanding, but were not included in the computation of
diluted earnings per share because the exercise price of the options was
greater than the average market price of the common shares and, therefore
the effect would have been antidilutive.
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, 2002 compared to the three months ended March
31, 2001
The Company is reporting net income of $238,262 on total revenues of
$2,500,307 for the three months ended March 31, 2002 as compared to net
income of $158,694 on total revenues of $1,667,960 for the comparable three
months ended March 31, 2001.
Basic earnings per share for the three months ended March 31, 2002 were
$0.029 as compared to basic earnings per share of $0.020 for the same period
in 2001.
Selling, general and administrative costs were $785,445 for the three months
ended March 31, 2002 as compared to $489,255 for the three months ended March
31, 2001. During the current three months ended March 31, 2002, selling,
general and administrative expenses increased slightly as a percent of sales
to 31% as compared to 29% for the three months ended March 31, 2001.
Depreciation and amortization expense for the three months ended March 31,
2002 was $52,326 as compared to $65,633 for the same period in 2001.
Depreciation and amortization expense decreased $13,307 for the period as
compared to the three months ended March 31, 2001 mainly due to the impairment
of goodwill taken during the year ended December 31, 2001.
The Company recorded $8,406 in interest income for the three months ended
March 31, 2002 as compared to interest income of $8,322 for the same period
last year.
Interest expense for the three months ended March 31, 2002 was $19,083 as
compared to $24,271 for the three months ended March 31, 2001.
CORFACTS, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,118,410 at March 31, 2002, as compared
to $891,554 at December 31, 2001. The profitability of the first quarter of
2002 has enabled the Company to increase its working capital by $226,856.
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, 2002 /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, 2002 /s/ Ariel Freud
------------------
Ariel Freud
President, Chairman