UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported)
September 16, 1998
FACTUAL DATA CORP.
---------------------
(Exact name of registrant as specified in its charter)
Colorado 0-24205 84-1449911
- ------------------- ----------------- --------------------
(State of (Commission File (I.R.S. Employer
incorporation) Number) Identification No.)
5200 Hahns Peak Drive
Fort Collins, Colorado 80538
-------------------------------
(Address of principal executive offices)
(970) 663-5700
----------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The registrant is filing the required financial statements in
connection with its acquisitions of Factual Data Minnesota, Inc. on
September 16, 1998, and the credit reporting division of Factual Data
Services (an operating Division of Landmark Financial Services, Inc.)
on September 30, 1998, on this amendment to Form 8-K.
(b) The registrant is also filing the required pro forma information in
connection with the acquisitions described in Item 7a above on this
amendment to Form 8-K.
<PAGE>
SIGNATURES
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 hereunto duly authorized.
FACTUAL DATA CORP.
Date: November 30, 1998 By: /s/ Jerald H. Donnan
-------------------------------------
Jerald H. Donnan,
Chief Executive Officer
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF
INCOME AND UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
The following unaudited pro forma combined statements of income for the year
ended December 31, 1997 and the six month period ended June 30, 1998 and the
unaudited pro forma combined balance sheet as of June 30, 1998 give effect to
the business combinations of Factual Data Corp. and Factual Data Services
(an operating division of Landmark Financial Services, Inc.) and Factual Data
Minnesota, Inc. The transactions between Factual Data Corp., Factual Data
Services (an operating division of Landmark Financial Services, Inc.), and
Factual Data Minnesota, Inc. have been accounted for as a combination of
companies under the purchase method. The unaudited pro forma statements of
income have been prepared as if the proposed transactions occurred on
January 1, 1997. The unaudited pro forma balance sheet has been prepared as
if the proposed transactions occurred June 30, 1998. These pro forma statements
are not necessarily indicative of the results of operations or the financial
position as they may be in the future or as they might have been had the
transactions become effective on the above mentioned date.
The unaudited pro forma combined statements of income for the year ended
December 31, 1997 and the six month period ended June 30, 1998 includes the
results of operations of Factual Data Corp., Factual Data Services (an
operating division of Landmark Financial Services, Inc.) and Factual Data
Minnesota, Inc.
The unaudited pro forma combined statements of income and the unaudited pro
forma combined balance sheet should be read in conjunction with the separate
historical financial statements and notes thereto of Factual Data Corp., Factual
Data Services (an operating division of Landmark Financial Services, Inc.) and
Factual Data Minnesota, Inc.
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
The following adjustments are related to the business combinations between
Factual Data Corp. (FDC), Factual Data Services (an operating division of
Landmark Financial Services, Inc.) (FDS) and Factual Data Minnesota, Inc.(FDM).
1. Reflects the Combined Pro Forma totals as filed in the Form 8-K/A on
October 13, 1998. The Combined Pro-forma amounts include Factual Data
Corp., Heritage Credit Reporting, Inc., American Credit Connection, Inc.
and Factual Data Northwest, Inc.
2. The amounts reflected for the year ended December 31, 1997 for FDS reflect
the results of operations for the fiscal year ended June 30, 1998. The
results of operations for the six months ended June 30, 1998 are duplicated
in the results of operations for the year ended December 31, 1997.
3. Records the acquisitions of FDS and FDM property and equipment, lease
deposits, non-compete agreements and customers lists for $2,306,486.
To finance the acquisitions, FDC issued 53,782 shares of restricted common
stock valued at $400,000 and paid $1,553,243 in cash at closing. The
Company also issued a note payable for $353,243 to fund the remainder of
the purchase price. The purchase price has been allocated as follows:
Asset Category Valuation
----------------------------------- -----------
Property and equipment $51,500
Non-compete agreement 40,000
Customer lists 2,213,336
Lease deposits 1,650
-----------
$ 2,306,486
===========
4. To eliminate assets, liabilities and common stock not acquired by FDC in
the acquisitions.
5. To eliminate other income and expenses which will not continue following
the business combinations. Prior interest expense, depreciation and
amortization, officer salary for a non-continuing employee and gain on sale
of building have been eliminated.
6. To eliminate royalty expenses and fees and related system affiliate
revenues.
7. To record interest expense at 8% of debt incurred on the acquisitions.
8. To record depreciation and amortization on fixed assets and intangibles
acquired. Fixed assets are depreciated over a five year life, non-compete
agreements over the life of the agreements and customer lists over fifteen
years.
9. Pro forma income tax adjustment at the statutory rate of 34%.
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
Factual Data ----------------------------
Corp. (1) FDS (2) FDM Total Debit Credit Combined
----------- ----------- ------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
System
affiliates ......... $1,867,743 $ -- $ -- $1,867,743 $272,774 (6) $ -- $ 1,539,652
12,690 (6)
42,627 (6)
Information
systems ............ 5,432,196 2,309,611 964,953 8,706,760 -- -- 8,706,760
Proceeds from
sale of
territories ........ 714,365 -- -- 714,365 -- 714,365
Training, license
and other .......... 119,692 -- -- 119,692 -- -- 119,692
---------- ---------- ----------- ---------- -------- --------- ----------
Total revenue ..... 8,133,996 2,309,611 964,953 11,408,560 328,091 -- 11,080,469
---------- ---------- ----------- ---------- -------- --------- ----------
Operating expenses
Cost of services
provided .......... 3,761,617 1,615,728 523,634 5,900,979 -- 272,774 (6) 5,585,578
42,627 (6)
Cost of sale of
territories ...... 506,101 -- -- 506,101 -- 506,101
Selling, general
and administra-
tive ............. 3,219,064 600,492 245,589 4,065,145 177,856 (8) 174,940 (5) 4,055,371
12,690 (6)
Total
operating ---------- ---------- ---------- ---------- -------- -------- ----------
expenses ........ 7,486,782 2,216,220 769,223 10,472,225 177,856 503,031 10,147,050
---------- ---------- ---------- ---------- -------- -------- ----------
Income from
operations ......... 647,214 93,391 195,730 936,335 505,947 503,031 933,419
---------- ---------- ---------- ---------- -------- -------- ----------
Other income ........ 33,817 -- 53,524 87,341 53,524 (5) -- 33,817
Interest expense .... (273,994) -- (39,938) (313,932) (28,259)(7) 39,938 (5) (302,253)
---------- ---------- ---------- ---------- -------- -------- ----------
Income before
taxes .............. 407,037 93,391 209,316 709,744 587,730 542,969 664,983
Income tax expense .. 128,658 32,000 71,167 231,825 199,828 (9) 184,609 (9) 247,044
---------- ---------- ---------- ---------- -------- -------- ----------
Net income .......... $ 278,379 $ 61,391 $ 138,149 $ 477,919 $787,558 $727,578 $ 417,939
========== ========== ========== ========== ======== ======== ==========
Basic earnings
per share .......... $ .15 $ .22
========== ==========
Weighted average
pro forma shares
outstanding -
basic and
diluted ............ 1,820,230 (3) 1,874,012
========== ==========
Diluted earnings
per share .......... $ .15 $ .22
========== ==========
Weighted average
pro forma shares
outstanding -
diluted ............ 1,820,230 (3) 1,874,012
========== ==========
</TABLE>
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 1998
<TABLE>
<CAPTION>
Factual Pro Forma Adjustments
Data ---------------------------
Corp (1) FDS(2) FDM Total Debit Credit Combined
------------ --------- --------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents ............ $ 2,519,868 $ 26,995 $212,106 $ 2,758,969 $ - $1,553,24 (3) $ 966,625
239,101 (4)
Short-term
investments ............ 3,510,847 - - 3,510,847 - - 3,510,847
Accounts
receivable net ......... 1,282,06 384,133 184,772 1,850,970 - 568,905 (4) 1,282,065
Notes receivable ........ 60,377 - - 60,377 - - 60,377
Prepaid expense
and other .............. 92,454 - 3,669 96,123 - 3,669 (4) 92,454
Deferred tax
asset .................. 64,577 - - 64,577 - - 64,577
---------- -------- -------- ----------- ---------- ---------- -----------
Total current
assets .............. 7,530,188 411,128 400,547 8,341,863 - 2,364,918 5,976,945
---------- -------- -------- ----------- ---------- ---------- -----------
Property and
equipment, net ......... 1,719,481 87,561 47,259 1,854,301 51,500 (3) 134,820 (4) 1,770,981
Intangible
assets ................. 3,562,239 117,647 30,221 3,710,107 2,254,986 (3) 147,868 (4) 5,817,225
---------- -------- -------- ----------- ---------- ---------- -----------
$12,811,908 $616,336 $478,027 $13,906,271 $2,306,486 $2,647,606 $13,565,151
=========== ======== ======== =========== ========== ========== ===========
Notes payable ........... 21,600 - - 21,600 - 21,600
Current portion
of long-term
debt ................... 807,176 - - 807,176 - 176,621 (3) 983,797
Accounts payable ........ 1,293,813 72,493 51,890 1,418,196 124,383 (4) - 1,293,813
Accrued payroll
and expenses ........... 94,953 32,077 8,289 135,319 40,366 (4) - 94,953
Income taxes
payable ................ 412,093 32,000 - 444,093 32,000 (4) - 412,093
---------- ------- ------- ---------- -------- --------- ----------
Total
current
liabilities ......... 2,629,635 136,570 60,179 2,826,384 196,749 176,621 2,806,256
---------- ------- ------- ---------- -------- --------- ----------
Long-term debt .......... 1,981,764 - - 1,981,764 - 176,622 (3) 2,158,386
Deferred income
taxes .................. 243,215 - - 243,215 - - 243,215
Common stock ............ 6,562,279 - 1,000 6,563,279 1,000 (4) 400,000 (3) 6,962,279
Retained
earnings ............... 1,395,015 479,766 416,848 2,291,629 896,614 (4) -- 1,395,015
---------- ------- ------- ---------- -------- ---------- ----------
Total equity ............ 7,957,294 479,766 417,848 8,854,908 897,614 400,000 8,357,294
---------- ------- ------- ---------- --------- ---------- ----------
$12,811,908 $616,336 $478,027 $13,906,271 $1,094,363 $753,243 $13,565,151
=========== ======== ======== =========== ========== ========== ===========
</TABLE>
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Factual Pro Forma Adjustments
Data -------------------------
Corp. (1) FDS (2) FDM Total Debit Credit Combined
---------- ---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
System
affiliates ..... $1,837,175 $ - $ - $1,837,175 $ 102,653 (6) $ - $1,349,299
62,030 (6)
323,193 (6)
Information
systems ........ 4,328,915 1,313,985 841,197 6,484,097 - - 6,484,097
Training, license
license and
other .......... 1,005 - - 1,005 - - 1,005
---------- ---------- -------- ---------- ----------- -------- -----------
Total
revenue...... 6,167,095 1,313,985 841,197 8,322,277 487,876 - 7,834,401
---------- ---------- -------- ---------- ----------- -------- -----------
Operating
expenses cost
of services
provided ..... 2,563,520 918,790 360,646 3,842,956 - 102,653 (6) 3,417,110
323,193 (6)
Selling,
general and
administra-
tion ......... 2,112,395 305,308 107,988 2,525,691 88,928 (8) 97,551 (5) 2,455,038
62,030 (6)
---------- ---------- -------- ---------- ---------- -------- -----------
Total
operating
expenses .... 4,675,915 1,224,098 468,634 6,368,647 88,928 585,427 5,872,148
---------- ---------- -------- ---------- ---------- -------- -----------
Income from
operations ..... 1,491,180 89,887 372,563 1,953,630 576,804 585,427 1,962,253
---------- ---------- -------- ---------- ---------- -------- -----------
Other income,
net ............ 60,800 - 303,957 364,757 303,957 (5) - 60,800
Interest
expense ........ (140,473) - (8,567) (149,040) 14,130 (7) 8,567 (5) (154,603)
---------- ---------- -------- ---------- ---------- -------- -----------
Income before
taxes .......... 1,411,507 89,887 667,953 2,169,347 894,891 593,994 1,868,450
Income tax
expense ........ 515,678 30,562 227,104 773,344 304,263 (9) 201,958 (9) 875,649
---------- ---------- -------- ---------- ---------- -------- -----------
Net income ...... $ 895,829 $ 59,325 $440,849 $1,396,003 $1,199,154 $795,952 $ 992,801
========== ========== ======== ========== ========== ======== ===========
Basic earnings
per share ...... $ .42 $ .45
========== ===========
Weighted
average pro
forma shares
outstanding -
basic .......... 2,150,230 (3) 2,204,012
========== ===========
Diluted
earings per
share .......... $ .36 $ .39
========== ===========
Weighted
average pro
forma shares
outstanding -
diluted ........ 2,483,980 (3) 2,537,762
========== ===========
</TABLE>
<PAGE>
FACTUAL DATA SERVICES
AN OPERATING DIVISION OF LANDMARK FINANCIAL SERVICES, INC.
Financial Statements
June 30, 1998
<PAGE>
Table of Contents
Independent Auditors' Report.............................F - 1
Financial Statements
Statement of Net Assets..............................F - 2
Statements of Operations and Changes in Net Assets...F - 3
Statements of Cash Flows.............................F - 4
Notes to Financial Statements............................F - 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Factual Data Services
Plano, Texas
We have audited the accompanying statement of net assets of Factual Data
Services, an operating division of Landmark Financial Services, Inc., as of June
30, 1998, and the related statements of operations and changes in net assets and
cash flows for the period from September 27, 1996 (inception) to June 30, 1997
and the year ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The operating division is part of Landmark Financial Services, Inc. and has no
separate legal status or existence. As explained in Note 1, the accompanying
financial statements and notes thereto include all significant assets,
liabilities and costs required for operating the business. These statements may
not necessarily be indicative of the results of operations that would have been
obtained as an independent legal entity. The operating division is dependent
upon Landmark Financial Services, Inc. for the repayment of original acquisition
debt and interest incurred in acquiring the credit reporting business and
related territories of the Division.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of Factual Data Services an operating
division of Landmark Financial Services, Inc. as of June 30, 1998 and the
results of their operations and its flows for the period from September 27, 1996
(inception) to June 30, 1997 and the year ended June 30, 1998, in conformity
with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
October 21, 1998
Denver, Colorado
F - 1
<PAGE>
STATEMENT OF NET ASSETS
June 30, 1998
Assets
Current assets
Cash $ 26,995
Accounts receivable (net of allowance
for doubtful accounts of $77,840) 384,133
--------
Total current assets 411,128
--------
Property and equipment, net (Note 2) 87,561
Other assets
Intangible asset (net of accumulated
amortization of $32,353) 117,647
--------
$616,336
========
Liabilities and Net Assets
Current liabilities
Accounts payable $ 72,493
Accrued payroll and taxes 32,077
Income taxes payable to Landmark
Financial Services, Inc. 32,000
--------
Total current liabilities 136,570
--------
Net assets 479,766
--------
$616,336
========
<PAGE>
Statements of Operations
and Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
For the
Period From
September
27, 1996 For the
(inception) Year Ended
to June 30, June 30
1997 1998
---------- ----------
Revenue ........................... $1,029,453 $2,309,611
---------- ----------
Operating Expenses
Costs of services provided ...... 590,798 1,615,728
General and administrative ...... 390,533 600,492
---------- ----------
Total operating expenses ...... 981,331 2,216,220
---------- ----------
Net income before income taxes .... 48,122 93,391
Pro Forma income tax expense ...... 16,000 32,000
---------- ----------
Net income ........................ 32,122 61,391
Net assets - beginning of period .. -- 287,654
Net support from Landmark Financial
Services, Inc. ................... 255,532 130,721
---------- ----------
Net assets - end of period ........ $ 287,654 $ 479,766
========== ==========
</TABLE>
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C>
For the
Period from
September
27, 1996
(Inception) For the
to Year Ended
June 30, June 30,
1997 1998
----------- -----------
Cash flows from operating activities
Net income ......................... $ 32,122 $ 61,391
--------- ---------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities
Allowance for doubtful accounts .. 40,000 37,840
Depreciation and amortization .... 27,545 82,518
Changes in operating assets and
liabilities
Accounts receivable ............. (282,781) (179,192)
Other assets .................... (3,297) 3,297
Accounts payable ................ 91,623 (19,130)
Accrued payroll and payroll taxes 30,216 1,861
Income taxes payable to Landmark
Financial Services, Inc. ....... 16,000 16,000
--------- ---------
(80,694) (56,806)
--------- ---------
Net cash (used in) provided by
operating activities ......... (48,572) 4,585
--------- ---------
Cash flows from financing activities
Net support from (to) Landmark
Financial Services, Inc. .......... 90,261 (19,279)
Net cash provided by (used in)
financing activities ......... 90,261 (19,280)
--------- ---------
Net increase (decrease) in cash ...... 41,689 (14,694)
Cash, at beginning of period ......... -- 41,689
--------- ---------
Cash, at end of period ............... $ 41,689 $ 26,995
========= =========
Supplemental disclosure of non-cash investing and financing activities:
The Division acquired computer equipment and software of $165,271 which was
financed by Landmark Financial Services, Inc. during the period ended
June 30, 1997.
During the year ended June 30, 1998, the Division acquired a franchise
agreement in the amount of $150,000 which was financed by Landmark Financial
Services, Inc.
</TABLE>
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
Organization
- ------------
The accompanying financial statements of Factual Data Services ("the Division")
an operating division of Landmark Financial Services, Inc. ("the Company") have
been prepared from the books and records maintained by the Company, and may not
necessarily be indicative of the net assets or results of operations of the
Division that would have been obtained as an independent legal entity.
All significant operating assets and liabilities and costs required for
operating the business have been reflected in the accompanying financial
statements of the Division. The Division is dependent upon the Company for
repayment of original acquisition debt and interest incurred in acquiring the
credit reporting business and related territories.
The Division was established for the purpose of providing information services,
nationally, to financial lending institutions primarily in the mortgage lending
industry and currently provides such services under the Factual Data trade name
through a license agreement with Factual Data Corp.
Accounts Receivable
- -------------------
In the normal course of business, the Division extends unsecured credit to
virtually all of its customers related to providing information services. The
Division's customers are located primarily in Texas, Arizona, Oklahoma and New
Mexico.
Because of the credit risks involved, management has provided an allowance for
doubtful accounts of $77,840 at June 30, 1998 which reflects its opinion of
amounts which will eventually become uncollectible. In the event of complete
nonperformance by the Division's customers, the maximum exposure to the Division
is the outstanding accounts receivable balance at the date of non-performance.
Property and Equipment
- ----------------------
Property and equipment is stated at cost. Depreciation is computed using the
straight line method based on the estimated useful lives of three to five years.
Intangible Asset
- ----------------
The intangible asset consists of a franchise agreement and is stated at cost.
The franchise agreement is amortized over the life of the agreement.
Advertising Costs
- -----------------
Advertising costs are expensed as incurred.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Income Taxes
- ------------
The Division recognizes deferred tax assets and liabilities based on the
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amount in future years. The Division has no significant timing differences at
June 30, 1998, and accordingly no deferred tax assets or liabilities have been
recorded in the accompanying financial statements.
The pro forma provision for income taxes has been recorded as if the Division
was a stand alone entity.
Valuation of Long-Lived Assets
- ------------------------------
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used, when events and circumstances warrant such a review. The carrying value of
a long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved.
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 and disclosure of
contingent assets and liabilities at 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.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of financial instruments including cash, receivables,
accounts payable, accrued payroll and taxes and income taxes payable approximate
their fair values as of June 30, 1998 because of the relatively short maturity
of these instruments.
<PAGE>
Note 2 - Property and Equipment
- -------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
June 30,
1998
----------
Computer equipment ........... $ 36,937
Software ..................... 128,334
165,271
Less accumulated depreciation (77,710)
---------
$ 87,561
=========
</TABLE>
Note 3 - Related Parties
- ------------------------
Included in accounts receivable at June 30, 1998 is $24,124 which is a
receivable from related entities of Landmark Financial Services, Inc.
The Division had sales to related entities of Landmark Financial Services, Inc.
in the amount of approximately $236,000 or 10% and $135,000 or 13%, for the year
ended June 30, 1998 and the period ended June 30, 1997, respectively.
<PAGE>
FACTUAL DATA MINNESOTA, INC.
Financial Statements
December 31, 1997
<PAGE>
Table of Contents
Independent Auditors' Report.............................F - 1
Financial Statements
Balance Sheets.......................................F - 2
Statements of Income.................................F - 3
Statement of Changes in Stockholders' Equity.........F - 4
Statements of Cash Flows.............................F - 5
Notes to Financial Statements............................F - 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Factual Data Minnesota, Inc.
St. Paul, Minnesota
We have audited the accompanying balance sheet of Factual Data Minnesota, Inc.
as of December 31, 1997, and the related statements of income, changes in
stockholders' equity and cash flows for each of the years in the two year period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Factual Data Minnesota, Inc. as
of December 31, 1997 and the results of its operations and its cash flows for
each of the years in the two year period then ended, in conformity with
generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
September 11, 1998
Denver, Colorado
F - 1
<PAGE>
Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
December
31, June 30,
1997 1998
------------ ------------
(Unaudited)
Assets
Current assets
Cash ......................................... $ 78,976 $ 212,106
Accounts receivable
(net of allowance for
doubtful accounts of
$11,351 (1997) and
$5,571 (1998) ............................... 113,078 184,772
---------- ----------
Total current
assets .................................. 192,054 396,878
---------- ----------
Property and equipment,
net (Notes 2 and 3) ........................... 347,809 47,259
Other assets
Intangible assets
(net of accumulated
amortization of
$84,486 (1997) and
$90,819 (1998)) ............................. 36,554 30,221
Deposits and other
assets ...................................... 13,669 3,669
-------- --------
Total other assets ......................... 50,223 33,890
-------- --------
$590,086 $478,027
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Line-of-credit
(Note 3) .................................... $ 70,308 $ -
Current portion of
long-term debt (Note 3) ..................... 370,554 -
Accounts payable ............................. 28,827 51,890
Accrued payroll and taxes .................... 6,380 8,289
Accrued liabilities .......................... 47,206 -
-------- ---------
Total current
liabilities ............................... 523,275 60,179
-------- ---------
Commitments (Notes 4 and 6)
Stockholders' equity
Common stock,
no par value, 24,000
shares authorized,
1,000 shares issued
and outstanding in 1997
and 1998 .................................... 1,000 1,000
Retained earnings ............................ 65,811 416,848
-------- --------
Total stockholders'
equity .................................... 66,811 417,848
-------- --------
$590,086 $478,027
======== ========
</TABLE>
<PAGE>
Statements of Income
<TABLE>
<CAPTION>
For the Six Months
For the Year Ended Ended
December 31, June 30,
------------------------ ------------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue .................. $ 674,259 $ 964,953 $ 453,389 $ 841,197
--------- --------- --------- ---------
Operating Expenses
Costs of services
provided .............. 387,331 523,634 222,392 360,646
General and
administrative ........ 288,297 245,589 117,724 107,988
--------- --------- --------- ---------
Total operating
expenses ............ 675,629 769,223 340,116 468,634
--------- --------- --------- ---------
Income (loss) from
operations .............. (1,370) 195,730 113,273 372,563
Other income (expense)
Rental income(expense),
net ................... 24,185 13,586 2,991 (14,628)
Gain on sale of
building .............. - - - 310,018
--------- --------- --------- ---------
Net income ............... 22,815 209,316 116,264 667,953
Pro forma adjustment -
provision for income
(Note 1) ................ (7,757) (71,167) (39,529) (227,104)
--------- --------- --------- ---------
Pro forma net income ..... $ 15,058 $ 138,149 $ 76,735 $ 440,849
========= ========= ========= =========
Pro forma basic earnings
per share ............... $ 15.06 $ 138.15 $ 76.74 $ 440.85
========= ========= ========= =========
Weighted average number of
shares outstanding ...... 1,000 1,000 1,000 1,000
========= ========= ========= ==========
</TABLE>
<PAGE>
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1997 and 1996
And the Period Ended June 30, 1998
<TABLE>
<CAPTION>
Total
Common Retained Stockholders'
Stock Earnings Equity
--------- --------- ---------
<S> <C> <C> <C>
Balance at
December 31, 1995 . $ 1,000 $ 61,244 $ 62,244
Net income for the
year ended
December 31, 1996 . - 22,815 22,815
--------- --------- ---------
Balance at
December 31, 1996 . 1,000 84,059 85,059
Net income for the
year ended
December 31, 1997 . - 209,316 209,316
Distributions for
the year ended .... - (227,564) (227,564)
--------- --------- ---------
Balance at
December 31, 1997 . 1,000 65,811 66,811
Net income for the
six months ended
June 30, 1998
(unaudited) ....... - 667,953 667,953
Distributions for
the six months
ended June 30, 1998
(unaudited) ....... - (316,916) (316,916)
--------- --------- ---------
Balance at June 30,
1998 (unaudited) .. $ 1,000 $ 416,848 $ 417,848
========= ========= =========
</TABLE>
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
December 31 June 30,
------------------------ ------------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from
operating
activities
Net income (loss) .. $ 22,815 $ 209,316 $ 116,264 $ 667,953
--------- --------- --------- ---------
Adjustments to
reconcile net
income (loss) to
net cash provided
by operating
activities
Allowance for
doubtful accounts 1,470 11,351 6,117 (5,780)
Depreciation and
amortization .... 63,931 57,730 33,031 25,346
Gain on sale of
building ........ - - - (310,018)
Changes in
operating assets
and liabilities
Accounts
receivable .... (44,987) (52,417) (40,260) (65,914)
Deposits and
other assets .. 14,026 4,800 2,400 10,000
Accounts payable 6,355 11,080 12,044 23,063
Accrued payroll
and payroll
taxes ......... 3,312 2,982 - 1,909
Accrued
liabilities ... 9,376 29,430 (2,391) (47,206)
--------- --------- --------- ---------
53,483 64,956 10,941 (368,600)
--------- --------- --------- ---------
Net cash
provided by
operating
activities 76,298 274,272 127,205 299,353
--------- --------- --------- ---------
Cash flows from
investing activities
Proceeds from sale
of building ........ - - - 602,346
Purchase of property
and equipment ...... (20,202) (8,919) (246) (10,791)
--------- --------- --------- ---------
Net cash
(used in)
provided by
investing
activities ... (20,202) (8,919) (246) 591,555
--------- --------- --------- ---------
Cash flows from
financing activities
Line-of-credit, net (54,048) 54,356 (15,952) (70,308)
Principal payments
on long-term debt . 65,287 (124,077) (119,999) (370,554)
Distributions to
stockholders ...... - (227,564) (3,700) (316,916)
--------- --------- --------- ---------
Net cash
provided
in (used by)
financing
activities .. 11,239 (297,285) (139,651) (757,778)
--------- --------- --------- ---------
Net increase
(decrease)in cash ... 67,335 (31,932) (12,692) 133,130
Cash, at beginning of
period .............. 43,573 110,908 110,908 78,976
--------- --------- --------- ---------
Cash, at end of period $ 110,908 $ 78,976 $ 98,216 $ 212,106
========= ========= ========= =========
Continued on following page.
</TABLE>
<PAGE>
Combined Statements of Cash Flows
Continued from previous page.
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the years ended December 31, 1997 and 1996 and
for the six months ended June 30, 1997 (unaudited) and 1998 (unaudited) was
$42,239, $56,308, $24,615 and $9,719, respectively.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
Organization
- ------------
Factual Data Minnesota, Inc. was incorporated in the state of Minnesota in 1985.
The Company was established for the purpose of providing information services,
nationally, to financial lending institutions primarily in the mortgage lending
industry. The Company provides these services to the states of Minnesota and
Iowa under the Factual Data trade name through a franchise agreement with
Factual Data Corp.
Concentration of Credit Risk
- ----------------------------
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers related to providing information services. The
Company's customers are located primarily in Minnesota and Iowa. Additionally,
at times, the Company maintains cash balances in excess of FDIC limits.
Accounts Receivable
- -------------------
Because of the credit risks involved, management has provided an allowance for
doubtful accounts of $11,351 and $5,571 at December 31, 1997 and June 30, 1998,
respectively, which reflects its opinion of amounts which will eventually become
uncollectible. In the event of complete nonperformance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the assets which
range from three to twenty years.
Intangible Assets
- -----------------
Intangible assets are stated at cost and consist of franchise fees. These assets
are amortized using the straight-line method over the life of the respective
franchise agreements.
Advertising Costs
- -----------------
Advertising costs are expensed as incurred. Total advertising costs expensed was
$9,561, $3,822, $2,282, $3,007, for the years ended December 31, 1996 and 1997
and the six months ended June 30, 1997 (unaudited) and 1998 (unaudited),
respectively.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Income Taxes
- ------------
The Company has elected to be taxed under Subchapter S of the Internal Revenue
Code. Under these provisions, the Company is not subject to income taxes as a
separate entity. Income or loss of the Company is required to be included in the
income tax returns of the stockholders.
Included in the statement of operations are pro forma income tax adjustments
computed using the statutory rates in effect, which represent the federal and
state tax provisions that would have been required had the Company been taxed as
a C-corporation. The Company's effective statutory rate based on pretax income
was 34%.
Revenue Recognition
- -------------------
Factual Data Minnesota, Inc. recognizes revenue generated from mortgage credit
reports and other information services when the information has been provided to
the customer, as substantially all required services have been performed.
Valuation of Long-Lived Assets
- ------------------------------
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used, when events and circumstances warrant such a review. The carrying value of
a long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved.
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 and disclosure of
contingent assets and liabilities at 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.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of financial instruments including cash, receivables,
accounts payable and accrued liabilities approximate their fair values as of
December 31, 1997 and June 30, 1998 (unaudited) because of the relatively short
maturity of these instruments.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments (continued)
- ----------------------------------------------
The carrying amounts of long-term debt and the line-of-credit outstanding also
approximate their fair values as of December 31, 1997 and June 30, 1998
(unaudited) because interest rates on these instruments approximate the interest
rate on debt with similar terms available to the Company.
Basic Earnings Per Common Share
- -------------------------------
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standard No. 128. The Company has presented only basic
earnings per share as the Company has no dilutive potential common shares. Basic
earnings per share has been computed based on the weighted average number of
shares outstanding.
Note 2 - Property and Equipment
- -------------------------------
Property and equipment consist of the following:
December 31, December 31,
1997 1998
----------- -----------
Equipment $ 231,563 $ 240,647
Furniture and fixtures 16,382 19,036
Building and improvements 320,019 -
Land 55,387 -
Software 10,000 10,000
----------- -----------
633,351 269,683
Less accumulated depreciation 285,542 222,424
----------- -----------
$ 347,809 $ 47,259
=========== ===========
Note 3 - Notes Payable
- ----------------------
Line-of-Credit
- --------------
The Company maintains a $100,000 line-of-credit with a bank of which $70,308 and
$0 was outstanding at December 31, 1997 and June 30, 1998, respectively. The
line-of-credit expired on May 31, 1998. The line accrues interest at the bank's
prime rate plus 1% (9.25% at December 31, 1997). The line is collateralized by
substantially all the assets of the Company's affiliate and is personally
guaranteed by officers of the Company.
<PAGE>
Note 3 - Notes Payable (continued)
- ---------------------------------
Long-Term Obligations
- ---------------------
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, June 30,
1997 1998
----------- -----------
(unaudited)
Note payable to a financial
institution, monthly principal
and interest payments of $5,307
through December 1998. Interest
at 9.5%. The note is
collateralized by the Company's
building and land. The note payable
was fully repaid during 1998 upon
the sale of the building ............. $ 370,554 $ -
----------- -----------
Less current portion (370,554) -
----------- -----------
$ - $ -
=========== ==========
</TABLE>
Note 4 - Commitments
- --------------------
Operating Leases
- ----------------
The Company leases office space for its corporate location under an operating
lease agreements which provide for the payment of rent totaling approximately
$1,650 per month. Rent expense under these operating leases, totaled $25,279,
$19,825, $9,900 and $8,375 during the years ended December 31, 1997 and 1996 and
the six months ended June 30, 1997 (unaudited) and 1998 (unaudited),
respectively.
Future minimum annual lease payments are as follows:
Year Ended December 31,
-----------------------
1998 $20,100
1999 20,100
2000 20,100
-------
$60,300
=======
<PAGE>
Note 5 - Significant Customers
- ------------------------------
Two customers accounted for 27% of accounts receivable balance for the years
ended December 31, 1996 and 1997 and for 40% of accounts receivable for the six
months ended June 30, 1998. No customers accounted for more than 10% for the six
months ended June 30, 1997.
Note 6 - 401(k) Plan
- --------------------
The Company maintains a profit sharing plan and trust under section 401(k) of
the Internal Revenue Code. All employees of age 21 or older who complete 1,000
hours a year are eligible for the plan. Employees have an option to contribute
compensation up to the ceiling set by the Internal Revenue Service ($10,000 in
1998). Employer matches $.50 on the dollar up to 2% of the employees salary.
Contributions for the year ended December 31, 1997 and the six months ended June
30, 1998 (unaudited) were approximately $1,800 and $1,300, respectively.
<PAGE>
