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, 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 September 30, 1998 is 11,940,521.
File Number
0-17394
Corfacts, Inc. & Subsidiary
Form 10-QSB
September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1998 3.
Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997 5.
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 6.
Consolidated Statements of Cash Flows for the
nine months ended September 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
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
September 30, 1998
ASSETS
Current Assets
Cash and cash equivalents $1,076,505
Interest bearing deposits, restricted 37,684
Interest receivable 4,650
Accounts receivable, net of allowance for
bad debts of $19,200 137,380
Prepaid expenses 74,018
Other receivable-municipal tax liens, net 10,800
Deferred taxes 17,600
---------
Total Current Assets 1,358,637
---------
Property and equipment, at cost,
less accumulated depreciation of $61,894 115,379
Other assets
Loan receivable, officer 107,244
Investment in partnership 2,166
Customer lists, net of accumulated
amortization of $42,960 95,835
Goodwill, net of accumulated amortization
of $17,267 121,528
Security deposits 27,123
---------
Total Other Assets 353,896
---------
TOTAL ASSETS $1,827,912
==========
CORFACTS, INC. & SUBSIDIARY
BALANCE SHEET (continued)
September 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 159,900
Deferred revenue 9,466
Income taxes payable 1,959
Deferred taxes 13,000
Current portion of note payable - shareholder 25,279
Current portion of capitalized lease obligations 36,696
--------
Total Current Liabilities 246,300
Capitalized lease obligations, net of current
portion 12,618
Note payable - shareholder, net of current portion 126,106
--------
138,724
Stockholders' equity
Common stock, no par value, 20,000,000 shares
authorized; 11,940,521 shares issued and
outstanding in 1998 1,284,052
Retained earnings 158,836
---------
TOTAL STOCKHOLDERS' EQUITY 1,442,888
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,827,912
==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
Nine months ended
September 30,
1998 1997
-----------------------
Revenues
Revenue telemarketing $2,526,659 $1,508,142
Income from tax liens, net 1,150 2,831
Interest income 33,851 13,385
--------- ---------
Total revenues 2,561,660 1,524,358
Direct operating expenses 1,238,985 932,901
--------- ---------
Gross Profit 1,322,675 591,457
Other costs & expenses
General & administrative 769,130 333,612
Depreciation and amortization 45,086 34,928
Interest expense 15,158 15,485
--------- --------
Total costs & expenses 829,374 384,025
Income before income taxes 493,301 207,432
Provision for income taxes 192,400 16,093
-------- --------
Net income $300,901 $191,339
======== ========
Basic earnings per common share $ .025 $ .016
======== ========
Average common shares outstanding 11,940,521 11,909,402
========== ==========
Diluted earnings per common share $ .024 $ .016
======== ========
Average common shares and equivalents
outstanding for diluted earnings
per common share 12,648,521 11,909,402
========== ==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF OPERATIONS
Three months ended
September 30,
1998 1997
---------------------
Revenues
Revenue telemarketing $ 865,635 $ 500,468
Income from tax liens, net - (144)
Interest income 12,896 5,263
Total revenues 878,531 505,587
Direct operating expenses 462,327 324,399
Gross Profit 416,204 181,188
Other costs & expenses
General & administrative 287,886 117,276
Depreciation and amortization 15,062 12,579
Interest expense 4,741 6,003
------- -------
Total costs & expenses 307,689 135,858
------- -------
Income before income taxes 108,515 45,330
Provision for income taxes 25,600 3,225
-------- --------
Net income $ 82,915 $ 42,105
======== ========
Basic earnings per common share $ .007 $ .004
======== ========
Average common shares outstanding 11,940,521 11,909,402
========== ==========
Diluted earnings per common share $ .007 $ .004
======== ========
Average common shares and equivalents
outstanding for diluted earnings
per common share 12,648,521 11,909,402
========== ==========
CORFACTS, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
1998 1997
-------------------
Cash flows from operating activities:
Net income $300,901 $191,339
Adjustments to reconcile net
income
to net
cash used in operations:
Depreciation and amortization 45,086 34,928
Bad debts provision 21,015 8,134
Deferred income taxes 167,300 -
Changes in assets and liabilities:
Increase in accounts receivable (86,122) (13,025)
Increase in prepaid expenses (57,532) (11,172)
Increase in other assets (8,957) (12,657)
Increase
(decrease) in accounts payable
and other liabilities (58,674) 77,416
Net cash provided by operating ------- -------
activities 323,017 274,963
------- -------
Cash flows from investing activities:
Redemption of (income from) tax
lien certificates 9,180 10,598
Increase in investment - (50)
Purchase of equipment (19,896) -
Net cash (used in) provided by ------- ------
investing activities (10,716) 10,548
------- ------
Cash flows from financing activities:
Repayment of capitalized lease
obligations (25,182) (28,861)
Proceeds from issuance of common stock 2,479 -
Repayment from buyer - 18,357
------- -------
Net cash used in financing activities (22,703) (10,504)
------- -------
Net increase (decrease) in cash and
cash equivalents 289,598 275,007
Cash and cash equivalents at
beginning of period 786,907 406,296
Cash and cash equivalents at ---------- --------
end of period $1,076,505 $681,303
========== ========
CORFACTS, INC. & SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 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 nine month period ended September 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
September 30, 1998. Interest expense on this note was $7,948
and $7,948 for the nine months ended September 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:
September 30, 1998
------------------
Total deferred tax assets $ 17,600
Less: Valuation allowance -
Deferred tax liability (13,000)
-------
Net deferred tax assets $ 4,600
=======
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 and through
September 30, 1998, utilization of the net operating loss
carryforwards has reduced this asset to $17,600.
The reconciliation of income tax computed at the U.S. Federal
statutory rates to income tax expense at September 30, 1998 is
as follows:
Percentage of
Pretax Income
Tax at US statutory rates 34.0%
State income taxes, net of
federal tax benefit 6.0%
Other adjustments (1.0%)
-----
Income tax provision 39.0%
=====
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, 1998, COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1997
The Company recorded pre-tax income of $493,301 and net income
of $300,901 on total revenues of $2,561,660 for the nine months
ended September 30, 1998 as compared to pre-tax income of
$207,432 and net income of $191,339 on total revenues of
$1,524,358 for the comparable nine months ended September 30, 1997.
Pre-tax earnings per share were $.041 for the nine months ended
September 30, 1998 as compared to pre-tax earnings of $.017 in
1997. Basic earnings per share for the nine months ended
September 30, 1998 were $.025 as compared to basic earnings per
share of $.016 for the same period in 1997.
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 to 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 $33,851 in interest income for the nine
months ended September 30, 1998 as compared to interest income
of $13,385 for the same period last year.
Management has remained focused on completing a strategic alliance
or other suitable business ventures to further increase the operating
revenue of the Company.
ABOUT THE SUBSIDIARY, METRO MARKETING INC.
Metro Marketing recorded revenues of $2,526,659 for the nine
months ended September 30, 1998 as compared to revenues of $1,508,142
for the nine months ended September 30, 1997. Revenues for Metro Marketing
alone increased by $1,018,517 or approximately 67.5%.
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1997
The Company recorded pre-tax income of $108,515 and net income
of $ 82,915 on total revenues of $878,531 for the three months
ended September 30, 1998 as compared to pre-tax income of
$45,330 and net income of $42,105 on total revenues of $505,587
for the comparable three months ended September 30, 1997.
Pre-tax earnings per share were $.009 for the three months
ended September 30, 1998 as compared to pre-tax earnings of
$.004 in 1997. Basic earnings per share for the three months
ended September 30, 1998 were $.007 as compared to basic
earnings per share of $.004 for the same period in 1997.
The Company recorded $12,896 in interest income for the three
months ended September 30, 1998 as compared to interest income
of $5,263 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,112,337 at September 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 $4,600 at the end of the
third quarter of 1998 due to the nine month pre-tax earnings of
$493,301. Therefore, a major component of the current tax
expense of $192,400 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. At
this time, management 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 and if conditions present themselves.
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.
November 14, 1998 /s/ Larry Finkelstein
---------------------------
Larry Finkelstein,
President, Chairman and CFO
November 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.
November 14, 1998 /s/ Larry Finkelstein
---------------------------
Larry Finkelstein,
President, Chairman and CFO
November 14, 1998 /s/ Ariel Freud
------------------------
Ariel Freud,
Vice President, Director