UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSACTION PERIOD FROM TO
COMMISSION FILE NUMBER
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4056901
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2180 STATE ROAD 434 WEST SUITE 4150 LONGWOOD, FLORIDA 32779
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(407) 682-5051
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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___
The registrant had 6,721,913 shares of common stock, $0.01 par value,
outstanding as of MAY 16, 2005.
Transitional Small Business Disclosure Format (check one):
Yes___ No_X_
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 2005
(Unaudited) and December 31, 2004 (Audited) 1
Consolidated Condensed Income Statements(Unaudited) for the
Three Months Ended March 31, 2005 and 2004 3
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2005 and 2004 4
Notes to Unaudited Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Item 3. Controls and Procedures 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
2005 2004
(UNAUDITED) (AUDITED)
Current assets:
Cash $ 1,141,376 $ 1,277,050
Accounts receivable, net of allowance for
doubtful accounts of $9,800 665,506 538,675
Employee advances 700 --
Prepaid expense 49,537 27,000
Deferred taxes 46,286 --
---------- ----------
TOTAL CURRENT ASSETS 1,903,405 1,842,725
Property and equipment, net 142,748 149,411
Other assets:
Security deposits 5,835 5,835
Goodwill 125,543 125,543
Intangible assets, net 112,740 124,283
Loan fees, net 112 562
---------- ----------
TOTAL OTHER ASSETS 244,230 256,223
---------- ----------
TOTAL ASSETS $ 2,290,383 $ 2,248,359
=========== ===========
Page 1
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2005 2004
(UNAUDITED) (AUDITED)
Current liabilities:
Line of credit $ 3,075 $ 3,361
Current maturities of capital lease obligations 9,307 10,896
Accounts payable 216,068 188,935
Accrued expenses 67,664 165,411
Income taxes payable -- 76,342
Deferred taxes 247,550 125,068
----------- -----------
TOTAL CURRENT LIABILITIES 543,664 570,013
Other liabilities:
Capital lease obligations, less current maturities 12,080 14,200
Deferred taxes -- 17,187
----------- -----------
TOTAL LIABILITIES 555,744 601,400
Commitments -- --
Stockholders' equity:
Preferred stock -- --
Common stock 67,219 67,219
Additional paid-in-capital 1,326,953 1,326,953
Retained earnings 340,467 252,787
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,734,639 1,646,959
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,290,383 $ 2,248,359
=========== ===========
See accompanying notes to consolidated condensed financial statements.
Page 2
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED INCOME STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
MARCH 31,
2005 2004
--------------------------
Revenue $ 1,187,647 $ 1,136,565
Cost of services 811,624 786,294
----------- -----------
Gross profit 376,023 350,271
----------- -----------
Operating expenses:
General & administrative 237,432 207,215
----------- -----------
Operating income 138,591 143,056
Other income (expense):
Other income (expense) 25 (170)
Interest income (expense), net 2,482 (46)
----------- -----------
2,507 (216)
----------- -----------
Income before income taxes 141,098 142,840
Income tax 53,418 53,905
----------- -----------
Net income $ 87,680 $ 88,935
=========== ===========
Weighted average number of common
shares outstanding, basic and diluted 6,721,913 6,721,913
=========== ===========
Net income per share, basic and diluted $ 0.01 $ 0.01
=========== ===========
See accompanying notes to consolidated condensed financial statements.
Page 3
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
MARCH 31,
2005 2004
------------------------------
Cash flows from operating activities:
Net income $ 87,680 $ 88,935
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 29,576 22,554
Provision for deferred income taxes 59,009 37,159
Changes in current assets and liabilities (297,024) 32,733
--------- ---------
Total adjustments (208,439) 92,446
--------- ---------
Net cash (used in) provided by operating activities (120,759) 181,381
Cash flows from investing activities:
Purchases of property and equipment (10,920) (13,599)
--------- ---------
Net cash used in investing activities (10,920) (13,599)
Cash flows from financing activities:
Repayments on capital lease obligations (3,709) (3,595)
Net repayments on lines of credit (286) (754)
--------- ---------
Net cash used in financing activities (3,995) (4,349)
--------- ---------
Net (decrease) increase in cash (135,674) 163,433
Cash - beginning of period 1,277,050 798,067
--------- ---------
Cash - end of period $ 1,141,376 $ 961,500
=========== =========
Supplemental disclosures:
Interest paid $ -- $ 46
=========== =========
Income taxes paid $ 70,751 $ --
=========== =========
See accompanying notes to consolidated condensed financial statements.
Page 4
ACCUFACTS PRE-EMPLOYMENT SCREENING, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements. Management believes that all adjustments, specifically
normal recurring adjustments, necessary for a fair presentation of such
financial statements have been included. 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, and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The financial statements included herein should be read in conjunction with the
financial statements included in the Company's Form 10-KSB for the fiscal year
ended December 31, 2004 filed with the Securities and Exchange Commission on
March 31, 2005.
2. RECENT FINANCIAL ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board ("FASB") published
FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("FAS 123(R)" or
the "Statement"). FAS 123(R) requires that the compensation cost relating to
share-based payment transactions, including grants of employee stock options, be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) covers a wide
range of share-based compensation arrangements including stock options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. FAS 123(R) is a replacement of FASB Statement No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related interpretive guidance
(APB 25).
The effect of the Statement will be to require entities to measure the cost of
employee services received in exchange for stock options based on the grant-date
fair value of the award, and to recognize the cost over the period the employee
is required to provide services for the award. FAS 123(R) permits entities to
use any option-pricing model that meets the fair value objective in the
Statement.
The Company will be required to apply FAS 123(R) as of the beginning of its
first interim period that begins after December 15, 2005, which will be the year
ending December 31, 2006.
FAS 123(R) allows two methods for determining the effects of the transition: the
modified prospective transition method and the modified retrospective method of
transition. Under the modified prospective transition method, an entity would
use the fair value based accounting method for all employee awards granted,
modified, or settled after the effective date. As of the effective date,
compensation cost related to the nonvested portion of awards outstanding as of
that date would be based on the grant-date fair value of those awards as
calculated under the original provisions of Statement No. 123; that is, an
entity would not remeasure the grant-date fair value estimate of the unvested
portion of awards granted prior to the effective date. An entity will have the
further option to either apply the Statement to only the quarters in the period
of adoption and subsequent periods, or apply the Statement to all quarters in
the fiscal year of adoption. Under the modified retrospective method of
transition, an entity would revise its previously issued financial statements to
recognize employee compensation cost for prior periods presented in accordance
with the original provisions of Statement No. 123.
The Company has not yet completed its study of the transition methods or made
any decisions about how it will adopt FAS 123(R).
Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the unaudited financial statements and the notes thereto
included in this Quarterly Report on Form 10-QSB. This report contains
forward-looking statements. The term, "forward-looking statements," is defined
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this Report as well as
our other filings with the Securities and Exchange Commission, press releases
and oral statements, words or phrases such as "believes", "anticipates",
"expects", "intends", "will likely result in", "estimates", "projects" or
similar expressions are intended to denote forward-looking statements. The
possible results that may be suggested by forward-looking statements are subject
to risks and uncertainties that may cause actual results to differ materially.
Some of the factors which might cause such differences include, without
limitation, risks associated with expansion of marketing efforts; limited sales
and marketing experiences; heightened competition; general economic and business
conditions; our ability or inability to implement our business strategy and/or
maintain our cost efficiency; dependence on proprietary technology, including,
without limitation, the adequacy of trade secret protection; continued
availability of key personnel; retention of key personnel and recruitment of
additional qualified skilled personnel.
Accufacts was incorporated in 1996 for the purpose of providing
pre-employment/background information on candidate hires for our clients. On
August 31, 1998, Accufacts consummated a merger with a public shell, Southern
Cargo Company ("Southern"), a Florida corporation. Southern, concurrent with
this merger, changed its name to Accufacts Pre-Employment Screening Inc.("APES")
and re-incorporated in the State of Delaware. Under the terms of the merger all
of the outstanding shares of Accufacts were acquired by Southern in exchange for
3,750,000 shares of Southern's $.01 par value common stock. This transaction was
accounted for as a reverse acquisition whereby, for accounting purposes,
Accufacts was the acquirer.
On October 13, 1999, Accufacts acquired all of the net assets of Maglio, Inc.
("Maglio"), a Florida corporation, by merging Maglio with and into
Maglio-Accufacts Pre-Employment Screening, Inc., a wholly-owned subsidiary
established by Accufacts. The acquisition was accounted for using the purchase
method of accounting and was completed by issuing 177,471 shares of APES common
stock consisting of 174,971 shares of common stock in consideration for the
acquisition and 2,500 shares of common stock in consideration for a stockholder
of Maglio entering into a non-compete agreement. The excess of the purchase
price over the fair value of the net assets acquired was $141,125. At the
adoption of SFAS 142, the unamortized balance of net assets acquired was
$125,543. The fair value of the non-competition agreement was $5,313 and was
amortized using the straight-line method over the term of the agreement.
In general, Accufacts' business provides a variety of background reports
regarding client employee candidates. These may include such items as: criminal
background checks, social security number verifications, employment
verifications, professional license verifications, education verifications,
credit reports, driving records, and other related reports. We believe that
obtaining such background checks is a proven, prudent part of a client's hiring
process. Falsification of employment application data is not uncommon, and
courts have in certain circumstances held employers liable for harm caused by
employees, especially when there is a pattern of behavior. Furthermore,
statistics indicate that pre-employment screenings lead to increased employee
integrity and decreased turnover, which improves client business performance.
The market for background checks/pre-employment screenings is highly
competitive. Most competitors are small local firms, but a few large national
companies exist in the market. Accufacts competes on both levels. Overall, we
have successfully developed proprietary software tools incorporating the latest
technologies. This enables our clients to submit orders and track the status of
the research at any time. We customize reports upon request. We also have an
automated client service program that is available on-line, 24 hours a day,
every day. We believe this ensures the fastest response and best client support
available.
Page 6
CRITICAL ACCOUNTING POLICIES
Accufacts' significant accounting policies, including the assumptions and
judgments underlying them, are more fully described in the footnotes to our
financial statements at December 31, 2004. Some of Accufacts' accounting
policies require the application of significant judgment by management in the
preparation of the financial statements, and as a result, they are subject to a
greater degree of uncertainty. In applying these policies, management uses its
judgment to determine the appropriate assumptions to be used in calculating
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses.
Management bases its estimates and assumptions on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. Accufacts has identified certain of its accounting policies as
the ones that are most important to the portrayal of Accufacts' financial
condition and results of operations, and which require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Accufacts' critical
accounting policies include the following:
REVENUE RECOGNITION
Revenue is recognized at the time of performance of service.
ACCOUNTING FOR INTANGIBLE AND LONG-LIVED ASSETS
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,
"Accufacts conducts annual impairment tests of goodwill recorded on its books in
order to determine if any impairment of value may have taken place. Impairment
tests will be conducted sooner if circumstances indicate that impairment may
have occurred. At its annual evaluation of its goodwill, Accufacts determined
that such assets were not impaired.
Intangible assets with finite useful lives, which primarily consist of customer
lists and non-competition covenants, continue to be amortized on a straight-line
basis. Customer lists are amortized over three to five years. Non-competition
covenants are amortized over the lives of the respective agreements, generally
three years.
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets," Accufacts tests its long-lived assets, other than goodwill
and indefinite-lived intangible assets, for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. The value of a long-lived asset is impaired if the carrying
value of the asset exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. An impairment loss
will be measured as the amount by which the carrying amount of a long-lived
asset exceeds its fair value.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not maintain off-balance sheet arrangements nor does it
participate in non-exchange traded contracts requiring fair value accounting
treatment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004:
Revenues for the three months ended March 31, 2005 were $1,187,647, up $ 51,082,
or 4.5%, over revenues for the three months ended March 31, 2004, which were
$1,136,565. This increase was the result of ongoing business development efforts
and marketing initiatives.
Cost of services for the three months ended March 31, 2005 were $811,624, up $
25,330, or 3.2%, from cost of services for the three months ended March 31,
2004, which were $786,294. This increase is in line with the increase in
revenues realized during the first quarter offset by a decrease due to
efficiencies realized in the operating areas of the Company and a decrease due
in part to a reduction in amortization expense associated with the Company's
proprietary decision support software initially developed in the year 2000. The
original capitalization of the Company's proprietary decision support software
occurred over three years ago and it has since been fully amortized in
accordance with generally accepted accounting principles.
General and administrative expenses for the three months ended March 31, 2005
were $237,432, up $30,217, or 14.6%, over the three months ended March 31, 2004,
which were $207,215. This increase is generally due to an increase in officer
and sales personnel compensation. Officer salaries have increased in order to
compensate the individuals responsible for the improved operating results of the
Company. Sales salaries have increased in line with the increase in business
development efforts and marketing initiatives.
Operating income for the quarter ended March 31, 2005 was $138,591, a decrease
of $4,465 from operating income for the three months ended March 31, 2004, which
was $143,056. Income before income taxes for the period was $141,098, compared
to $142,840 for the three month period ended March 31, 2004. The Company intends
to increase its business through the use of operating profits and borrowings.
The Company believes that its anticipated cash flow from operations as well as
availability of funds from existing bank facilities will provide the liquidity
to meet current foreseeable cash needs for the next 12 months.
Page 7
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, Accufacts had total assets of $2,290,383, compared with
$2,248,359 at December 31, 2004, representing an increase in assets of $42,024,
or 1.9%. The majority of this increase relates to an increase in accounts
receivable balances of approximately $126,831, which is directly attributable to
the increase in revenues and the seasonality of business from the fourth quarter
of last year to the first quarter of this year. For the same periods, the
Company had total liabilities of $555,744 at March 31, 2005 compared to $601,400
at December 31, 2004, reflecting a decrease of $45,656, or 7.6%. The decrease in
total liabilities is mostly due to a decrease of approximately $97,747 in
accrued expense balances. The majority of the decrease in accrued expense
balances relates to the settlement and payment of a prior year sales tax
liability that was negotiated in March 2005.
The Company has a $25,000 business checking/overdraft line of credit. As of
March 31, 2005, there was $0 outstanding on this line of credit. It bears
interest at the prime rate plus 6.0% and is collateralized by the assets of the
Company. Effective August 12, 2003, the Company obtained an additional $400,000
line of credit with a bank. The line of credit matures July 1, 2005 and can be
renewed annually subject to certain conditions and covenants. The line of credit
bears interest at prime plus 1.0%. Interest is payable monthly. The line of
credit is collateralized by substantially all of the assets of the Company and
is personally guaranteed by the majority stockholder and president of the
Company. As of March 31, 2005, there was $0 outstanding on this line of credit.
Management is continuing to refine operations with a focus toward increasing
revenues through aggressive marketing initiatives and generating a continuous
stream of positive earnings. We believe that the Company is poised to leverage
competitive advantages and generate continued profitable growth.
ITEM 3. Controls and Procedures.
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the executive officer of the Company concluded that the Company's
disclosure controls and procedures were adequate.
There have not been any significant changes in the Company's internal controls
or other factors that could affect these controls subsequent to the date of
evaluation.
Page 8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
NUMBER DESCRIPTION OF EXHIBIT
31.1 Certification of Executive Chairman, President and Chief Executive
Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes Oxley Act of 2002
Signature
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.
Accufacts Pre-Employment Screening, Inc.
By: /s/ PHILIP LUIZZO
---------------------
Philip Luizzo, Chairman,
Chief Executive Officer, and
President
DATE: MAY 16, 2005
Page 9