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, 1998
( ) 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)
41 East Main Street, Freehold, NJ 07728
----------------------------------------
(Address of principal executive offices)
Registrant s 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 x No
The number of shares outstanding of the registrant s common
stock, no par value, at June 30, 1998 is 11,909,402.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
June 30, 1998
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1998 3.
Consolidated Statements of Operations for the
six months ended June 30, 1998 and 1997 5.
Consolidated Statements of Operations for the
three months ended June 30, 1998 and 1997 6.
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 7.
Notes to Consolidated Financial Statements 8.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11.
PART II - OTHER INFORMATION 15.
Item 1. Legal Proceedings 15.
Item 2. Changes in Securities 15.
Item 3. Defaults Upon Senior Securities 15.
Item 4. Submission of Matters to a Vote of
Securityholders 15.
Item 5. Other Information 15.
Item 6. Exhibits and Reports on Form 8-K 15.
Signatures 16.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORFACTS, INC. & SUBSIDIARY
BALANCE SHEET
June 30, 1998
ASSETS
Current Assets
Cash and cash equivalents $1,062,397
Interest bearing deposits, restricted 36,250
Interest receivable 3,500
Accounts receivable, net of allowance for
bad debts of $11,200 109,932
Prepaid expenses 22,404
Other receivable-municipal tax liens, net 20,680
Deferred taxes 42,200
---------
Total Current Assets 1,297,363
---------
Property and equipment, at
cost, less accumulated depreciation of $53,524 119,349
Other assets
Loan receivable, officer 107,244
Investment in partnership 2,166
Customer lists, net of accumulated
amortization of $38,003 100,792
Goodwill, net of accumulated amortization
of $15,532 123,263
Security deposits 8,163
---------
Total Other Assets 341,628
---------
TOTAL ASSETS $1,758,340
==========
CORFACTS, INC. & SUBSIDIARY
BALANCE SHEET (continued)
June 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 172,737
Deferred revenue 3,831
Income taxes payable 1,875
Deferred taxes 13,000
Current portion of note payable - shareholder 16,707
Current portion of capitalized lease obligations 40,716
---------
Total Current Liabilities 248,866
Capitalized lease obligations, net of current
portion 17,304
Note payable - shareholder, net of current portion 134,678
--------
151,982
Stockholders' equity
Common stock, no par value, 20,000,000 shares
authorized; 11,909,402 shares issued and
outstanding in 1998 1,281,573
Retained earnings 75,919
---------
TOTAL STOCKHOLDERS' EQUITY 1,357,492
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,758,340
==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
Six months ended
June 30,
1998 1997
-----------------------
Revenue
Revenue telemarketing $1,661,024 $1,007,674
Income from tax liens, net 1,150 2,975
Interest income 20,955 8,122
--------- ---------
Total revenues 1,683,129 1,018,771
Direct operating expenses 776,658 608,502
--------- ---------
Gross Profit 906,471 410,269
Costs & expenses
General & administrative 481,244 216,336
Depreciation and amortization 30,024 22,349
Interest expense 10,417 9,482
-------- ---------
Total costs & expenses 521,685 248,167
-------- ---------
Income before income taxes 384,786 162,102
Provision for income taxes 166,800 12,868
-------- --------
Net income $217,986 $149,234
======== ========
Basic earnings per common share $ .018 $ .013
======== ========
Average common shares outstanding 11,909,402 11,909,402
========== ==========
Diluted earnings per common share $ .017 $ .013
======== ========
Average common shares and equivalents
outstanding for diluted earnings
per common share 12,617,402 11,909,402
========== ==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
Three months ended
June 30,
1998 1997
---------------------
Revenue
Revenue telemarketing $ 798,848 $ 573,328
Income from tax liens, net 500 1,850
Interest income 11,338 3,916
------- -------
Total revenues 810,686 579,094
Direct operating expenses 415,142 348,806
------- -------
Gross Profit 395,544 230,288
Costs & expenses
General & administrative 247,542 119,894
Depreciation and amortization 15,147 11,371
Interest expense 5,057 5,135
------- -------
Total costs & expenses 267,746 136,400
Income before income taxes 127,798 93,888
Provision for income taxes 53,700 7,953
-------- --------
Net income $ 74,098 $ 85,935
======== ========
Basic earnings per common share $ .006 $ .007
======== ========
Average common shares outstanding 11,909,402 11,909,402
========== ==========
Diluted earnings per common share $ .006 $ .007
======== ========
Average common shares and equivalents
outstanding for diluted earnings
per common share 12,617,402 11,909,402
========== ==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
Six months ended
June 30,
1998 1997
------------------
Cash flows from operating activities:
Net income $217,986 $149,234
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 30,024 22,349
Bad debts provision 13,015 7,134
Deferred income taxes 165,000 -
Increase in accounts receivable (70,392) (14,751)
Increase in prepaid expenses (5,918) (19,012)
(Increase) decrease in other assets 10,003 (4,657)
Increase (decrease) in accounts payable
and other liabilities (51,556) 30,416
Net cash provided by operating ------- -------
activities 308,162 170,713
------- -------
Cash flows from investing activities:
Redemption of (income from) tax
lien certificates (700) 4,880
Increase in investment - (50)
Purchase of equipment (15,496) -
Net cash (used in) provided by ------- -------
investing activities (16,196) 4,830
------- -------
Cash flows from financing activities:
Repayment of capitalized lease
obligations (16,476) (19,239)
Repayment from buyer - 5,448
------- -------
Net cash used in financing activities (16,476) (13,791)
------- -------
Net increase (decrease) in cash and
cash equivalents 275,490 161,752
Cash and cash equivalents at
beginning of period 786,907 406,296
Cash and cash equivalents at --------- --------
end of period $1,062,397 $568,048
========== ========
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial
statements included herein have been prepared by Corfacts, Inc.
(the "Company"), without audit, in accordance with generally
accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented
not misleading.
In the opinion of management, the information furnished for
the six month period ended June 30, 1998 and 1997 includes all
adjustments, consisting solely of normal recurring accruals
necessary for a fair presentation of the financial results for
the respective interim periods and is not necessarily
indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1998. It is suggested
that the interim financial statements be read in conjunction
with the audited consolidated financial statements for the year
ended December 31, 1997, as filed with the Securities and
Exchange Commission on Form 10-KSB (Commission File
Number 0-17394).
NOTE 2 - NATURE OF BUSINESS
Corfacts, Inc. was organized in 1983, originally as the
Business Journal of New Jersey, Inc. Since selling the
magazine business in 1990, and discontinuance and sale of the
information division in August 1991, the Company has directed
its efforts to seek potential acquisitions and investments
deemed appropriate for the Company to generate a return on
equity.
On December 31, 1996 the Company entered into a merger and
acquisition plan to acquire all of the shares and assets of
Metro Marketing, Inc. a telemarketing firm, effective July 1,
1996. The Company issued 3,904,088 shares of common stock and
a promissory note in the sum of $151,385. The accompanying
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. Intercompany
transactions and balances have been eliminated in
consolidation.
NOTE 3 - DUE FROM RELATED PARTIES
Receivables have been generated by transactions with the
President which total $107,244. No interest has been charged
on these amounts during the period as the officer has generally
waived his right to auto expense reimbursement. 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% and totaled $151,385 at June
30, 1998. Interest expense on this note was $5,298 and $5,298
for the six months ended June 30, 1998 and 1997, respectively.
NOTE 4 - DURING THE YEAR, THE COMPANY ADOPTED FASB STATEMENT
NO. 130 - REPORTING COMPREHENSIVE INCOME
Statement No. 130 requires the reporting of comprehensive
income and its components in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain
financial information that historically has not been recognized
in the calculation of net income. To date, FASB Statement No.
130 does not have a material effect on the Company's financial
position or the results of operations.
NOTE 5 - 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, 1998
-------------
Total deferred tax assets $ 42,200
Less: Valuation allowance -
Deferred tax liability (13,000)
----------
Net deferred tax assets $ 29,200
==========
Deferred tax assets are attributable to available net operating
loss carryforwards. The valuation allowance was decreased by
$235,100 during the fourth quarter of 1997.
The reconciliation of income tax computed at the U.S. Federal
statutory rates to income tax expense at June 30, 1998 is as
follows:
Percentage of
Pretax Income
-------------
Tax at US statutory rates 34.0%
State income taxes, net of
federal tax benefit 9.0%
Other adjustments (1.0%)
-----
Income tax provision 42.0%
=====
CORFACTS, INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2. MANANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OEPRATIONS
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, 1998, COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1997
The Company recorded pre-tax income of $384,786 and net income
of $217,986 on total revenues of $1,683,129 for the six months
ended June 30, 1998 as compared to pre-tax income of $162,102
and net income of $149,234 on total revenues of $1,018,771 for
the comparable six months ended June 30, 1997.
Pre-tax earnings per share were $.032 for the six months ended
June 30, 1998 as compared to pre-tax earnings of $.014 in 1997.
Basic earnings per share for the six months ended June 30, 1998
were $.018 as compared to basic earnings per share of $.013 for
the same period in 1997.
Management has remained focused on completing a strategic
alliance or other suitable business ventures to further
increase the operating revenue of the Company. Due to the
expiration of the current lease for office space, the Company
has recently signed a two year lease for approximately 6,500
square feet of office space and will be moving operations
during the fourth quarter of 1998. Monthly rent will increase
be $7,583, as compared to the current rent of $1,830. The
additional 4,000 square feet will be used for an expanded
telemarketing facility and additional sales and administrative
personnel. The Company will remain in Freehold, New Jersey.
All of the current growth comes from the telemarketing
operations of Metro Marketing, the subsidiary acquired July
1996. Management expects the revenue growth in its subsidiary
to continue. Management is actively seeking other suitable
mergers and or acquisitions to enhance and utilize the services
of its subsidiary, Metro Marketing. The Company believes its
present management and marketing subsidiary will provide added
value to any traditional small businesses which may need
capital, management experience and marketing assistance.
The Company recorded $20,955 in interest income for the six
months ended June 30, 1998 as compared to interest income of
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
$8,122 for the same period last year.
THREE MONTHS ENDED JUNE 30, 1998, COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1997
The Company recorded pre-tax income of $127,798 and net
income of $ 74,098 on total revenues of $810,686 for the three
months ended June 30, 1998 as compared to pre-tax income of
$93,888 and net income of $85,935 on total revenues of $579,094
for the comparable three months ended June 30, 1997.
Pre-tax earnings per share were $.011 for the three months
ended June 30, 1998 as compared to pre-tax earnings of $.007 in
1997. Basic earnings per share for the three months ended June
30, 1998 were $.006 as compared to basic earnings per share of
$.007 for the same period in 1997.
The Company recorded $11,338 in interest income for the three
months ended June 30, 1998 as compared to interest income of
$3,916 for the same period last year.
ABOUT THE SUBSIDIARY, METRO MARKETING INC.
Metro Marketing recorded revenues of $793,900 for the three
months ended June 30, 1998 as compared to revenues of
$573,411 for the three months ended June 30, 1997. Revenues for Metro
Marketing alone increased by $220,489 or approximately 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,048,497 at June 30, 1998,
as compared to $845,668 at December 31, 1997. The primary
reason for this increase in working capital is the profitability of the
Company. In addition to the income from operations, the Company was able
to utilize the deferred tax asset recorded in 1997 toward 1998 earnings.
The net deferred tax asset of $194,200 was reduced to $29,200 at the end of
the second quarter of 1998 due to the six month pre-tax earnings of
$384,786. Therefore, a major component of the current tax expense of $166,800
will not require cash outlays by the Company.
Management is still 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. As previously
reported, 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, to undertake
selective warrant programs to provide incentives to market
makers when conditions are considered appropriate. 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.
YEAR 2000 ISSUES
Many computer systems and software programs, including several
used by the Company may require modification and conversion to
allow date code fields to accept dates beginning with the year
2000. Major system failures or erroneous calculations can
result if computer systems are not year 2000 compliant.
The Company is in the process of evaluating the computer
systems they now have in use and does not anticipate a major
undertaking to be compliant.
All costs associated with year 2000 compliance that have been
incurred by the Company have been expensed and have not been
capitalized. The overall cost to the Company of modifications
and conversion for year 2000 compliance with relation to the
financial statements taken as a whole is not material. The
Company is advised by a substantial majority of its vendors of
computer products upgraded to be year 2000 compliant, or will
not be affected by the year 2000 problem. The Company's
business could be materially adversely affected if the
Company's computer-based systems are not year 2000 compliant in
a timely manner, the Company incurs significant additional
expenses pursuing year 2000 compliance, the Company's vendors
do not timely provide year 2000 compliant products, or the
Company is subject to warranty or other claims by the Company's
clients related to product failures caused by the year 2000
problem.
Forward looking and other statements.
Forward looking statements above and elsewhere in this report
that suggest that the Company will increase revenues, become
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.
August 14, 1998 /s/ Larry Finkelstein
---------------------------
Larry Finkelstein,
President, Chairman and CFO
August 14, 1998 /s/ Ariel Freud
----------------
Ariel Freud,
Vice President, Director
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, 1998 /s/ Larry Finkelstein
-------------------------
Larry Finkelstein,
President, Chairman and CFO
August 14, 1998 /s/ Ariel Freud
----------------------------
Ariel Freud,
Vice President, Director